RR No. 14-2007: Clarifies the tax treatment of microfinance services rendered by Non-Governmental Organizations and cooperatives

Key points

1. Credit cooperatives dealing with members only. Duly registered credit cooperatives are exempt from income tax from operations, VAT, the 3% Percentage Tax under Section 116, Documentary Stamp Tax and the P500.00 Annual Registration Fee. For Documentary Stamp Tax, the other party to the document who is not exempt is the one directly liable.
2. Cooperatives with members and non-members. Cooperatives with accumulated reserves and undivided net savings of not more than P10,000,000.00 are exempt from taxes for which they are directly liable. Credit cooperatives above that amount are exempt from income tax for 10 years from registration with the Cooperative Development Authority, provided at least 25% of net income is returned to members as interest or patronage fund.
3. Other taxes for larger credit cooperatives. These cooperatives are exempt from VAT under Section 109(M) and the 3% tax under Section 116. They are subject to all other internal revenue taxes unless the law provides otherwise. Once income tax applies, the tax base is net surplus from transactions with non-members, including microfinance activities, after statutory reserve deductions.
4. Other cooperatives and withholding. All income of cooperatives doing microfinance in addition to their registered purpose is taxable, except credit cooperatives and multi-purpose cooperatives with a credit cooperative activity. All cooperatives are withholding agents and must file and remit withholding taxes.
5. NGOs. NGOs under Section 30 of the Tax Code are exempt from income tax on income received as such. Their microfinance income outside their registered activities is taxable, and non-stock, non-profit NGOs must file and remit withholding taxes as specified in RMC No. 76-2003.

Who is affected

• Credit cooperatives
• Cooperatives engaged in microfinance
• NGOs under Section 30 of the Tax Code

Deadlines and effectivity

• Cooperatives with EO No. 93 removal: 10-year period counted from March 10, 1987, valid up to March 10, 1997