RR No. 3-2017: Implements the tax provisions of RA No. 10693 (“Microfinance NGOs Act”)

Key points

1. Accreditation required. A Microfinance NGO must hold a Certificate of Accreditation from the Microfinance NGO Regulatory Council to avail of the incentives of RA No. 10693.
2. Entity requirements. It must be a non-stock, non-profit corporation with a capital contribution of at least P 1,000,000.00. The word Microfinance must appear in its corporate and trade name, and its Articles of Incorporation and By-Laws must state the required provisions, including that administrative expenses do not exceed 30% of total expenses for the taxable year.
3. 2% Gross Receipts Tax. Accredited Microfinance NGOs pay 2% on gross receipts from microfinance operations in lieu of all national taxes. This covers only lending activities and bundled insurance commissions that form an integral part of qualified lending, and only for NGOs whose primary purpose is microfinance serving the poor and low-income individuals.
4. Interim accreditation. NGOs certified by the SEC as having no derogatory information are deemed accredited for one year from the effectivity of RA No. 10693, unless sooner revoked. They may also avail of the 2% rate.
5. Other income is taxable. Income not from lending and insurance commissions is subject to all applicable taxes. Examples listed include interest on non-qualified loans, electronic payment and money transfer fees, bank deposit interest, royalties, prizes, dividends, and capital gains.
6. Withholding and registration. Microfinance NGOs act as withholding agents when they pay compensation or other income subject to withholding at source. Their books are subject to periodic BIR examination, and they must update their registration with their Revenue District Offices to reflect accreditation. Their clients must have a TIN.

Who is affected

• Microfinance NGOs
• Clients of Microfinance NGOs

Deadlines and effectivity

• SEC-certified NGOs: deemed accredited for one year from effectivity of RA No. 10693, unless sooner revoked