When a payment to a foreign software vendor is a royalty subject to the 25% final withholding tax — and why the legacy 32% figure is out of date.

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.

Where a payment to a foreign software vendor is a royalty, it can carry a 25% final withholding tax — another cost of foreign AI software, not a subsidy.

What the scheme actually gives

  • Payments to a non-resident foreign corporation that are royalties — including software licensing — are subject to a 25% final withholding tax on the gross amount (the CREATE-era NRFC rate).
  • Do not use the legacy 32% figure from RMC 44-2005; that reflected the pre-CREATE rate.
  • Tax-treaty relief can reduce the rate (commonly 10%–15%), but it is not automatic — it requires the prescribed treaty-relief documentation. Whether a payment is a royalty, a service or a sale of a copyrighted article is fact-specific.

Does it fund buying AI software?

A software royalty to a non-resident can carry a 25% final withholding tax (treaty-reducible); confirm the characterization with a tax adviser, and note that this is a cost, not a grant. 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.