08/05/2026
Cross-border transactions - taxable or not? 🤔
Here's why this matters to you as a Filipino entrepreneur:
If the payment to your foreign service provider is taxable, you need to withhold 25% from your payment before sending it.
That means if you're paying $1,000,000, you send $750,000 to them and $250,000 to BIR.
If it's not taxable, you send the full amount. No withholding needed.
And if you get this wrong and don't withhold when you should?
BIR won't go after the foreign provider - they come after you.
That's the unpaid 25% tax + 25% surcharge + 12% interest. Ouch.
So here's the quick backstory:
The old rule was simple - if the work was done outside the Philippines, the income isn't taxable here. No withholding needed.
Then BIR issued RMC 5-2024, and things got messy.
Officers started taxing cross-border services just because they were used in the Philippines - even if the work was done abroad.
The good news?
RMC 24-2026 just restored the old rule.
Cross-border services are no longer automatically taxable.
But here's the catch - the burden of proof is still on you.
In our analysis using our Tax IQ framework for entrepreneurs, this update falls under Q3: Comply & Protect.
While it says cross-border transactions are not automatically subject to Philippine tax, BIR auditors still have room to interpret the rules broadly, and in our experience, they usually interpret against the taxpayer.
Our recommended next steps:
✅ For small to medium transactions - follow the checklist of documents provided by BIR to prove that services were derived from sources outside the Philippines, therefore not subject to tax and final withholding tax.
The checklist includes, among others, sworn statements, service contracts, tax residency certificates, proof of outward remittance, etc.
✅ For medium to large or complex transactions - follow the checklist of documents provided by BIR + get a confirmatory ruling from BIR.
This is an official written confirmation from BIR that your specific transaction is not subject to tax.
Think of it as your shield or protection because you can present the confirmatory ruling during an audit to avoid a long and expensive dispute.
That’s it!
Do you need help avoiding trouble or penalties with BIR?
Book your discovery call using the link in the comments section now.