Corporations Exempt from Income Tax in the Philippines

As a rule, domestic corporations are subject to income tax in the Philippines at the rate of 30% based on their taxable net income after allowable deductions from gross income. Income tax liability is then determined after considering the effect of tax credits such as creditable withholding taxes (BIR Form No. 2307), minimum corporate income taxes paid, and other allowable tax credits.

Under Section 30 of the Tax Code of the Philippines, as amended, the following corporations or organizations shall be exempt from income tax in the Philippines in respect to income received by them as such:

1. Labor, agricultural or horticultural organization not organized principally for profit;
2. 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;
3. 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 a mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or non-stock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Non-stock corporation or association organized and operated exclusively for 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 inure to the benefit of any member, organizer, officer or any specific person;
6. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual;
7. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
8. A non-stock and nonprofit educational institution;
9. Government educational institution;
10. 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, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and
11. Farmers’, fruit growers’, or like association organized and operated 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;

However, the income of whatever kind and character of the above corporations or organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code.

The Bureau of Internal Revenue (BIR or Tax Authority) is now strict in seeing to it that only corporations or organization listed above shall be entitled to the income tax exemptions in the Philippines, and that, only their income as such corporations are covered by the income tax exemption in the Philippines. Based on the latest issuance of the BIR, the following are not covered by the above:

• Revenue Memorandum Circular No. 35-2012 – Clubs organized and operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax in the Philippines despite being a non-stock and non-profit because they do not fall under any of the above exempt corporations.
• Revenue Memorandum Circular No: 65-2012 – Condominium corporations under the Condominium Act are subject to income tax with respect to their gross receipts from association dues, membership fees, and other assessment or charges because they are the return of tenants and members to the condominium corproations on the benefits, advantages, and privileges.

As such, it would be prudent for those corporations and organizations claiming income tax exemptions in the Philippines to review their corporate entities and determine if indeed, they fall under corporations exempt from income tax in the Philippines as listed above.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at info@taxacctgcenter.org.