Philippines VAT FAQs

What is VAT? Value Added Tax (“VAT”) is a consumption tax ultimately borne by the final consumer of a good or service. In the Philippines, VAT generally applies to the sale, barter, exchange, or lease of goods or properties, the performance of services in the Philippines, and the importation of goods into the country, pursuant to the National Internal Revenue Code (NIRC) of 1997, as amended. The standard VAT rate is 12%, calculated on the gross selling price or gross receipts, unless the transaction is specifically zero-rated or VAT-exempt under Philippine law.

Who must pay VAT? Under the NIRC, any person or entity, whether individual or corporate, that in the course of trade or business sells, barters, exchanges, leases goods or properties, renders services, or imports goods and whose gross annual sales or receipts exceed the VAT threshold of PHP 3,000,000 is required to register for VAT with the Bureau of Internal Revenue (BIR). Generally, VAT is charged by the supplier of the goods or services, collected from the customer, and subsequently reported and remitted to the BIR.

Why am I being charged VAT? Where a non-resident business, such as Freshworks, is registered with the BIR for VAT purposes, it is obligated to charge Philippine VAT on the sale of electronically supplied services to non-VAT-registered customers located in the Philippines and remit this VAT to the BIR.

What is a VAT registration number? A Philippine VAT registration number is a Tax Identification Number (TIN) with the VAT registration status reflected in the BIR records. Where you have provided your VAT registration details, these will be shown on invoices issued to you by Freshworks.

How is Freshworks determining which customers the Philippine VAT applies to? Freshworks will apply VAT based on the VAT rules for a non-resident digital service provider supplying electronically supplied services to customers in the Philippines. It is your responsibility as a customer to ensure that your bill-to or ship-to address is correct.

Does Freshworks provide VAT-exempt or non-VATable services? No, all services currently provided by Freshworks to customers in the Philippines are subject to 12% VAT.

Are there any special exemptions applicable for charities under which VAT may not be charged? No, under Philippine VAT rules, there are no general exemptions from VAT for digital services supplied to charities.

Will VAT apply even if a Philippine company provides a valid VAT registration number to Freshworks? VAT applies to all taxable supplies of goods or services made to customers in the Philippines, unless the transaction qualifies for zero-rating or exemption under the law. Where a Philippine company provides a valid VAT registration number to Freshworks, the local company should be responsible for self-assessing the 12% VAT due, and Freshworks will not charge VAT on the transaction.

How can I obtain more information? Please email fw.ustaxcompliance@freshworks.com should you require more information.

Disclaimer

Every customer is unique, and so are their specific tax circumstances. The above stated information should not be considered as tax advice but as a general overview of relevant tax rules. Freshworks cannot provide you with tax advice for your individual situation, and therefore we strongly recommend speaking with a professional tax advisor for tailored advice.