BIR classifies some foreign affiliates as digital service providers for VAT purposes

THE Bureau of Internal Revenue (BIR) said foreign affiliates involved in cross-border cost-sharing arrangements may be treated as nonresident digital service providers (NRDSP) which will require them to register with the agency.

On Tuesday, the BIR issued Revenue Memorandum Circular No. 059-2026 to further clarify provisions related to the imposition of the value-added tax on digital services.

It said foreign affiliates involved in a cost-sharing arrangement will be required to register with the BIR if the exert control over key aspects of the service delivery such as setting price, payment terms and delivery conditions.

“In any case, since this is a business-to-business transaction, the Philippine subsidiary, under the reverse charge mechanisms, shall be liable for filing the required value-added tax (VAT) return and withholding and remitting the 12% VAT due on the cost of the digital service charged to it,” it said.

Meanwhile, NRDSPs providing services that qualify for VAT exemption, must still file returns indicating the sales as “VAT-exempt.”

The circular also clarified that e-marketplaces can be liable for VAT even without receiving customer payments.

It said e-marketplaces may still be considered digital service providers “even if they do not directly receive payments for the digital services sold through its platform since it collects the VAT payments in advance.”

“In such case, the e-marketplace that collects VAT payments in advance shall be liable to file BIR Form 2550-DS and remit the 12% VAT on the covered business-to-consumer transactions,” it added, referring to the VAT return form for NRDSPs.

It also clarified that tax treaty benefits do not exempt foreign digital service providers from VAT.

According to the circular, a firm delivering services to consumers in the Philippines is subject to VAT on digital service even if they are from a country covered by a tax treaty,

“Tax benefits, either preferential tax rate or tax exemption, under a tax treaty cover only income tax,” the BIR said. — Justine Irish D. Tabile