The Marcos administration has moved to shield United States-led (US) development projects from new tax liabilities following the structural reorganization of Washington’s primary aid mission in the country.

The Bureau of Internal Revenue (BIR) on Thursday issued Revenue Memorandum Circular No. 21-2026, which formally transfers the expansive tax privileges formerly held by the United States Agency for International Development (USAID) to the newly established Foreign Assistance Section of the US Embassy (US-FAS).

The US-FAS assumed the role of Washington’s official technical and economic mission in July 2025.

The directive, signed by the BIR Commissioner Charlito Martin R. Mendoza, ensures that the tax treatment established during the administration of former President Gloria Macapagal Arroyo remains intact.

By amending RMC No. 40-2007, the Marcos administration is signaling its intent to maintain continuity in bilateral development cooperation, preventing administrative friction from eroding the budget of critical infrastructure and social programs.

Under the updated guidelines, the US-FAS and its accredited agents will continue to benefit from value-added tax (VAT) zero-rating on the local purchase of goods and services.

Importations intended for development projects remain exempt from VAT under existing international agreements. Furthermore, the mission is exempt from VAT on payments made to non-resident suppliers, a provision based on the principle that such taxes cannot be legally passed on to the diplomatic mission.

The BIR’s mandate also extends to direct taxes, granting exemptions to the agency and its implementing partners for activities specifically tied to development assistance. These fiscal incentives are crucial for the US-FAS as it mobilizes resources for vaccinations, school construction, and the disbursement of microenterprise loans across the archipelago.

However, the transition involves strict new compliance measures. The BIR has imposed a 30-day deadline for the physical surrender and replacement of VAT Exemption Certificates (VECs) originally issued under the USAID name. This one-month transitory window is designed to give contractors and taxpayers a grace period to honor legacy documentation for ongoing projects while the new entity updates its registry.

The BIR noted that the deadline is part of a broader push to enforce the Ease of Paying Taxes (EOPT) Act.

Any USAID-branded certificates that are not returned within the prescribed period will be automatically revoked. The move is intended to ensure that all future transactions are backed by updated documentation, minimizing the risk of audit complications or tax leakages.