Philippine, Vietnam investors say ‘shake ‘em off’ to taxes and tariffs in 2025

SOUTH-EAST Asia’s startup scene is bound for a shake-up.

Last week, the bombshell news that eFishery – the Jakarta-based unicorn and startup darling – is undergoing an investigation due to alleged financial irregularities has the industry wondering what is next for the region’s largest market.

The news came as Indonesian consumer startup brands adapt to a new economic reality at home: a dwindling middle class that is squeezing their margins.

Long dubbed as the region’s “next Indonesia”, the Philippines and Vietnam may finally get the investor attention long enjoyed by their more popular neighbour in 2025.

Investors in both countries have been optimistic even amid the tech winter. And while 2025 presents some opportunities, factors such as new taxes, data restrictions, and higher US tariffs could dim the rosy picture they envision for these markets.

Wrangling with new regulations

In October, the Philippine government imposed a 12 per cent value added tax (VAT) on digital services provided by local and foreign companies.

Expected to come into effect by the first quarter of 2025, the tax will apply to companies offering digital services in the country that may not have local offices, clarifies Filbert Tsai, managing director of the consulting firm Equity Labs.

Cloud service providers and ad platforms such as Google Ads and Meta Ads in the Philippines are expected to start charging VAT, affecting startups that heavily invest in software-as-a-service and digital marketing.

While Tsai does not think the new taxes will have an impact on startups’ profits, he said that it can make a dent on their cash flows.

Tsai also believes that startups will take advantage of the new tax regime to hike prices.

If delivery service platforms begin imposing VAT, it could put pressure on customers who order goods through these channels, according to Ryan Llamoso, co-founder and chief executive officer of Kaya Founders-backed Tomo Coffee. Currently, about 30 per cent of the tech-enabled coffee chain’s sales are driven by delivery services.

“Coffee is only one part of Filipinos’ budgets. So those taxes could certainly have an effect on our operations,” he said.

The Philippines already has the highest VAT rate in South-east Asia at 12 per cent. Indonesia will follow suit by 2025, raising the rate from the current 11 per cent.

But some startups are ready for these changes. Alexander Friedhoff, CEO of e-commerce enabler eTaily said that his Philippines-based company has prepared for this shift after seeing Thailand and Indonesia impose similar policies. While the new VAT complicates operations, he regards it as part of a global trend towards tax equity between digital and traditional players.

Even Vietnam’s parliament expanded VAT rules to include foreign e-commerce and digital service companies without local offices. The amended VAT law will take effect in July 2025 and impose tiered rates of 5 per cent and 10 per cent. The current maximum VAT rate is 8 per cent.

These digital taxes are part of the increasingly protectionist stance of South-east Asian countries amid the influx of digital service providers making big business in the region. Singapore and Thailand already have such measures in place.

Since Vietnam’s gross domestic product is expected to grow by 6.5 per cent in the coming year, most investors in the country’s startups said that they are not too concerned about the stricter tax laws.

“Vietnam is a high-growth country. Even if users pay a bit more for services, I don’t think it is going to stifle consumption,” noted Vinnie Lauria, the Hanoi-based founding partner of venture capital (VC) firm Golden Gate Ventures.

For Kwon Il-dong, managing partner at the Vietnam office of Boston Consulting Group (BCG), the “bigger challenge” for tech companies would be the recently passed Data Law, which is set to be implemented in the second half of 2025.

Under this new rule, tech companies operating in the country need to get approvals before transferring select data from Vietnam to overseas locations.

Such restrictions could pose challenges for foreign cloud service providers, according to Kwon. “This could also put pressure on these companies to set up offices within Vietnam to be compliant,” he said.

In July, Vietnam lifted the 49 per cent limit on data centre ownership in the country to attract foreign investments. By August, Google floated the idea of opening a facility in the country. A few weeks ago, local media reports suggested that US-based chipmaker Nvidia could open an artificial intelligence (AI) data centre in Vietnam.

The new Data Law, however, could prevent these investments from being fully realised.

“Putting up barriers such as this measure could make Vietnam a less attractive investment destination, and the expansion plans of some companies for the country could be deprioritised,” said Binh Tran, partner at Ascend Vietnam Ventures.

Still, Tran is optimistic that with Vietnam’s pace of economic growth, the advantages of doing business in the country could outweigh the risks. “Compliance with local regulations will then be a necessity for businesses just to access this strategic market,” he added.

Tariff fears in the Trump era

Both Vietnam and the Philippines consider the US a key trading and geopolitical partner, and these policy changes are set to take place as the new Trump administration comes in.

However, president-elect Donald Trump’s plan to raise tariffs on all imports to the United States by 20 per cent could hurt both countries’ consumer-driven economies.

Some analysts have estimated that once the tariffs are imposed, Vietnam could miss its target of a 7 per cent GDP growth rate since about 30 per cent of its total exports go to the US. Instead, the rate could slide down to 4 per cent.

Meanwhile, the Philippines may battle a stronger US dollar against the peso amid Trump’s return, said Lance Katigbak, a principal at BCG’s Manila office. For startups getting and paying for foreign digital services in US dollars, a volatile exchange rate could put a wrench in their operations.

Despite these potential challenges, most investors who spoke to Tech in Asia are sceptical that the US government would impose such a brazen policy. Joseph Lee, president of Malaysia-based Kairous Capital, believes that since it takes time to implement any policy, “Vietnam may not be affected in the short term”. The investor is so optimistic about Vietnam that his VC firm is opening an office in the country by 2025 and is eyeing consumer-focused startups in edtech and health tech.

But not everyone is as bullish as Lee.

South-east Asia’s “highest-valued cohort of VC-backed companies”, which includes fintech giants Vietnam-based MoMo and Mynt, which operates digital wallet GCash in the Philippines, could be pressured to “search for liquidity”, according to US-based analyst Pitchbook.

In its outlook report for 2025, Pitchbook noted that the average time for South-east Asia-based companies to exit is 7.5 years. However, it found that among the region’s 30 top-funded startups, 24 have gone beyond this mark.

The path to exit is also paved with obstacles. Pitchbook’s report cited how low confidence among retail investors as well as heightened economic and geopolitical uncertainties could bog down these startups.

Tsai of Equity Labs echoes this view, contending that the expected influx of capital worldwide by 2025 will not flow into the region’s startups. “Developed countries already have access to invest in cutting-edge AI and infrastructure right in their backyards,” he said. “The Philippines and most Asian countries don’t have that tech.”