The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 59-2026 on June 2, 2026, to provide further clarity on the implementation of the Value-Added Tax (VAT) on digital services under Revenue Regulations (RR) 3-2025. The Circular addresses issues arising from cross-border transactions involving nonresident digital service providers (NRDSPs).
It reiterates that NRDSPs providing digital services to Philippine consumers are required to register with the BIR and file VAT returns, even if their transactions are VAT-exempt. The Circular elaborates that cross-border cost-sharing arrangements involving the following are transactions subject to VAT under RR 3-2025 even if the payment is through a cost-sharing agreement: a foreign digital service provider, a foreign affiliate that contracts or pays for the service, and a Philippine subsidiary that ultimately consumes the digital service.
The Philippine subsidiary, as the actual user of the digital service, is responsible for withholding and remitting the 12 percent VAT under the reverse charge mechanism, since the transaction is treated as a business-to-business (B2B) transaction. As a rule, the foreign supplier of the digital service is considered the NRDSP. However, when the supplier only transacts with a foreign affiliate and has no direct dealings with the Philippine subsidiary, it may not be required to register with the BIR. Instead, the foreign affiliate may be treated as the NRDSP if it exercises control over key aspects of the transaction, such as pricing, contractual terms, and the ordering or delivery process.
Regardless of which foreign entity is ultimately classified as the NRDSP, the Philippine subsidiary remains liable for VAT compliance. This includes filing the appropriate VAT return and withholding and remitting the 12 percent VAT based on the cost of the digital services, as supported by the billing or invoice issued by the relevant foreign entity. RMC 59-2026 shall take effect immediately upon issuance. Please be guided accordingly.
Source: P&A Grant Thornton Certified Public Accountants
