[Ask The Tax Whiz] Are cross-border services taxed in the Philippines?

As a foreign business owner rendering consulting services to a domestic company in the Philippines, are my transactions considered cross-border services? What exactly are cross-border services? Please give examples.

Yes. Cross-border services or International Service Provision is a service-based company which operates in various countries, providing services to clients where the source of income is determined by the location of where the services are performed.

For the other similar services, as long as the services that follow the same concept of being provided, processed, or performed overseas and then utilized, applied, executed, or consumed within the Philippines, this is still considered as international service provision.

I manage a domestic corporation in the Philippines that makes income payments on classified  cross-border services to foreign companies. What is the tax implication of those transactions in the Philippines? 

Per RMC 5-2024, cross border transactions are subject to 25% Final Withholding Tax and 12% Final Withholding VAT. As the services are conducted or paid abroad but there are activities essential to be performed in the Philippines and the said services are utilized, applied, executed, or consumed within the Philippines, they shall be subject to the said taxes.

If a non-resident foreign corporation charges a reimbursable or allocable expense to a domestic corporation, what is the treatment of reimbursements or allocation of expense for cross border transactions? 

The reimbursable or allocable expense charged by the foreign corporation in the Philippines should contribute to the value or benefit since it is an additional payment made by the domestic corporation. Thus, the said charge to the domestic corporation reduces the foreign corporation’s expenses and shall be considered as a financial gain for the foreign corporation.

The 2024 International Tax and Investment Conference successfully concluded on February 27, 2024, at the Sheraton Manila Hotel. The International Tax and Investment Roadshow (ITIR) is scheduled to commence in March 2024. This initiative aims to promote investment and business activities in the Philippines across 15 states and countries through a series of events, starting with the East Asia Cluster. Visit www.acg.ph for more information. 

If you have other tax issues or concerns, consult us.

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