The government has exempted all United States-funded (US) law enforcement and anti-narcotics initiatives from domestic taxes, currency controls, and banking fees to ensure that financial assistance from Washington is deployed entirely to local operational programs rather than contributing to internal state revenues.

This sweeping fiscal arrangement was formalized by Bureau of Internal Revenue (BIR) Commissioner Charlito Martin R. Mendoza through Revenue Memorandum Circular (RMC) No. 73-2026, issued on Wednesday, July 1. The directive took effect immediately.

The circular outlines the tax treatment under the bilateral letter of agreement (LOA) on narcotics control and law enforcement, effectively creating a “frictionless” financial environment for US-backed operations designed to support the Philippine criminal justice system. Notably, the RMC provides a blanket exemption for all capital assets and operational funds associated with the program.

“Any property or funds introduced into or acquired in the Philippines by the US government or by any person or entity (including but not limited to contractors and grantees) funded by the US government as part of, or in conjunction with, this LOA shall be exempt from all taxes, service charges, investment or deposit requirements, and currency controls,” the RMC reads.

This specific provision ensures that US capital is not subject to the standard investment or deposit requirements that typically apply to foreign entities, allowing for the immediate deployment of funds.

Apart from general asset protection, the country’s main tax collection agency stressed that every stage of the supply chain—from importation to final use—is shielded from the national treasury.

Mendoza stated that all transactions involving property or funds covered by the LOA—including their importation, exportation, purchase, acquisition, use, or disposal—will be exempt from tariffs, customs duties, value-added tax (VAT), and other applicable taxes, as well as related penalties and fines. Additionally, the Philippine government has agreed to promptly reimburse the US government for any taxes, duties, VAT, or similar charges that may accidentally be assessed under the LOA.

For local businesses and contractors, the directive simplifies procurement through a zero-rated VAT mechanism. Sales of goods and services by VAT-registered businesses to the US government through its implementing partners will generally qualify for zero-rated VAT. To avail themselves of these benefits, partners must secure a VAT Certificate (VC) through the BIR’s International Tax Affairs Division (ITAD).

Individual personnel assigned to these missions are also granted privileges similar to those of diplomatic technical staff. Income earned from services provided under the LOA will be exempt from Philippine income tax.

These exemptions extend even to daily life; American personnel and their accompanying family members will be exempt from VAT on personal purchases under the principle of reciprocity.