Context
The Bureau of Internal Revenue (BIR) now applies stricter tax rules on services provided by non-resident suppliers to Philippine clients. Such payments are subject to local VAT (importation of services) and withholding tax.
VAT on imported services
– Services provided by a foreign supplier to a Philippine client are deemed locally consumed regardless of where the payment is disbursed or physically received. This principle aligns with the benefits-received theory
– The Philippine client is liable for 12% VAT on imported services.
– VAT must be self-assessed (reverse charge) and declared in VAT returns.
– It may be creditable if the service is used for VATable activities.
Withholding tax
– Payments to the foreign supplier are subject to final withholding tax.
– The rate depends on the nature of the service and whether a tax treaty applies.
– Without a treaty, the standard rate may reach 25% on gross income.
– With a treaty, reduced rates may apply if tax residency certificates are provided.
Obligations for companies
Philippine companies must:
1. Identify imported services,
2. Self-assess the corresponding VAT,
3. Apply withholding tax upon payment (12% final withholding VAT and 25% final withholding tax)
4. File and remit amounts to the BIR on time,
5. Keep documentation (contracts, invoices, proof of payment, tax certificates).
✅ Key takeaways
– Cross-border services are subject to final withholding VAT (12%) and final withholding tax at 25% (reverse charge).
– The tax burden lies with the Philippine client.
– Accounting and tax processes must be adjusted.
– Review tax treaties to reduce withholding tax.
In summary
The Philippines now fully tax imported services: self-assessed VAT and withholding tax. Companies must ensure compliance to avoid penalties.
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