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

Key points

1. Organizations covered. The Circular describes the Section 30 organizations. They include labor, agricultural or horticultural organizations, mutual savings and cooperative banks, beneficiary societies, cemetery companies, non-stock religious, charitable, scientific, athletic or cultural organizations, business leagues, civic leagues, non-stock non-profit educational institutions and government educational institutions. Farmers’ mutual insurance, irrigation and similar local companies, and farmers’ marketing associations are also included.
2. Non-profit requirement. Non-profit means no net income or asset accrues to or benefits any member or specific person, with everything devoted to the institution’s purposes. The entity must serve a public rather than a private purpose.
3. Exemption is not absolute. Section 30 corporations are taxed on income from properties and activities conducted for profit, such as interest and rental income. Except for educational institutions, bank deposit interest, deposit substitute yield, trust fund yield and royalties are subject to 20% Final Withholding Tax, or 71/2% on interest from the expanded foreign currency deposit system.
4. Withholding and VAT. The exemption does not cover withholding on employees’ compensation or on income payments subject to Section 57, so the entity acts as withholding agent. Its purchases and importations are subject to 12% VAT, and shifting VAT to it does not let it invoke the Section 30 exemption.
5. Educational institutions. The exemption covers taxes on revenue and assets used actually, directly and exclusively for educational purposes. Canteen and bookstore revenue is exempt if owned and operated as ancillary activities within school premises. Unrelated income is taxed at a 10% preferential rate, but the entire taxable income is taxed at the regular corporate rate of 30% if unrelated gross income exceeds fifty percent (50%) of total gross income. Educational services of accredited private schools and of government schools are VAT-exempt.
6. Interest, donees and compliance. Educational institutions’ deposit interest used for educational purposes is exempt from the 20% and 71/2% taxes upon annual submission to the RDO of an information return and audited financial statements with bank certifications, a certification of actual use, and a Board Resolution on or before the 14th day of the fourth month after the taxable year. Donee institutions under Section 101 must be non-stock, pay no dividends, have uncompensated trustees and use all income for their purposes, with NGOs accredited by PCNC and not more than Thirty Percent (30%) of gifts used for administration. Registration and filing of the Account Information Return, financial statements and income tax returns are also covered.

Who is affected

• Section 30 corporations and associations
• Non-stock, non-profit educational institutions
• Government educational institutions
• Donee institutions under Section 101 of the NIRC

Deadlines and effectivity

• Educational institution submissions: on or before the 14th day of the fourth month after taxable year end