With the implementation of Value Added Tax (VAT)  on digital services under Republic Act No. 12023 and Revenue Regulations (RR) No. 3-2025, a question arises for foreign digital service providers and the local businesses that receive their services regarding their tax obligations, which were clarified under Revenue Memorandum Circular (RMC) No. 47-2025. 

To provide further clarification, the Bureau of Internal Revenue (BIR) recently issued RMC No. 59-2026, which provides straightforward answers, particularly those involving non-resident digital service providers (NRDSP) registration, cross-border digital transactions, platform-based services, and the non-applicability of tax treaty relief to VAT. 

Are NRDSPs liable to pay VAT? 

Yes, however, it still depends on the type of transaction. 

Under Republic Act No. 12023, Revenue Regulations No. 3-2025, and the clarifications in RMC No. 59-2026, an NRDSP that provides services consumed in the Philippines is generally subject to 12% VAT. 

Who must withhold and remit VAT on digital services purchased from NRDSPs? 

If the transaction is B2C or involves an individual consumer located in the Philippines, the NRDSP is responsible for registering with the BIR, withholding and remitting VAT, and filing VAT Returns. 

But if the transaction is B2B, or NRDSPs providing services directly to Philippine businesses, then the Philippine business must remit VAT through withholding/reverse charge based on the invoice issued by their foreign suppliers, and file the VAT return. 

If the NRDSPs supply digital services that are exempt from VAT, do they still need to register with the BIR? 

Yes. NRDSPs must still register with the BIR and file VAT returns, even if the digital services they provide are VAT-exempt. Their exempt sales should be reported as such in their VAT returns.

Under a cost-sharing arrangement, where a foreign digital service provider supplies digital services to a foreign affiliate and a Philippine subsidiary ultimately consumes the services, who is required to register as an NRDSP with the BIR?

Generally, the foreign digital service provider must register. However, if it only transacts with a foreign affiliate and not directly with the Philippine subsidiary, the foreign affiliate is deemed the NRDSP and must register with the BIR.

Can NRDSPs invoke tax treaties to avoid VAT? 

A notable clarification under RMC No.59-2026 is that VAT is a separate type of tax imposed on consumption, and that is different from tax treaties that primarily deal with income taxes, such as taxes on business profits, royalties, interest, and dividends. 

The BIR clarified that treaty provisions generally cannot be invoked to exempt NRDSPs from VAT obligations, because even if a foreign company is entitled to treaty benefits for income tax purposes, it may still be subject to the Philippine VAT rule for digital services consumed locally. 

Before this law was enacted, local businesses were generally required to charge VAT, while many foreign digital providers were not, and the government believes this created an uneven competitive environment. 

The objective of the VAT on Digital Services law is to level the playing field between local and foreign providers. By requiring VAT on digital services regardless of where the provider is located, the BIR seeks to ensure equal tax treatment among businesses serving Philippine customers. – Rappler.com

Mon Abrea is a Global Tax Policy Expert and Chief Tax Advisor of the Asian Consulting Group (ACG), the Philippines’ premier tax advisory and investment consulting firm—providing tax strategy, compliance, and policy advisory services to multinational corporations, foreign investors, and government institutions. For strategic tax advisory, CONSULT ACG, or you may also send an email to consult@acg.ph to host investment and tax briefing in key cities across Asia, Middle East, Oceania, Europe and North America.