How the 12% VAT on non-resident digital services works, when the buyer must withhold it under the reverse charge, and what it means for the cost of foreign AI and SaaS.

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.

Far from subsidizing foreign AI software, the Philippines now taxes it: Republic Act No. 12023 imposes 12% VAT on digital services from non-resident providers.

What the scheme actually gives

  • RA 12023 (in force 18 October 2024) imposes 12% VAT on digital services consumed in the Philippines, including those from non-resident digital service providers with no local presence.
  • Under BIR Revenue Regulations No. 3-2025, digital services explicitly include cloud services and IT infrastructure — reaching SaaS and online AI services; collection began 2 June 2025.
  • For business-to-business purchases the Philippine buyer withholds and remits the 12% VAT (reverse charge); a VAT-registered buyer can usually treat it as creditable input VAT, but it is a real cash-flow and compliance burden.

Does it fund buying AI software?

This is the opposite of a subsidy: foreign AI/SaaS now carries 12% VAT, reinforcing that no scheme pays a company to buy AI software. Usage-based pricing and BYOK help manage the total cost. 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.