RMC No. 73-2026: Tax treatment of activities undertaken pursuant to the Letter of Agreement on narcotics control and law enforcement between the government of the Republic of the Philippines and the government of the United States of America

Summary

RMC No. 73-2026 prescribes the tax treatment of activities under the Letter of Agreement (LOA) on Narcotics Control and Law Enforcement between the Philippines and the United States, covering Covered Transactions, Implementing Partners, and USG personnel.

Key points

1. Governing LOA terms. Treatment is governed by Section V, paragraph 6 of the LOA. Property and funds of the USG or its funded persons and entities are exempt from all taxes, and USG personnel are exempt from Philippine income and social security taxes and property taxes on personal-use property. Non-Filipino contractors and their personnel funded under the LOA are exempt from all taxes, tariffs, and duties, and these arrangements for personnel and contractors do not apply to citizens or permanent residents of the Philippines.
2. VAT on sales. Sales of goods and services by VAT-registered sellers to the USG through its Implementing Partners are generally subject to zero percent (0%) VAT under Section 106(A)(2)(b) and Section 108(B)(3) of the Tax Code, subject to substantiation and invoicing rules. Sales of services by non-resident sellers and the importation and disposition of goods for the Covered Program are VAT-exempt.
3. Percentage tax. Non-VAT registered sellers exempt from VAT under Section 109(1)(CC) of the Tax Code are subject to Percentage Tax at the rate of three percent (3%) under Section 116.
4. Income tax. Income of nonresident alien contractors, consulting firms, and their nonresident alien personnel for services in the Philippines under the LOA is exempt from Income Tax. Private or unrelated Philippine-source income stays taxable unless exempt or entitled to preferential treatment under the PH-US Tax Treaty, and income of all other contractors is taxed under the Tax Code.
5. USG personnel. Nonresident alien USG personnel and accompanying family members get the privileges and immunities of the administrative and technical staff of the U.S. Embassy. On reciprocity, their personal purchases may be VAT-exempt using a VAT Certificate from the BIR through ITAD under RMO No. 10-2019. Income and personal purchases of other USG personnel, including Philippine citizens or permanent residents, are subject to Income Tax and VAT under the Tax Code.
6. Implementing Partners. Implementing Partners are recognized upon identification and confirmation by the USG through diplomatic channels. They get the treatment only for transactions directly attributable to the Covered Program, and unrelated sales to them follow the Tax Code. Procedures on VCs, invoicing, audit, verification, and limits on tax privileges are in the Circular.

Who is affected

• United States Government (USG) and its Implementing Partners
• USG personnel and accompanying family members
• Non-Filipino contractors and consulting firms funded under the LOA
• VAT-registered and non-VAT sellers to the USG or its Implementing Partners

Deadlines and effectivity

• Issued: July 1, 2026

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.