Understanding VAT on Digital Services like Upwork for Filipino Freelancers (Part 1 of 2)

As a Filipino freelancer, have you ever scratched your head over taxes, especially the mysterious “VAT” on your online earnings? If you’re earning through Upwork or similar platforms, recent changes might affect you. Don’t worry – this guide is written in a friendly, tax-advisor tone to help you understand what’s going on. In this first part of our series, we’ll cover the basics: what VAT is in the Philippine context, why there’s now VAT on digital services, how it impacts freelancers on platforms like Upwork, and whether (and when) you need to worry about VAT as a freelancer. We’ll even touch on other platforms like Fiverr and Freelancer.com. Let’s dive in!

What is VAT in the Philippines?

Value-Added Tax (VAT) is a type of consumption tax on goods and services. In the Philippines, the standard VAT rate is 12%. Think of it as a sales tax that’s added to the price of most things you buy or services you pay for. For example, when you dine at a restaurant or buy a new phone, 12% of what you pay is actually VAT that the business will pass on to the government. Businesses collect this tax from consumers on behalf of the Bureau of Internal Revenue (BIR) and then remit (send) it to the BIR.

Here’s an analogy: imagine the government as a silent partner in every sale. Every time value is added to a product or service (say a shop adds a markup on a gadget, or a freelancer provides a service), the government takes a 12% cut of that added value. The business handles this by charging the customer a bit more (the VAT) and later paying that to the BIR. The final consumer ultimately shoulders the cost of VAT, while businesses act as collecting agents.

In the Philippines, VAT applies broadly to “all sales of goods or services” that aren’t specifically exempted. Of course, there are special cases like essentials or exports that might be zero-rated or exempt (more on that later). But generally, if you’re selling something or providing a service and you’re covered by VAT rules, you add 12% on top of your price, collect it, and then pay that 12% to the BIR.

So, does this mean every Filipino freelancer has to charge an extra 12% on their fees? Not necessarily! The tax code provides a threshold to distinguish small businesses from larger ones. Under the TRAIN law reforms, if your gross sales or receipts do not exceed ₱3 million per year, you are not required to register as a VAT business. Freelancers (or any business) under that threshold are considered “Non-VAT” and typically pay a percentage tax instead (usually 3% of gross receipts) in lieu of VAT. This is why many Filipino freelancers and sole proprietors don’t deal with VAT at all if their income is below ₱3 million—it keeps things simpler for small earners.

On the other hand, once your freelance business exceeds ₱3 million in gross earnings within a 12-month period, the law says you must register for VAT. In other words, hitting that level means you’re now a “VAT-registered” business. If you voluntarily register for VAT even below the threshold, that’s possible too (though most people won’t unless they have a good reason, since it comes with more paperwork). Being VAT-registered means you must charge VAT on your local sales and file regular VAT returns. The upside is you can claim input VAT credits – for example, VAT you pay on business expenses can be deducted from the VAT you owe. But for many small freelancers, it’s preferable to stay non-VAT until required to avoid the extra complexity.

Quick example: Maria is a freelance graphic designer in Cebu. She earns about ₱1.5 million a year from clients – comfortably below the ₱3M threshold. Maria registered her business with the BIR as a Non-VAT taxpayer, which means she doesn’t add 12% VAT to her invoices. Instead, she pays a 3% percentage tax on her gross earnings periodically. Now, if Maria’s business grows and she earns more than ₱3M next year, she’ll need to switch to VAT.

Why is There VAT on Digital Services All of a Sudden?

You might be wondering, “I’ve been freelancing online for years, why am I hearing about VAT on digital services just now?” Great question! This change didn’t come out of nowhere – it’s the result of recent laws and BIR rulings aimed at keeping up with the digital economy.

For a long time, digital services operated in something of a gray area tax-wise. If you subscribed to an online streaming service or hired a freelancer through an overseas platform, often no Philippine VAT was being charged on those transactions. Local businesses felt this was unfair because they had to charge 12% VAT, while some foreign digital providers didn’t. The government also saw this as lost revenue given the boom in online services.

Enter the “VAT on Digital Services” law. In 2024, the Philippine government passed Republic Act No. 12023, sometimes dubbed the VAT on Digital Services Act, to specifically tax digital services used in the Philippines. Under this law, digital services – basically anything delivered online or electronically – are now explicitly subject to the 12% VAT if they are consumed by users in the Philippines. This covers a broad range of services: online platforms and marketplaces, streaming and video-on-demand subscriptions, mobile apps, cloud services, digital advertising, e-books, music downloads, and so on. In simple terms, if you’re paying for a service over the internet (whether it’s Netflix or buying “Connects” on Upwork), the government wants to collect VAT on it just as it would for an in-store purchase.

To illustrate, think about your Netflix subscription or buying gems in a mobile game. A few years ago, you weren’t charged Philippine VAT on those. But now, you’ll notice an extra line on your Netflix bill for VAT. The new rules make sure companies like Netflix, Amazon, Spotify, etc., register with the BIR and charge 12% VAT to Filipino consumers. It’s about “leveling the playing field” – foreign digital companies now have the same tax obligations as local Philippine businesses.

This push didn’t happen overnight. The BIR had been laying the groundwork for years through various issuances and reminders:

• BIR RMC 55-2013

As early as 2013, the BIR issued a Revenue Memorandum Circular reminding everyone involved in online businesses (online sellers, intermediaries, platforms, etc.) that they have the same tax obligations as any other business. They must register, issue receipts, file tax returns, and pay taxes on time. In short, “online” is not an excuse to skip taxes.

• BIR RMC 60-2020

During the 2020 e-commerce boom, the BIR reiterated that online businesses (and even services facilitating online sales, like delivery and payment gateways) are not exempt from tax The BIR even offered an amnesty period for online sellers to register by July 31, 2020, without penalties – emphasizing that taxes apply whether business is done in a marketplace stall or on Facebook Marketplace.

• TRAIN Law (RA 10963) & CREATE Law (RA 11534)

These were broader tax reform laws in 2018 and 2021, respectively, not specific to digital services, but they included provisions modernizing the tax system. For instance, TRAIN raised the VAT exemption threshold (as mentioned, to ₱3M), which helped small online entrepreneurs by not forcing VAT on them too soon. The CREATE law temporarily lowered the percentage tax rate for small businesses (from 3% to 1% for a couple of years) to provide relief – a measure that many small freelancers benefitted from. While these laws weren’t about digital services per se, they set the stage for a more updated tax regime.

All these moves signaled that the government was gearing up to tax the digital economy properly. The culmination was RA 12023 in 2024, which for the first time mandated VAT collection on digital services even when provided by non-resident companies. The BIR followed up by issuing Revenue Regulations No. 3-2025 in early 2025 to lay out the implementing rules. Essentially, by 2025 the rules say: if a service is delivered online and used by someone in the Philippines, it should have 12% VAT, period.

How Does This Affect Freelancers on Upwork?

Now let’s talk about what this means for freelancers, especially those using Upwork. Upwork is a US-based online platform, so previously it didn’t charge Philippine VAT on its fees. But with the new law and regulations, Upwork now has to collect 12% VAT on its services provided to Filipino users.

Put simply, when you use Upwork, you (the freelancer) are actually a customer of Upwork’s platform services. Upwork provides you a marketplace to find clients, gets you paid, offers connects, memberships, etc. Those platform services are now classified as “digital services” consumed in the Philippines, so they are subject to VAT. The Philippine government requires Upwork to charge VAT on those fees and remit it to the BIR. (Remit just means Upwork collects the tax from you and then sends it to the government on your behalf.)

What will you see as a freelancer?

If you’re a Filipino resident on Upwork, starting around June 1, 2025 (the effectivity date Upwork announced), you’ll notice an extra 12% charge on things like:

• Freelancer service fees: the 5%, 10%, or 20% cut that Upwork takes from your contracts.‍
• Connects purchases: those credits you buy to bid on jobs.‍
• Membership fees: like if you subscribe to Freelancer Plus.
  

These are the specific items Upwork listed that VAT will apply to. For example, imagine you earned a $100 contract on Upwork. If you’re on the 10% service fee tier, Upwork’s fee is $10. Under the new system, Upwork will calculate 12% VAT on that $10 fee, which is $1.20, and charge it to you. So instead of $10, your total fee becomes $11.20. That $1.20 doesn’t go to Upwork – it goes to the Philippine government (Upwork will pass it on to BIR). Upwork provided a clear example: “if you pay $100 USD in freelancer service fees, you will pay $12 USD in tax, for a total of $112 USD”. The VAT is on top of their normal fees.

Important: VAT is not charged on the payments you receive from clients. It doesn’t reduce your $100 contract value; it only applies to Upwork’s charges to you. Upwork has emphasized this: they are not taxing your earnings, only the services they provide to you as a platform. So your client isn’t affected by this Philippine VAT — they continue to pay what you agreed on. It’s your use of Upwork (a digital service) that’s getting taxed.

You’ll see the VAT component in your Upwork invoices/transaction history whenever you incur fees. Upwork will list the 12% VAT separately for transparency. This is useful for record-keeping. If you are VAT-registered, you can use those invoices to potentially claim input VAT (more on that soon).

Now, Upwork also gives freelancers a way to avoid being charged the VAT on their fees: provide a valid VAT ID. In the Philippines, your VAT ID is basically just your Tax Identification Number (TIN) with VAT registration. Upwork says if you update your account with your TIN and confirm you are VAT-registered, they won’t collect the 12% VAT from you. This makes sense: if you’re VAT-registered, you are supposed to handle VAT on your own transactions (and Upwork can treat you as a business client for tax purposes). In that case, Upwork can skip charging you because presumably you will account for any VAT in your filings.

However, most Filipino freelancers on Upwork are likely not VAT-registered (since many are below the ₱3M threshold or haven’t opted in). If you do nothing, Upwork will simply add the VAT to your bills. The only way to avoid that charge is to register for VAT with the BIR (which has its own pros/cons and obligations) and then give Upwork your VAT-registered TIN Upwork will validate it and stop adding VAT if it checks out. Just note: being VAT-registered means you’ll have to file VAT returns regularly and possibly charge VAT to certain clients, so it’s not something to jump into just to save 12% on Upwork fees unless your situation justifies it.

Who should be VAT-registered among freelancers:

• If your annual freelance revenue is over ₱3 million

You must be VAT-registered by law. In this case, definitely provide your VAT ID to Upwork. You won’t be charged VAT on Upwork fees, and instead you will count those fees (and the VAT on them) in your tax filings. In fact, if your clients are abroad, your services to them are likely zero-rated (0% VAT) since they’re exports, which means you might not be charging any output VAT to clients, but you can still claim input VAT on expenses like the Upwork fees. For such a freelancer, the new rules are actually a bit of a benefit – previously you couldn’t recover any VAT on Upwork fees because none was charged; now, Upwork’s 12% on fees can become an input tax credit for you.

• If your annual revenue is below ₱3 million

You likely did not register for VAT (you might be under the 8% income tax or 3% percentage tax regime). In this scenario, you won’t have a VAT ID to give Upwork, so unfortunately you’ll just bear the extra 12% cost on Upwork fees. It’s essentially a new expense in using the platform. The good news is you still don’t have to charge your clients any VAT. Nothing changes in how you bill clients on Upwork – you are just paying a bit more to Upwork. And since you’re not VAT-registered, you can’t claim that VAT back, but at least you also don’t have the hassle of filing VAT returns.

To put it in perspective, this VAT on platform fees is somewhat like a freelancer’s “cost of doing business” now. Just as you might budget for the 20% Upwork service fee as a new freelancer, you now also budget for another 12% of that fee going to taxes. It might be a small hit to your net earnings. One way freelancers might cope is by adjusting their rates slightly to account for higher fees. For example, if you know Upwork and taxes take around ~X% of your contract, you might charge a bit more to still get your desired take-home pay. Just be mindful of staying competitive.

Does VAT Apply to Your Freelance Income?

A common confusion is: “Do I, as a Filipino freelancer, have to pay VAT on my earnings?” We’ve touched on this, but let’s clarify:

• If you are not VAT-registered
  You do not charge VAT to your clients, and you don’t directly pay VAT on your freelance income. You will pay other taxes (like income tax, and if you’re non-VAT, the 3% percentage tax on gross receipts in most cases), but not VAT. The new digital VAT law doesn’t change the fact that you, as a small freelancer, are not required to suddenly register for VAT. For example, if Juan in Pampanga earns ₱500k a year via Upwork, he remains a non-VAT taxpayer. He won’t add 12% VAT to his invoices on Upwork – his foreign clients won’t see any Philippine VAT charge. Juan will just pay his usual income tax and percentage tax to the BIR as before. The only difference Juan sees from the new rule is that Upwork’s fees cost more (because Upwork charges him VAT on those fees). Essentially, Upwork is the one handling the VAT part (and only for the platform service).

• If you are VAT-registered (or planning to be)
  This means you have or will have a BIR Certificate of Registration indicating VAT, usually because you crossed the ₱3M mark or opted in. In this case, VAT does apply to your business transactions. You are supposed to charge VAT on your services if they are taxable. Many freelance services provided to foreign clients can qualify as export sales, which are zero-rated for VAT. Zero-rated means you charge 0% VAT – essentially no VAT is added on the invoice to the client, but because you’re VAT-registered, you can still claim credits for any VAT you paid on purchases related to that sale. It’s the government’s way of not taxing exports to remain competitive. So if you’re a VAT-registered freelancer serving a US client via Upwork, you would typically issue a zero-rated receipt for, say, $100 of services (so no 12% added), provided you meet requirements like receiving the payment in acceptable foreign currency, etc. Meanwhile, any VAT you paid on your expenses (e.g. the Upwork fees or maybe computer equipment you bought locally with VAT) you can deduct when you file your VAT return. The net effect is you don’t pay output VAT (since it’s 0% on sales), and you might even get a refund or carry-over if your input VAT (on expenses) is larger than your output VAT. Many exporters of services end up in that situation. If you serve local clients (Philippine-based) and you’re VAT-registered, then yes, you must charge them 12% VAT on top of your service fee, and that could affect your pricing to those clients. But platforms like Upwork mostly connect you with foreign clients, so VAT-registered freelancers on Upwork are mainly dealing with zero-rated sales.
  
  

In summary, VAT applies to Filipino freelancers only if you are VAT-registered. If you’re below the threshold and remain non-VAT, the concept of charging VAT doesn’t enter your client dealings. The government isn’t trying to force all freelancers to register for VAT – they just want to make sure that the digital platforms facilitating your work collect VAT on their services.

If you ever approach that ₱3M mark in earnings – first, congrats, that means your freelance career is thriving! Second, you’ll have to transition to VAT compliance. It’s a bit of a paperwork jump, but it also signals you’re now a bigger enterprise. (We’ll cover the how-tos of registering for VAT and issuing VAT receipts in a later part of this article series.)

Real-Life Relatable Example: Let’s say Anna is a freelance web developer in Manila who earned ₱4 million in 2024 on Upwork. Because she went beyond ₱3M, she registered as a VAT taxpayer in 2025. Now, in 2025, whenever Anna completes a project for a client in Australia for $1,000, she issues an official receipt marked “Zero-Rated – Export Service” (so the client pays $1,000, not $1,120). Upwork charges Anna a 10% fee = $100, and now also adds 12% VAT on that fee = $12, making her Upwork cost $112. When Anna files her quarterly VAT return, she will report $0 output VAT (because 0% on $1,000 sale) and $12 input VAT (from the Upwork fee, converted to pesos). That $12 can be used to offset other VAT she might owe (if she had local sales) or be refunded/credited. If Anna had been under ₱3M, she wouldn’t go through any of this – Upwork would have charged her the $12 VAT and that cost would simply reduce her income, with no further tax calculation on her part.

What About Other Platforms Like Fiverr or Freelancer.com?

Upwork isn’t the only freelancing platform out there, and you might be using others such as Fiverr or Freelancer.com. Will those be charging VAT as well? The short answer: Yes, very likely. The Philippine VAT on digital services law covers all digital service providers (DSPs) that meet the criteria, not just Upwork. Any platform or marketplace that provides digital services to Filipinos is expected to comply with the law. This includes freelance marketplaces and gig platforms like Fiverr, Freelancer.com, 99designs, online course platforms, etc., as well as streaming, gaming, and e-commerce services.

In fact, many platforms have already been doing this in other countries. For example, Freelancer.com states in its help center that it charges VAT on all its fees to users in certain countries and then remits those taxes to the respective governments. It gives similar details: VAT is applied to things like project fees, membership fees, and exam fees on their site – basically all the service fees they charge freelancers or clients – and that it’s based on the local VAT rate of the user’s country. In the EU, Fiverr and Freelancer.com users have seen VAT added unless they provide a valid VAT ID (like a business number) – Europe has had this rule for years. Now that the Philippines has a comparable rule, these companies will extend the same practice here.

Fiverr so far has charged VAT in countries where it’s required (for instance, it adds VAT for buyers in the EU, Australia GST for Australians, etc.). As the Philippine law gets implemented, Fiverr will also need to start adding 12% VAT for Philippine-based users. This could mean, for example, if you’re a Filipino Fiverr seller buying gig “promotions” or paying their service fee, you’d see 12% VAT on that in the near future. If Fiverr hasn’t notified users yet, it’s likely because they are still rolling it out, but by the effectivity of the law (which is mid-2025), expect that change.

The key point is that all major freelance and gig platforms will follow a similar model:

• If you can provide a VAT number (showing you’re a business registered for VAT in your country), they will not charge you VAT on their fees (since you’ll handle it).
  
• If you don’t provide a VAT ID (which is the case for most individual freelancers who aren’t VAT-registered), they will add the local VAT on top of their normal fees, and that money goes to the government.
  

This ensures the Philippine government gets its 12% share of those digital services. From a freelancer’s perspective, no matter which platform you use, the playing field is level. You won’t dodge the VAT by switching platforms. For example, if Upwork is charging VAT and you hop to Freelancer.com to avoid that cost – you’ll likely encounter the same policy on Freelancer.com for Filipino users. The difference might just be the timing of implementation or how each platform communicates it. Always check the latest announcements or help center articles of the platform you use to see their tax policy for the Philippines.

One more scenario: If you work through a Philippine-based platform (for instance, a local freelancing site or you find clients through a Philippine agency or marketplace), those entities were probably already charging VAT (if they were VAT-registered) even before this law. A Philippine company has always had to charge VAT on its services if applicable. The new law mostly affects foreign or international platforms. So if, say, a local talent marketplace in the PH charges you a service fee, they would either be adding 12% VAT (and issuing you an OR with VAT) if they’re VAT-registered or not charging it if they’re small enough to be non-VAT. In any case, the outcome (cost) is similar.

In short, whether you’re on Upwork, Fiverr, Freelancer, or any other online platform, if you’re a Filipino freelancer using that platform’s services, VAT is now part of the picture. You’ll want to factor this into your expenses. The exact mechanics might differ slightly by platform, but the concept is the same due to the Philippine regulations: the platform provides a service to you (the freelancer), and that service is now taxed.

Strategies to Minimize Negative Impacts

Adjust Your Pricing

Consider slightly increasing your rates to accommodate additional costs incurred from platform fees that now include VAT. Factor these expenses into your standard pricing structure.

Track Expenses Carefully

Maintain detailed records of expenses related to your freelancing business. If VAT-registered, these records allow you to claim input VAT, potentially reducing your total VAT liability.

Explore VAT-exempt and Zero-rated Benefits

• Foreign clients: Your services are typically zero-rated, letting you avoid charging additional VAT.
• Maximize these transactions to lower your net VAT obligations effectively.

Use of Accounting Software

For Filipino freelancers looking to simplify your finances and stay on top of your tax obligations, Juan Accounting Software can make a big difference. It's built specifically for easy management of your bookkeeping, sending invoices, and staying compliant with tax requirements—including VAT and BIR filings. Plus, Juan supports unlimited transactions and multi-currency operations, which is perfect if you work with international clients.

Now that we’ve explained the fundamentals of VAT in the Philippines and how the new digital services VAT law affects online freelancers, you should have a clearer understanding of why you’re seeing new tax charges on platforms like Upwork. 

Let’s delve deeper into practical matters: How can you comply with these rules? Should you consider registering for VAT or not? How do you file and report taxes as a freelancer (income tax vs. VAT)? Read more here.