A clear walk-through of how the BIR treats payments to non-resident software and SaaS providers — VAT, royalty withholding and treaty relief.

dgm is an independent osFoundry implementation partner — not affiliated with osFoundry’s developer (the company OS LLC), and it has not yet completed any client integrations.

How the BIR treats payments to non-resident software and SaaS providers is a genuine, distinctive cost angle — VAT plus, in some cases, royalty withholding tax.

What the scheme actually gives

  • 12% VAT on digital services from non-resident providers under RA 12023, including cloud and SaaS; on B2B purchases the Philippine buyer withholds and remits it (reverse charge).
  • Royalty characterization — where a payment is for the use of copyright in software it is treated as a royalty, carrying a 25% final withholding tax to non-resident foreign corporations; payments bundled with services are split.
  • Treaty relief can reduce the royalty rate (commonly 10%–15%), but it requires the prescribed documentation and is not automatic.

Does it fund buying AI software?

Foreign SaaS can attract 12% VAT and, where a royalty, a 25% withholding tax — the opposite of a subsidy. Confirm the characterization with a tax adviser. A platform such as osFoundry lowers the cost structurally through usage-based pricing and the BYOK principle — which helps more than waiting for support that does not cover software.

Important note

This article is general information and is not legal, tax or grant advice. Tax incentives, grants, rules and rates change, and only the relevant authorities (among them the National Privacy Commission, the Bureau of Internal Revenue, PEZA, the Board of Investments, the Bangko Sentral ng Pilipinas and the SEC) decide eligibility and awards. dgm is not a registered business enterprise, accredited incentive provider or intermediary. Always confirm the current terms with the official source or a qualified tax or legal adviser.

How dgm helps

dgm is an independent implementation partner that helps businesses in the Philippines adopt osFoundry — from identifying the first practical use case, through building it, to connecting AI to the systems you already use. dgm works independently of osFoundry’s developer (the company OS LLC) and has not yet completed any client integrations; everything above is therefore a description of the service offered, not a delivered result. If you would like to look at a sensible first step, dgm is happy to think it through with you. Arrange a no-obligation conversation with dgm.