Services like Netflix are now looking to face an additional 12% VAT charge. Last Tuesday, the Philippine House of Representatives passed House Bill 4122 during the second reading. This is set to impose a vat charge on nonresidential digital service providers. The latter is defined as a provider engaged in selling, exchanging, and leasing goods and/ or services using an online, electronic, or digital platform.
Examples are online advertisement services, companies that charge subscriptions to people for using digital products or services, or those supplying electronic services through an IT infrastructure. However, those who provide the same service to the government will only levy a 5% VAT charge.
This is supposed to promote fairness and level the playing field between digital and traditional businesses. In the past, only traditional companies with annual gross sales/receipts of more than PHP3 million were required to register for VAT purposes. If this bill passes the 3rd and final review, nonresident digital service providers will have to prepare to comply with the tax amendments. They will not be liable for collecting and remitting VAT on electronic transactions processed on their digital platforms.
Those nonresident digital service providers who will be subject to VAT on digital transactions are not allowed to claim creditable input taxes. However, digital education services such as those conducting webinars and online courses or selling ebooks or other printed educational material online are exempted from VAT. More detailed information will be available once the House votes on the final approval in three days. Those nonresidents who are engaged in any digital, online, or electronic transactions must monitor these recent news updates, as they may have to undergo VAT registration and update their transactions with Philippine customers.