Process Flow of Applying for Tax Exemptions of Corporations and Associations

Non-stock, non-profit corporations and associations are not automatically exempt from tax. Under Revenue Memorandum Order No. 20-2013 (RMO 20-2013) dated July 22, 2013 entitled “Prescribing the Policies and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-profit Corporations and Associations under Section 30 of the National Internal Revenue Code of 1997, as amended”, non-stock, non-profit corporations are required to secure Tax Exemption Ruling or Tax Exemption Certificate. Under Section 30 of the National Internal Revenue Code (NIRC), certain corporations and associations are exempt from tax. The Bureau of Internal Revenue (BIR) "accords tax-exempt status to these corporations and associations by way of confirmatory BIR rulings or certificates of tax exemption which are issued after due evaluation of documents submitted by said corporations and associations". Related revenue issuances  on tax exemption of certain corporations and associations are Revenue Memorandum Order No. 34-2014 (RMO 34-2014),  Revenue Memorandum Circular No. 51-2014 (RMC 51-2014) and Revenue Memorandum Order No. 44-2016 (RMO 44-2016).

TAX RULINGS are validations or confirmations on whether or not the conditions set by law are complied by the applicant. Absence of a valid subsisting, current and subsisting ruling will not operate to divest qualified entities of the tax exemption provided under Section 30 or the Constitution. If non-stock, non-profit corporation fails to secure a tax exemption ruling for a given year or belatedly files, it is duty bound to prove compliance with the conditions laid down by law and other administrative issuances in the event of tax investigation.

In order to be issued with Tax Exemption Ruling, the qualified non-stock, non-profit corporation as listed under Section 30 of the NIRC shall file their applications with the Revenue District Office (RDO) where they are registered.

The following chart shows the process flow of the application for tax exemption from submission of the mandatory documentary requirements up to the release of the Tax Exemption Ruling to the applicant corporation or association.

The corporation or association applying for tax exemption must fall under the organizations enumerated in Section 30 of the NIRC as stated in its Articles of Incorporation and By-Laws and other constitutive documents. It should be a non-stock, non-profit corporation or association. Its purpose should be those enumerated in Section 30 of the NIRC. No part of its income shall inure to the benefit of any private individual.  The trustees should not receive any compensation or remuneration therefrom. Note that a branch office of a foreign non-stock, non-profit corporation cannot qualify as tax exempt corporation or association under Section 30 of the NIRC.

NON-STOCK means “no part of its income is distributable as dividends to its members, trustees, or officers” and that any profit “obtained as an incident to its operations shall, whenever necessary or proper, be used in the furtherance of the purpose or purposes for which the corporation was organized.”

NON-PROFIT means “no net income or asset accrues to or benefits of 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.” (CIR vs St. Luke’s Medical Center, Inc. GR Nos. 195909 and 195960 dates 26 September 2012)

Corporations or associations that can apply for Tax Exemption under Section 30 of the NIRC are:

 * Labor, Agricultural, or Horticultural organization
 * Mutual Savings Bank / Cooperative Bank
 * Beneficiary society, order or association
 * Cemetery company
 * Religious, charitable, scientific, athletic, cultural, or veterans rehabilitation organizations
 * Business league chamber of commerce or board of trade
 * Civic league or social welfare organization
 * Non-stock, non-profit educational institutions
 * Government educational institution
 * Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company or like organization of a purely local character
 * Farmers’ or fruit growers’ or like associations

The corporation or association applying for tax exemption should be operating as an organization under Section 30 of the NIRC as shown in its modus operandi, financial statements, and other relevant documents. The documents should show that its earnings do not inure to the benefit of any private individual. It does not operate for the benefit of the of private interest such as those of its founder or the founder’s family, and it does not operate for the purpose of conducting a trade or business that is not related to its tax-exempt purpose. Note that despite its being a tax-exempt institution, it is subject to the corresponding  internal revenue taxes under the NIRC, on its income derived from any of its properties, or any activity conducted for profit (example: rental income from its building or premises) which is subject to income tax.

A Tax Exemption Ruling issued shall be valid for a period of three (3) years from the date of the effectivity specified in the Ruling, unless sooner revoked or cancelled. A Tax Exemption Ruling shall be deemed revoked if there are material changes in the character, purpose, or method of operation of the corporation or association which are inconsistent with the basis for its income tax exemption. The revocation takes effect as of the date of the material change.

Tax Exemption Rulings may be renewed upon filing of a subsequent application for Tax Exemption or Revalidation, under same requirements and procedures provided in the  revenue issuances. Otherwise, the exemption shall be deemed revoked upon the expiration of the Tax Exemption Ruling. The new Tax Exemption Ruling shall be valid for another period of three (3) years, unless sooner revoked or cancelled.