The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 059-2026 on Tuesday, clarifying that foreign affiliates engaged in cross-border cost-sharing arrangements may be classified as nonresident digital service providers (NRDSP). This classification subjects them to value-added tax (VAT) on digital services and requires registration with the agency. The circular aims to address tax compliance for multinational companies that allocate costs across jurisdictions.
The BIR's latest directive extends the scope of digital service taxation to include foreign entities that do not have a physical presence in the Philippines but benefit from local market participation through cost-sharing. These affiliates must now comply with VAT registration and filing requirements, potentially impacting their operational costs. The circular provides guidelines on determining whether a foreign affiliate qualifies as an NRDSP based on the nature of its cross-border transactions.
Tax experts note that this move aligns the Philippines with global efforts to tax digital services, particularly those involving multinational enterprises. However, compliance may pose challenges for foreign affiliates unaccustomed to local tax rules. The BIR has urged affected entities to register promptly to avoid penalties. The circular is part of ongoing regulatory adjustments following the enactment of the tax on digital services law.