Regulatory updates - Philippines

On 2 October 2024, the Philippine Congress passed the Republic Act (R.A.) No. 12023. The law extends VAT obligations for digital service providers to include non-residential providers (without physical presence in the Philippines).

The foreign digital service provider will be subject to VAT if:

• The service is offered via the internet or another electronic network with the use of information technology, and where the supply of the service is essentially automated; and
• The service is consumed within the Philippines; and
• Gross sales liable to VAT of the digital service provider is equal to or higher than the effective VAT threshold, currently at 3 million Philippine pesos (ca. EUR 47 900) over the last 12 months, or if gross sales liable to VAT of the digital service provider are with reasonable grounds expected to exceed the VAT threshold for the coming 12 months.

The VAT rate on these transactions will be 12%. However, educational and financial service providers will be exempted from the regulations.

The obligation applies to B2B and B2C transactions, but the party liable to charge and remit the VAT depends on the transaction type.

• B2B (VAT-registered taxpayer) transactions: Follow the reverse charge scheme, meaning the buyer must withhold and remit VAT on the purchase.
• B2C (non-VAT-registered taxpayer) transactions: The non-residential digital service provider is liable to remit VAT.

Furthermore, the liability extends to non-resident online marketplaces through which non-resident sellers may offer services, provided the marketplace controls key aspects of the supply.

Needed actions for concerned businesses

The non-residential digital service provider must physically or electronically register for VAT and issue an invoice for every sale. Further implementing regulations will be announced 90 days after the law has become effective.

Timeline

• The law will become effective 15 days after its publication in the Official Gazette or another newspaper of general circulation;
• 90 days after the law has become effective, implementing regulations are expected to be announced;
• 120 days after the implementing regulations have been announced, non-residential digital service providers will immediately be subject to VAT obligations.

Penalty for non-compliance

If concerned digital service providers required to register fail to do so, it may result in operations being suspended in the Philippines.

Back in July 2022, the Bureau of Internal Revenue (BIR) launched the Electronic Invoicing/Receipting System (EIS) pilot. Selected pilot taxpayers had to electronically report their issued invoices within three calendar days to the EIS platform in a structured JSON format.

The initial plan was to onboard 100 large taxpayers for the pilot and then transition to encompass the following taxpayer groups for the mandatory e-reporting:

• Taxpayers engaged in the export of goods and services;
• Taxpayers involved in electronic commerce (e-commerce); and
• Taxpayers under the Large Taxpayers Service (LTS).

However, the pilot has been experiencing setbacks concerning taxpayer onboarding and technical difficulties with maintaining the EIS platform, which has been riddled with bugs, errors, and downtime.

On 15 November 2023, BIR issued an advisory to all stakeholders of the EIS platform that the platform is experiencing problems and effectively pausing the pilot until further notice. With no more communications from BIR, it is unclear if the pilot will be resumed, scraped, or remade in a new form.

As previously written, the Electronic Invoicing/Receipting System (EIS) pilot project was postponed to July. Starting this month, 100 selected taxpayers must issue and transmit their transactional documents, including e-invoices and e-receipts, to the EIS.

Taxpayers in the scope

According to the Revenue Regulations No. 8-2022 and No. 9-2022 from the Bureau of Internal Revenue (BIR), the following taxpayers will be in the scope of the EIS when the mandate kicks off:

• Taxpayers engaged in the export of goods and services;
• Taxpayers involved in electronic commerce (e-commerce); and
• Taxpayers under the Large Taxpayers Service (LTS).

VAT payers not included in the mandate may continue using manual receipts/invoices or choose to issue those documents electronically instead of manual ones.

What will be the e-invoicing model?

The EIS program is similar to South Korea's e-tax invoice system, meaning taxpayers must report the invoices in near real-time after the transaction or the invoice distribution.

The taxpayers mentioned above will be required to issue receipts and invoices electronically and transmit the data to the EIS in JSON format within three calendar days from the date of the transaction. Issuance and transmission can be done via the EIS portal or API connection.

Note that only authorized taxpayers are allowed to access the EIS. The taxpayer shall apply for the Permit to Transmit (PTT) in order to transmit the sales data to the EIS.

Required invoice content

Invoices must be serially numbered and show the following information (non-exhaustive list):

• Names of the trading parties;
• Business style*;
• Taxpayer Identification Number (TlN), including the branch code, if applicable;
• The business address of head office or branch.

Although no specific amount is mentioned in the announcement, a corresponding penalty shall be imposed for the delayed or no transmission of sales data to the EIS.

* According to Revenue Memorandum Circular 55-2019, Business Style refers to the business name registered with the concerned regulatory body used by the taxpayer other than its registered name or company name.

Early this year, the Department of Finance (DoF) announced the establishment of various electronic channels, including the e-invoicing system of the Bureau of Internal Revenue (BIR).

The system is mandated under Section 237 of Republic Act 10963 (Tax Reform for Acceleration and Inclusion Act or TRAIN). According to the Act, large taxpayers and exporters are obligated to issue their invoices and receipts electronically and report their sales data to the BIR at the point of sale within five years from TRAIN taking effect, i.e., on or before 1 January 2023.

To promote the e-invoicing system adoption, the BIR has selected 100 large taxpayers to join the e-invoicing pilot of January 2022, which was postponed to July 2022. Further information and documentation have not been released yet.

Pagero is closely monitoring the developments in the Philippines and will notify our readers about the latest changes in due time.

Although e-invoices have been recognised as a legal equivalent to paper documents since 2000, the recent move is a long-awaited push towards fully welcoming digital transformation into government practices. The changes will require a considerable amount of education for taxpayers on the new processes, as well as the need for businesses to invest in new in-house systems.

Steps toward digitisation

The Philippine Digital Transformation Strategy 2022, a document discussing the governmental strategy to achieve the digital transformation, was released by the Department of Information and Communications Technology earlier this year. The document outlines that the country aims to complete and deploy a new eGovernment system by 2022.

South Korea has played a large part in plans to develop an e-invoicing program in the Philippines. However, as the program is in early stages, a final decision regarding when and how the e-invoicing program will be deployed has not been made.

The Philippines Innovation Act

The Philippines has recently introduced a new law, the Philippines Innovation Act (the Act), to foster innovation and promote entrepreneurship. The government allotted 1 billion PHP (approximately EUR 17 million) for the law’s first-year implementation.

The Act highlights the importance of innovation in governmental policies and aims to boost growth and internationalisation among micro, small and medium enterprises while enhancing the welfare of low-income groups.

As established under the Act, the National Innovation Council (NIC) will be working to “develop the country’s innovation goals, priorities, and long-term national strategy.” The Council will develop a National Innovation Agenda and Strategy Document (NIASD) in its effort to establish the Philippines’ long-term strategies on innovation.