RMC No. 64-2016 — Clarifies the nature, tax treatment, registration and compliance requirements of corporations and associations under Section 30 of the NIRC of 1997, as amended Digest | Full Text | Annex A | Annex A-1 | Annex B

REPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE June 20. 2016 DEPARTMENT OF FINANCE

REVENUE MEMORANDUM CIRCULAR NO. (L -3D/(

SUBJECT : Circularizing Clarifications in the Nature, Tax Treatment. Registration and Complianee Requirements of Corporations Revenue Code of 1997, as Amended and Associations under Section 30 of the Natioual Internal

TO All Internal Revenue Officers and Other Concerned

I. BACKGROUND

Section 30 of the National Internal Revenue Code (NIRC) of 1997. as amended

them as such enumerates only eleven (ll) kinds of organization and expressly provides that such organizations shall not taxed under Title ll (Tax on Income) in respect to income received by

these corporations and their respective operations. As a supplement, reference is likewise made to Revenue Regulations No. 13-981 which specifically defined corporations falling under categories, reference is made to Sections 25. 26, 27. 29. 30. 31. 32. 34, 35 of Revenue Regulations 02-40 dated February 10, 1940 (the Income Tax Regulations) describing most of Deductibility of Contributions or Gifts Actually Paid or Made to Accredited Donee Institutions. letters (E) and (G) of Section 30 as donee institutions in implementing Section 34(H) on the In determining whether or not a corporation falls within the contemplation of these I !

Stock. Non-Profit Corporations under Section 30. Tux Code of 1997 and Non-stock. Non-Profit Revenue Memorandum Circular (RMC) No. 76-03- on the "Tax Exemptions of Non.

Educational Institutions under Paragraph 3. Section 4. Article XIV of the Constitution" was previously issued due to observed substantial revenue losses relating to non-implementation of taxes to non-stock. non-profit corporations and non-stock, non-profit educational institutions.

under Section 30 of the NIRC of 1997, as amended, and that, all income derived by them are non-stock, non-profit with the Securities and Exchange Commission (SEC) automatically fall totally exempt from income tax or all taxes for that matter. The foregoing notwithstanding, the perception still is that all corporations registered as

expressly states that- Frequently overlooked is the significance of the last paragraph of Section 30 which

of their propertiess, real or personul, or from any of their activities conducted income of whatever kind and character of the foregoing organizations from any "Notwithstanding the provisions in the preceding paragruphs, the

Specifically Section 3-t (H) Relative to the Deductibility of Contributions or Gifts Actually Paid or Made to Accredited Donec Institutions in Computing Taxable Income Implementing Republic Act No. 8424, "An Act Amending the National Internal Revenuc Code, as Amended"

2 November i4. 2003

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for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code.

are subject to the corresponding internal revenue taxes imposed on income derived by them Thus, organizations and corporations enumerated under Section 30 of the NIRC of 1 997

from any of their properties. real or personal. or any activity conducted for profit regardless of the disposition thereof which income should be returned for taxation.

or operated as such kind of organization. In Commissioner of Inuernal Revenue vs. St. Luke's Common to all organizations defined under Section 30 is that they must be operating

Medical Cerer. nc.3. the Supreme Court deciared among others:

character of the institution. The test requires that the institution use the property in a certain way, i.e. for a charitable purpose The test of exempiion is not stricty a reguirement on the intrinsic nature or

association or institution does not automatically exempt it from paying taxes. This only refers Registration with the SEc as a non-stock, non-profit corporation. foundation.

to its .organization. The operations of a corporation generally refer to its regular activities.

and tax treatment of corporations under Section 30 of the NIRC of 1997. as amended. as wel! as the policies and guidelines in Revenue Regulations 7-2012 "Amended Consolidated registration of such corporations and associations. Revenue Regulations on Primary Registration, Updates. and Cancellation". relative to the Wherefore, this Circular is issted to reiterate and further clarify the nature. character

H. CLARIFICATIONS ON SECTION 30 ORGANIZATIONS

I.CHARACTERISTICS CORPORATIONS UNDER SECTION 30 OF THE NIRC OF 1997, AS AMENDED. AND NATUREOFORGANIZATIONS AND

A. Labor, agricultural or horticultural organization not organized principally for profit.

D) Characteristies: a) It is organized as a non-stock corporation: b) Operated either as a labor, or agriculture, or horticulture organization: c) It is non-profit.

2) Corporate Purposes:

a) Labor organization - refers to an association of workers who have combined to proteci and promote the interests of its members by bargaining collectively with their employers to secure better working conditions, wages and similar benefits. A legitimate labor organization is labor organization

3 G.R. No. 195909 and G.R. No. 195960, Seplember 26. 2012

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duly registered with the Department of Labor and Employment. and includes any branch or local thereof.

A labor organization may also be organized to improve the grade of the workers' products and/or develop a higher degree of efficiency in their respective occupations.

b) Agricultural and horticultural organization - refers to an association of

persons engaged in raising livestock, harvesting crops or aquatic resources. cultivating useful or ornamental plants. or similar pursuits. It may also refer to an organization engaged in, cultivating the ground including the preparation of the soil, the planting of seed. the raising and harvesting of

organizations of persons involved in harvesting aquatic resources. crops, and the rearing. feeding. and management of livestock. It includes

Horticulture concerns the cultivation of a garden or orchards and the growing of fruits, vegetables, flowers and ornamental plants.

3) Actual operation: To be entitled to exemption from income taxation. the

corporation must carry out activities primarily to improve the working conditions of its members, improve the grade of their products, and/or develop a higher degree of efficiency in their respective occupations or the improvement of production techniques.

B. Mutual savings bank not having a capital stock represented by shares, and

cooperative bank without capital stock organized and operated for mutual purposes and without profit:

D) Characteristics:

a) It is an organization which has no capital stock represented by shares. and b) Whose earnings less only the expenses of operation, are distributable wholly

among the depositors. If it appears that the organization has shareholders who participate in the profits, the organization will not be exempt from income tax.

With the passage of Republic Act No. (RA) 8367, otherwise known as "Revised Non-Stock Savings and Loun Association Act of 1997". which grants tax exemption to non-stock savings and loan associations. and by RA 6938. otherwise known as the "Cooperative Code of the Philippines ". as amended by RA 9520. otherwise known as "Philippine Cooperative Code of 2008". which grants tax incentives to cooperative banks. recognition of tax exemptions of non-stock savings and loan associations and cooperative banks are now governed by RA 8367 and RA 9520, respectively. and not by Section 30(B).

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C. A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a non-stock corporation organized by benefits exclusively to the members of such society. order, or association, or non-stock corporation or their dependents: employees providing for the payment of life, sickness, accident, or other

D) Characteristics:

a) It is organized as- i. A beneficiary society, order or association. operating for the exclusive

the lodge system: or benefit of the members such as a fraternal organization operating under

Hii. A non-stock corporation organized by employees providing for the Hi. A mutual aid association: or

payment of Jife. sickness, accident, or other benefits exclusively to the members of such society. order. or association. or non-stock corporation or their dependents

b) It must provide for the payment of life. sick. accident. or other benefits to

the members of such society. order. or association or their dependents:

2) Corporate purposes: The organization should members through the provision of benefits through an established system of benefit payments to its member's and their dependents. operate to assist their

3) Actual operation: The association must be operated eit her as.

a) A fraternal organization under the lodge system or a mutual aid association b) It should have an established system of benefit payments to its members and providing for the exclusive benefit of the members. or a non-stock sickness, accident, or other benefits exclusively to the members of such their dependents or established system for the payment of life. sick. accident, or other benefits to its members or their dependents. corporation organized by employees providing for the payment of life. society, order, or association, or non-stock corporation or their dependents: and

D. Cemetery company owned and operated exclusively for the benefit of its

members;

I) Characteristics: c) It is chartered solely for buriai purposes and not permitted by its charter to b) Owned by and operated exclusively for the benefit of its lot owne: d) It is not operated for profit: and e) No part of its net earnings inures to the benefit of any private shareholder or a) It is organized as non-stock corporation: engage in any business not necessarily incident to that purpose. individual.

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2) Corporate purposes: The corporation is organized as a cemetery company for bodies by burial and that its Articles of Incorporation shall not permit it to engage in any business not necessarily incident to that purpose: and that no partt the exclusive benefit of its members. solely for the purpose of the disposal of ef its net earnings inures to the benefit of any private shareholder or individual.

3) Aetuai operation: It is operated solely for burial purposes and not permitted by exempt from income tax. No part of its net earnings should inure to the benefit its charter to engage in any business not necessarily incident to that purpose, is

of any private shareholder or individual. Earnings of the company may be used for the operation. maintenance. and improvement of the cemetery.

E. Non-stock corporation or association organized and operated exclusively for inures to the benefit of any member, organizer, officer or any specific person; religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or

I) Characteristics:

b) Organized and operated exclusively for a) A non-stock corporation or association

religious.

Hii. scientific, Hi. charitable. iv. athletic, or

c) No part of its net income or asset shall belong to or inures to the benefit of v. cultural purposes. or any member, organizer. officer or any specific person vi. for the rehabilitation of veterans,

2) Corporate purposes:

D) Religious purposes - refers to the promotion. propagation and accomplishment of any form of religion. creed or reli gious belief recognized by the Government of the Republic of the Philippines.

2) Charitabie purposes -- refers to activities extending relief to the poor. distressed and underprivileged and shall include fighting against juvenile delinquency and community deterioration, and provision for free goods and services to the public.

3) Scientific purposes -- refers to undertaking or assisting in pure or basic. industry, engineering. energy development. food and nutrition. medicine. environment and biological. physical and natural sciences for the public applied and scientific research in the field of agriculture. forestry. fisheries. interest.

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4) Athletic purposes -- refers to and include conducting a program on physical fitness and amateur sports development for the country: developing and maintaining recreational facilities. playgrounds and sports centers: and

conducting training programs for the development of vouth and athletes for national and international competitions.

5) Cultural purposes - refers to and include undertaking and/or assisting in research activities on all aspects of history, social svstem. customs and

in vigorous implementation of bilingual policy through translation and wider use of technical. scientific and creative publications. development of traditions; developing. enriching and preserving Filipino arts and culture: developing and pronoting the visual and performing arts: and participating

an adaptive technical dictionary and use of Filipino as the medium of instruction.

6) Rehabilitation of veterans -- refers to services extended to Philippine veterans and members of their families because of financial difficulties and attendant problems; and services extended to disabled veterans towards

productive life.

3) Actual operation: A corporation is exempt from tax on its income (other than income of whatever kind and character from its properties. real or personal) if such corporation meets two tests: (a) It must be organized and operated for one

to the benefit of private stockholders or individuals. or more of the specified purposes: and (b) no part of its net income must inure

F. Business league, chamber of commerce, or board of trade, not organized for stock-holder, or individual; profit and no part of the net income of which inures to the benefit of any private

1) Characteristics: b) Operated as an association of persons having some common business c) It does not engage in a regular business of a kind ordinarily carried on for d) It is non-profit: e) No part of its net income or asset shall belong to or inures to the benefit of a) Organized as a business league. chamber of commerce. or board of trade: any member, organizer, officer or any specific person interest. which limits its activities to work for such common interest: profit:

2) Corporate purposes: To promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. It is an organization of the same general class as a chamber of commerce or board of trade.

3) Actual operations: Its activities should be directed to the improvement of business conditions of one or more lines of business and should not to engage organizer. officer or any specific person. income or asset shall belong to or inures to the benefit of any member. in a regular business of a kind ordinarily carried on for profit. No part of its net

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G. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare:

1) Characteristics: a) It is organized as a non-stock corporation: b) It is exclusively operated for the promotion of social welfare organized:

c) It is not organized for profit: and d) It has no net earnings or assets inuring to the benefit of any member.

organizer, officer or any specific person

2) Corporate purposes: The organization must be primarily engaged in promoting the common good and general welfare of the people of the community. i.e. for the purpose of bringing about civic bettermenis and social improvements.

3) Actual operations: To be entitled to the exemption. the regular activities of

organizer. officer or any specific person. the corporation must be exclusively for promotion of social welfare. No part of its net income or asset shall belong to or inures to the benefit of any member.

H. A non-stock and nonprofit educational institution:

1) Characteristics: a) It is organized as a non-stock, non-profit corporation:

b) It is purposely organized as an educational institution: c) It is registered or recognized by the Department of Education (DepEd)

Commission on Higher Education (CHED). or Technical Education and

d) It has no net earnings or assets inuring to the benefit of any member. Skills Development Authority (TESDA); and

organizer, officer or any specific person

2) Corporate purposes: The corporation must be purposely established as an educational institution to offer educational courses or programs.

3) Actual operations: The institution operates as a primary or secondary curriculum. a regular faculty. and a regularly enrolled student body in school, a college, or a professional or trade school that has a regutarly scheduled

attendance at a place where the educational activities are regularly carried on.

activities to educational purposes provided they are owned and operated by the educational institution and located within its premises. The operation of cafeterias/canteens and bookstores are considered ancillary

any member, organizer, officer or any specific person. No part of its net income or asset shall belong to or inure to the benefit of

I. Government educational institution;

1) Characteristics:

a) It is established by law or a local governnent unit:

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b) It is administered and financially subsidized by the government or the local

government concerned:

d) It is supervised by DepEd or CHED c) It is governed by the Board of Trustees or Board of Regents: and

2) Corporate purposes: It is established an educational institution financed and operated by an agency of government which does not charge tuition fees instead. financing is obtained through taxes or other government-coliected

revenues.

3) Actual operations: The institution operates as a primary or secondary school. a college. or a professional or trade school that has a regularly scheduled curriculum. a regular faculty. and a regulariy enrolied student body in

attendance at a place where the educational activities are regularly carried on.

J. Farmers' or other mutual typhoon or fire insurance company, mutual ditch or meeting its expenses; irrigation company, mutual or cooperative telephone company: or like organization of a purely local character, the income of which cousists solely of assessments, dues, and fees collected from members for the sole purpose of

1) Characteristies: b) It is organized as a farmers' or other mutual typhoon or fire insurance a) It is organized as a non-stock. non-profit organization: company, mutual ditch or irrigation company. mutual or cooperative telephone company. or like organization of a purely local character:

c) Income consists solely of assessments. dues, and fees collected from

d) Its income is for sole purpose of meeting its expenses. members: and

2) Corporate purposes: It is established for the operation of a mutual typhoon or basis. fire insurance company, mulual ditch or irrigation company. mutual or cooperative telephone company. Organizations. other than mutual life insurance associations, must be organized and operated on a mutual basis i.e. it is owned by its meinbers and policy holders who are banded together to provide themselves a mutually desirable service approximately at cost and on a mutual

3) Actual operations: a) A mutual insurance company owned entirely by its policy holders: or association of farmers direct beneficiaries of the operation of an irrigation

b) These organizations are operated on a mutual basis and must use their project/system: or a telephone company owned and operated by the members to provide telephone services for the benefit of the members.

c) A mutual life insurance organization cannot have policyholders other than to members or retained to cover future losses and expenses income solely to cover losses and expenses, with any excess being returned

Is members.

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Cooperative Development Authority shall be governed by: R.A. 9520 or "Philippine Cooperative Code of 2008. However. associations organized as cooperatives and registered with the

K. Farmers', fruit growers', or like association organized and operated as a sales

agent for the purpose of marketing the produets of its members and turning back to them the proceeds of sales, less the necessary selling expeuses on the basis of the quantity of produce finished by them;

1) Characteristics: a) it is organized as a non-stock. non-profit organization:

b) It is organized as an association or organization whose members are engaged

c) Its income is for sole purpose of meeting its expenses. in farming. fruit growing. or similar oceupations:

2) Corporate purposes: To act operate as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds

of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them.

3) Actual operations: a) Associations, acting as sales agents for farmers or others. in order to come within the exemption must establish that for their own account they have no

b) It should return to the members the proceeds of sales after deducting the net incoine.

necessary selling expenses on the basis of the quantity of produce finished by them. e) The proceeds of the business should be distributed on such proportionate basis.

2) USE OF OPERATIONAL & ORGANIZATIONAL TESTS IN DETERMINING ENTITLEMENT TO EXEMPTION

requirements for a tax exemption are strictly construed against the taxpayer because an exemption restricts the collection of taxes necessary for the existence of the The requirements for a tax exemption are specified by the law granting it and the

government. Thus, the corporation should be abie to show that it is organized and operated for the purposes under Section 30 of the NIRC and income derived pursuant thereto. Simply put, the organization must establish the factual basis for its exemption.

Organizational Test: This requires that the corporation or association's

Section 30 of the NIRC, as amended. constitutive documents exclusively limit its primary purpose/s to those described in of

association be exclusively devoted to the accomplishment of the purposes specified in if a substantial part of its operations may be considered "activitics conducted for profit". Section 30 of the NIRC, as amcnded. A corporation or association fails to meet this test Operational Test: This requires that the regular activities of the corporation or

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3) NON-PROFIT. INUREMENT PROHIBITION

Corporations in Section 30 are organized not for profit. "Non-profit" means that "no net income or asset accrues to or benefits any member or specific person. with all the net income or asset devoted to the institution's purposes and all its activities conducted not for profit".

Therefore. in order for an entity to qualify as a non-stock and/or non-profit corporation/association/organization exempt from income tax under Section 30 of the NIRC. as amended. it must thus demonstrate that its earnings or assets shall not inure to the benefit of any of its trustees, organizers. officers. members or any specific person.s It must not be organized or operated for the benefit of private interests such as specific individuals, incorporators or his family. shareholders of the organization. or persons controlled directly or indirectly by such private interests. The organization must serve a public rather than a private purpose.

A. The following are considered "inurements" of such nature:

I) The payment of compensation. salaries. or honorarium to its trustees or

organizers:

2) The payment of exorbitant or unreasonabie compensation to its employees:

3) The provision of welfare aid and financial assistance to its members. An

organization is not exempt from income tax if its principal activity is to receive and manage funds associated with savings or investment programs. including pension or retirement programs. This does not cover a society, order. association. or non-stock corporation under Section 30(C) of the NIRC providing for the payment of life. sickness. accident and other benefits exclusively to its members or their dependents:

4) Donation to any person or entity (except donations made to other entities formed for the purpose/purposes similar to its own):

5) The purchase of goods or services for amounts in excess of the fair market value

of such goods or value of such services from an entity in which one or more of its trustees, officers or fiduciaries has an interest: and

6) When upon dissolution and satisfaction of all liabilities. its remaining assets are distributed to its trustees. organizers. officers or members. Its assets must be

dedicated to its exempt purpose. Accordingly. its constitutive documents must expressly provide that in the event of dissolution. its assets shall be distributed to one or more entities formed for the purpose/purposes similar to its own. or to the Philippine government for public purpose.

1 See supra note 3

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4) TAXATION AD EXEMPTIONSOF ORGANIZATIONS AND

CORPORATIONS UNDER SEC. 30 OF THE NIRC OF 1997. AS AMENDED

A. Income Tax Exemption, Not Absolute

I) Income tax exemptien covers only the income received by the corporation

organized and operated in accordance with Section 30 provisions.

2) Section 30 corporations are still subject to the corresponding internal revenuet taxes imposed under the NIRC of 199'7 on income derived from any of their

properties. real or personal. or any activity conducted for profit regardless of the disposition thereof (i.e. interest income, rental income from real or persoma) properties), which income should be reported for taxation purposes.

3) Except for non-stock. non-profit educational institutions and government

educational institutions, the interest income from currencv bank deposits and yield or any other monetary benefit from deposit substitute instruments and from trust funds and similar arrangement. and royalties derived from sources within the Philippines of organizations under Section 30 are subject to the 20% final withholding tax: provided, however. that interest income derived by them

shall be subject to 71/2% final withholding tax pursuant to Section 27(D)(1) in from a depository bank under the expanded foreign currency deposit system

retation to Section 57(A). both of the NIRC of 1997, as amended.

B. Obligation as Withholding Agent for the Government

1) The tax exemption granted under Section 30 does not cover withhoiding taxes

on compensation income of the organization/corporation's employees. or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the NIRC of 1997.

2) The corporation or association is therefore constituted as a withholding agent

for the government if it acts as an employer and any of is employees receive compensation income subject to withholding tax under Section 79(A). Chapter XIII, 'Title HI of the NIRC of 1997, as implemented by Revenue Regulations No. 2-98, or if it makes income payments to individuals or corporations subject to the withholding tax provided for in Section 57 of the NIRC of 1997. also as implemented by Revenue Regulations No. 2-98. as amended.

C. Liability For Value-Added Tax (VAT)

I) Purchase of goods or properties or services and importation of goods by a

to the !2% VAT pursuant to Section 107 of the NIRC of :997. as amended. corporation organized and operated as a Section 30 corporation shall be subject

It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However. being an indirect tax. it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods. properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the

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buyer/customer has to pay in order to obtain the goods or services. Thus. the it cannot invoke its tax exemption privilege under Section 30 of the NIRC of shifting of the VAT to it does not make it the person directly liable and therefore. 1997 to avoid the passing on or shifting of the VA'r.

2) Section 105 of the NIRC of +997 provides that anv person who. in the course

of trade or business. sells, barters, exchanges. Ieases goods or properties. renders

tax (VAT) imposed under Sections 106 to 108 of the same code. services. and any person who imports goods shall be subject to the value-added

or pursuit of a commercial or an economic activity. including transactions The phrase "in the course of trade or business " means the regular conduct

engaged therein is a non-stock. nonprofit private organization (irrespective of incidental thereto. by any person regardless of whether or not the person

to members or its guests). or government entity the disposition of its net income and whether or not it selis its good exclusively

D. Non-Stock, Non-Profit Educational Institutions

1) Used Actually, Directly and Exclusively for Educational Purposes

The exemption of non-stock. non-profit educational institutions refers to

assets used actually, directly and exclusively for educational purposes." internal revenue taxes imposed by the National Government on all revenues and

owned and operated by the educational institution as ancillary activities and the cafeterias/canteens and bookstores are exempt from taxation provided they are same are located within the school premises. Furthermore. revenues derived from assets used in the operation of

2) Exemption 20% & 7% Final Tax on Interest from Deposits, Condition

Unlike non-stock, non-profit corporations, their interest income from currency institution, are exempt from the 20% final tax and 7/2% tax on interest income bank deposits and yield from deposit substitute instruments used actually. directly and exclusively in pursuance of their purposes as an educational

under the expanded foreign currency deposit system imposed under Section 27(D)(1) of the NIRC of 1997, subject to compliance with the conditions that as a tax-exempt educational institution, they shall on an annual basis submit to the Revenue District Office (RDO) concerned an annual information return and duly audited financial statement together with.the following:

(a) Certification from their depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax

deposit system imposed by Section 27(D)(D) of the NIRC of 1997: and 7/2% tax on interest income under the expanded foreign currency

Paragraph 3. Section 4. Article XIV of the Constitution

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(b) Certification of actual utilization of the said income: and

(c) Board Resolution by the school administration on proposed projects (i.c. construction and/or improvement of school buildings and facilities. the fourth month follow ing the end of its taxable year. acquisition of equipment. books and the like) to be funded out of the money deposited in banks or placed in money markets. on or before the 14th day of

3) Unrelated Ioeome of Nou-Stock, Non-Profit Fducational Institutions

Non-stock. non-profit educational institutions shall be subject to internal revenue taxes on income from trade, business or other activity. the conduct of which is not reiated to the _exercise or_performance by_such _educational institutions of their.educational.purposes_or.functions* i.e. rental income from their building/premises.

Unrelated trade, business or other activity means any trade. business or other activity. the conduct of which is not substantially related to the cxercise o performance by such educational institution or hospital of its primary purpose or function.

Unrelated income of non-stock. non-profit educational institutions under

of the NIRC of 1997. as amended. If the gross income from 'unrelated trade. Section 30(H) shall be subject to the 10% preferential rate under Section 27(B) derived by such educational institutions from all sources. the entire taxable 27(A) of the NIRC of 1997, as amended. business or other activity' exceeds fifty percent (50%) of the total gross income income shall be subject to the regular corporate tax rate of 30% under Section

4) VAT-exenmption

institutions. duly accredited by the Department of Education (DepEd) and the educational are exempt from VAT'. Gross receipts from educational services rendered by private educational Commission on Higher Education (CHED), the Technical Education and Skills Deveiopment Authority (TESDA) and those rendered by government

5) SECTION 30 ORGANIZATIONS AS QUALIFIED DONEE INSTITUTIONS

A. The donee institutions covered under Section 101 of the NIRC of 1997, as amended, are those under Section 30(E) and (G) specifically:

I) Non-profit educational and/or charitable religious, cultural. or social welfare

corporation. or

7 Sec. 3. Finance Department Order No. 137-87 as amended by Finance Deparument Order No. 149-95 8 Sec. 2. Finance: Department Order No. 137-87 as amended by Finance Department Order No. 92-&%

c Section 109 [1[H] of the NIRC ot'1997. as amended

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2) Accredited nongovernment organization. trust or philanthropic organization and/or research institution or organization accredited nongovernment organization. trust or philanthropic organization and/or researeh institution or

organization

B. To be qualified, the foregoing organizations or institutions should be: 4) Devoting all its income. whether students' fees or gifts. donation. subsidies or 5) For NGOs. Accredited by the Philippine Counci! for NGO Certification I) Incorporated as a non-stock entity. 2) Paying no dividends. 3) Governed by trustees who receive no compensation. and other forms of philanthropy. to the accomplishmeni and promotion of the purposes enumerated in its Articles of Incorporation. and

(PCNC).

B. Condition of the donation. Not more than thirty percent (30%) of said gifis shall be used by such donee for administration purposes

C. Donee Certifieation. A qualified donee institution shall have its authorized representative sign the first page of the Certificate of Donation (BiR Form 2322) which certifies that the donee institution has received on the date indicated the of the properties donated. subject matter (i.e., cash or property) of the donation. It also provides a description

HHI. CLARIFICATIONS ON CORPORATE REGISTRATION GUIDELINES & PROCEDURES FOR SECTION 30 ORGANIZATIONS

1. HOW TO REGISTER

A. BIR Forms To Be Used. All Corporations and Associations enumerated umder Section 30 of the NIRC of 1997. as amended. are required to be registered with the before the commencement of its operations. Bureau using the Application for Registration Form (BIR Form No. 1903) on or

D) For those registering in RDOs with eTIS-l. the Application for Registration (BIR Form No. !903 November 2014 ENCS) shall be used and the registrant shall fill in item 16B and 16C thereof. (See Annex .4)

2) For those registering in all other RDOs, use the Application for Registration Organization" and write underncath the specific legal basis of the exemption. (BIR Form No. 1903 January 2000) and accomplish item No. 3 :"Taxpayer [e.g. Section 30 (H) non-stock and nomprofit educational mstitution] (See Aex A-D Type": by marking the box corresponding to "Non-stock Non-Profit

B. Legal Basis For Incentive/Exemption. Registrant shall provide the specific legat incentives to which it may be entitled as such organization (e.g. Income taxt exemption) in the application form during registration. basis (e.g. Section 30 (H) mon-stock and nonprofit ecucational imstitution] and the

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C. Tax Types. For purposes of determining the proper tax type (i.e.. whether VAT or

Section 9 of Revenue Regulations No. 07-2012 shall be complied with. other percentage taxes) based on the nattire of the business activity of the taxpayer.

to file a return or pay taxes due thereon. (Section 9. Rev. Regs. 7-2012) Register each type of internal revenue tax for which the corporation is obligated

both of the NIRC of 1997. as amended. The corporation or association shall be constituted as withholding agent for the government. receive compensation income under Section 79(A) or if corporation is expected to make income payments subject to expanded withholding tax under Section 57(B). Register for withholding tax if the corporation is an employer and iis employees

D. Compliance with Secondary Registration Processes. Upon registering with BIR. the registrant corporation must comply with the following primary and secondary Revenue Regulations No. 7-2012: registration processes and observe the prescribed periods therefor. pursuant to

s Proceed to Secondary Registration (i.e. Apply for Authority to Print [ATP] a Pay Annual Registration Fee (ARF), as applicable: Secure Certificate of Registration (COR): receipts/invoices and Register Books of Accounts) and get "ASK FOR RECEIPT" notice, if applicable:

1) Authority to Print Receipts/Invoices

The Application for Authority to Print Receipts and Invoices should be

operations and the printing of its principal and supplementary receipts/invoices secured by the corporation or association before the commencement of business containing all the information required in the existing revenue issuances.

under the Large Taxpayer Service. accomplishing an Application for Authority to Print Receipts and Invoices (BIR Form No. 1906) and submit the same together with the documentary requirements to RDO where the Head Office is located or concerned office All corporations or associations are reguired to obtain receipts by

previously approved Authority to Print, if any. The serial numbers of such receipts/invoices shall be the continuation of

2) Registration of Books of Accounts

Accounts/Coinputerized Books of Accounts before its use. and/or secure appropriate Permits to Use Loose Lcaf Books of The corporation or association shall likewise register its books of accounts

exempted by special laws or grantees of tax incentives shali be subject to examination by the BiR for purposes of ascertaining compliance with the The books of accounts and other pertinent records of organizations that are

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its tax liabilities. if any. conditions under which it has been granted tax exemptions or tax incentives and

2.UPDATING OF REGISTRATION

information bv accomplishing and filing an Application for Registration Information Update (BIR Form No. 1905) together with the required documents with the Revenue Fhe registered corporation or association is required to update its registration

District Office (RDO) where registered. for any of the following circumstances: a) When the registered corporation or association amends or changes its registered corporate/business name, business address. line of activity/business: b) When there is a need to change in tax types. pursuant to a BiR Ruling/Certificate of Tax Exemption: or c) Such other updates such as changes in incentive details. and accounting period

should promptly inform the BiR and follow the existing procedures therefor. In the event of closure or cessation of operation. the corporation or association

3. ISSUANCE OF RECEIPTS AND INVOICES BY CORPORATIONS UNDER

SECTION 30

A. In the regular conduct of business. all corporations or associations subject to an services rendered valued at Twenty-five pesos (P25.00) or more. internal revenue tax, shall issue duly registered receipts or sales/commercia! invoices showing the date of transaction. quantity. unit cost and description of merchandise or nature of service for each sale or transfer of merchandise or for

B. The original of each receipt or invoice shall be issued to the purchaser. customer or registered person. in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the client and which receipt or invoice shall show the name. business style. if any. and address of the purchaser, customer or client. Where the purchaser is a VAT-

purchaser.

C. For Corporations organized and operated under Section 30 of the NIRC of 1997

other activities involving sale of goods and'or services not in conneclion with its with Mixed Income (deriving income/revemes from its operation as such and from

Non-VA'T principal receipts/invoices. as the case naybe. Section 30 purposes or to cny profit-oriented activities). they shall issue a VAT or

D. For Corporations organized and operated under Section 30 of the NIRC of 1997

taxable income. they shall issue Non-VAT principal receipts/invoices that indicate the word "EXEMP'T" prominently on the face of the receipts/invoices. whose source of income is solely derived from its operation as such. with no other

E. For transactions that are not subject to VAT or Percentage Tax. the said fees dues, donations). corporations shall issue a Non-VAT principai receipis/invoices that indicate the word "EXEMP'T" prominently on the face of the receipts/invoices (e.g. memhership

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F. Corporations organized and operated under Section 30 of the NIRC of 1997 shall the receipt of donations pursuant to Revenue Memorandum Cireular (RMC) No. likewise issue official receipts and Certificates of Donation (BIR Form 2322) for 86-2014.

4. COMPLIANCE REQUIREMENTS

A. Filing of Account Information Return and Financial Statenients

organized as a Section 30 corporation shall accomplish and file an Account Information Form (BIR Form No. 1702-AIF) on or before the 15th day of the For the first three (3) years of its operations. the corporation or association

fourth month following the end of its taxable year. The AlF will contain thel taxpayer's business profile information and other relevant data to be lifted from the Audited Financial Statements of the corporation.

No. 1702) on or before the 15th day of the fourth (4th) month following the close of the calendar or fiscal year, as the case may be. The AIF shall be filed together with the Annual Income Tax Return (BIR Form

and Loss Statement and Balance Sheet with the Annual Information Return under oath. stating its gross income and expenses incurred during the preceding period. 15th day of the fourth month following the end of the accounting period a Profit Moreover. such corporation or association is required to file on or before the

B. Filing of Income Tax Returns

1) For Corporations organized and operated under Section 30 of the NIRC of 1997 whose source of income is solely derived from its operation as such. with no Exemptions, if any. They are not required to file the monthly and quarterly other taxable income, they shall file annual income tax returns (BIR Form No. 1702-EX) and attach a copy of Confirmatory BIR Rulings or Certificate of Tax VAT/Percentage tax returns and quarterly income tax return (BIR Form No. 1702Q)

2) For Corporations under Section 30 of the NIRC of 1997, as amended. with shall file the monthly and quarterly VAT/Percentage tax returns and quarterly not in connection with its primary purposes or to any profit-oriented activities. Mixed Income or having other activities involving sale of goods and/or services and annual income tax returns (BIR Form No. 1702-MX)

Illustration:

For Corporations under Section 30 of the NIRC of 1997 whose source of income is solely. directly exclusively for its primary purposes with no 702-EX: If applicable: Prescribed Returns

1601C/1604CF

Dovnloadable from BiR website

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other taxable income. organized and operated 1601E/1604E under Section 30 of the NIRC of 1997, as amended Other applicable returns

For Corporations under Section 30 of the NIRC of services not in connection with its primary purposes or to any profit-oriented activities other activities involving sale of goods and/or 1997. as amended. with Mixed Income or having Other applicable returns 255IM/2551Q: If applicable: 1702Q (151 to 3rd Quarter) 2550M/2550Q: 1702-MX: 1601C/1604CF: 1601E/1604E:

(Sce Annex B for examples of profit-oriented activities)

3) Where the law, revenue regulations or related revenue issuances expressty association shall likewise comply. require the submission or attachment of specific document/s or certification/s along with the filing of Annual Income Tax Returns, herein corporations and

This Circular shail be given as wide a publicity as possible.

Commissioner of Internal Revenue KIM S. JACINTO - HENARES

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