In the Philippines, non-government organizations (NGOs) and non-stock, non-profit corporations (NSNPCs) play a pivotal role in bridging gaps where government services often fall short—education, healthcare, disaster relief, and community development, to name a few.
While these organizations operate not for profit but for purpose, thus often fueled by passion, donations, and social commitment, their official registrations and ongoing compliance with the laws and regulations must be put in place for their own benefit, i.e., including tax exemptions.
In this article, we’ll explore NGOs and NSNPCs in the Philippines—their key definitions, eligibility criteria, and the tax exemptions they may be entitled to under the law.
Non-Stock, Non-Profit Corporations (NSNPCs) and Non-Government Organizations (NGOs): Key Definitions
Non-Stock, Non-Profit Corporations (NSNPCs)
Basically, non-stock corporations or organizations do not issue shares of stock, do not have shareholders, and are instead governed by members or a board of trustees. Non-profit means that “no net income or asset accrues to or benefits any member or specific person, with all the net income or assets devoted to the institution’s purposes and all its activities conducted not for profit.”
Non-Government Organizations (NGOs)
According to Section 24(H) of the National Internal Revenue Code (NIRC) of 1997, “a non-government organization is a non-profit domestic corporation organized and operated exclusively for scientific, research, educational, character-building, youth and sports development, health, social welfare, cultural, or charitable purposes, or a combination thereof, and no part of the net income of which inures to the benefit of any private individual.”
As mission-driven entities, these non-government organizations (NGOs) operate independently of any government control but may receive funding from various sources, including government grants, private donations, and philanthropic foundations.
Registration and Regulatory Compliance of Non-Profits and NGOs
Like any other corporation in the Philippines, non-stock non-profit corporations must first file for incorporation with the Securities and Exchange Commission (SEC) and obtain a Certificate of Incorporation (COI).
They must then seek subsequent registrations with the local government units (LGUs) for business permits, with the Bureau of Internal Revenue (BIR) for the Certificate of Registration (COR) and further application for the tax exemption, and later on with the statutory agencies (SSS, PhilHealth, Pag-IBIG Fund) for employer registrations and employee benefits administration.
Additionally, SEC-registered corporations are required to file annual financial statements (AFS). If the non-stock non-profit corporation receives government funding or contributions from a donor of at least PHP 500,000 in one or aggregate transactions, it must also submit a sworn statement on the organization’s (a) schedule of receipts or income other than contributions and donations; (b) schedule of contributions and donations; and (c) schedule of disbursements according to sources and activities.
Income Tax Exemptions: Scope and Limitations
Income tax exemption covers only the income derived by the corporation in furtherance of the purposes for which it was organized under Section 30 of the NIRC of 1997.
All non-stock, non-profit corporations listed under Section 30 of the NIRC of 1997 are still subject to applicable internal revenue taxes on income earned from their properties—whether real or personal—or from any profit-oriented activities, regardless of how that income is used. This includes, for example, interest from bank deposits, investment gains, and rental income. Such income must be reported for tax purposes.
Interest income from Philippine currency bank deposits, as well as yields or other monetary benefits from deposit substitute instruments, trust funds, and similar arrangements, and royalties derived from sources within the Philippines by organizations under Section 30 are subject to a 20% final withholding tax. Likewise, interest income earned from a depository bank under the expanded foreign currency deposit system is subject to a 15% final withholding tax, pursuant to Section 27(D)(1) in relation to Section 57(A) of the NIRC of 1997, as amended.
Additionally, the tax exemptions do not apply to withholding taxes on compensation income of the employees of the corporation or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the NIRC. Purchase of goods, properties, or services and importation of goods are still subject to the 12% value-added tax (VAT) pursuant to Section 107, as amended.
Legal Bases for the Tax Exemptions of Non-Profits and NGOs
Income tax exemptions of non-profits and NGOs in the Philippines are grounded in constitutional and statutory provisions that recognize their public service purpose and non-profit nature.
The 1987 Constitution of the Philippines
Paragraph 3, Section 4, Article XIV of the Constitution of the Philippines provides that “All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.”
National Internal Revenue Code (NIRC) of 1997
Section 30 of the National Internal Revenue Code (NIRC) of 1997, as amended, enumerates eleven (11) types of non-stock, non-profit organizations that are exempt from income tax, provided they meet certain requirements and that none of their income or assets benefit any private individual.
BIR Revenue Memorandum Order No. 38-2019
This BIR-issued order clarifies the nature, character, and tax treatment of non-profit corporations under Section 30 of the NIRC and devolves to the Revenue Regions the issuance of BIR Certificate of Tax Exemption (CTE) to said corporations.
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List of Non-Profit Corporations Qualified for Tax Exemptions
These are the non-stock, non-profit corporations and organizations listed under Section 30 of the NIRC that may qualify for income tax exemptions if they meet specific criteria and requirements set forth in the BIR Revenue Memorandum Order No. 38-2019.
1. Labor, Agricultural, or Horticultural Organizations
To qualify for income tax exemption, non-stock nonprofit corporations operating as labor, agricultural, or horticultural organizations must primarily improve their members’ working conditions, product quality, and occupational efficiency. Thus, their activities must directly benefit their members’ livelihoods or production techniques.
2. Mutual Savings and Cooperative Banks
Mutual savings and cooperative banks must be organized without capital stock and operated for mutual benefit and without profit. Their income tax exemptions are governed by the ‘Revised Non-Stock Savings and Loan Association Act of 1997 (R.A, 8367)” for non-stock savings and loan associations and “Cooperative Code of the Philippines (R.A. 9520),” as amended for cooperative banks.
3. Beneficiary Societies and Mutual Aid Associations
To be exempt from income tax, these organizations, which include fraternal organizations operating under the lodge system, mutual aid associations, or non-stock corporations organized by employees, must operate for the exclusive benefit of members or their dependents and offer life, health, accident, or other benefits.
4. Cemetery Companies
Cemetery companies owned and operated exclusively for the benefit of their members are also exempt from income tax, provided that no part of their earnings may benefit any private individual. All income must then be used for the operation, maintenance, and improvement of the cemetery.
5. Religious, Charitable, Scientific, Athletic, Cultural, and Veterans’ Rehabilitation Organizations
Non-stock non-profit corporations qualify for income tax exemption if they are organized and operated for religious, charitable, scientific, athletic, cultural, veterans’ rehabilitation purposes, and a combination of such. No part of their income or assets may benefit any private stockholder or individuals.
6. Business Leagues, Chambers of Commerce, and Boards of Trade
Business organizations can also enjoy income tax exemptions if their activities are directed to the improvement of business conditions of one or more lines of business and if they are not engaged in a regular business of a kind ordinarily carried on for profit. Equally, no part of their income should benefit any member, organizer, officer, or any specific person.
7. Civic Leagues and Organizations
To be entitled to the exemption, the regular activities of civic leagues and organizations must be exclusively for the promotion of social welfare. No part of their net income or assets should belong to or inure to the benefit of any member, organizer, officer, or any specific person.
8. Non-Stock, Non-Profit Educational Institutions
The tax exemption of non-stock, non-profit educational institutions is directly conferred by the 1987 Constitution and is reiterated in Section 30 of the 1997 Tax Code. Such exemption is covered separately under BIR Revenue Memorandum Order No. 44-2016.
9. Government Educational Institutions
In addition to non-stock non-profit educational institutions, government educational institutions, which operate as primary or secondary schools, colleges, or professional and trade schools, are also tax exempt. They should have a regularly scheduled curriculum, regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on.
10. Mutual Insurance, Ditch or Irrigation, and Cooperative Telephone Companies
These include farmers’ or other mutual typhoon or fire insurance companies, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations 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 their expenses.
11. Farmers’ and Fruit Growers’ Associations
Associations, acting as sales agents for farmer-members, must establish that they have no net income for their own account. They should also return to the members the proceeds of sales after deducting the necessary selling expenses on the basis of the quantity of produce finished by them.
Tests and Requirements for Tax Exemptions
A non-stock non-profit corporation claiming exemption must clearly prove it is organized and operated according to Section 30 of the NIRC, and that its income comes from those exempt purposes. Simply registering as a non-stock, non-profit corporation with the SEC does not guarantee tax exemption. It must still meet the required organizational and operational tests and other conditions.
Organizational Test
The non-stock non-profit corporation’s constitutive documents (SEC registration, Articles of Incorporation, and By-Laws) must clearly state that its primary purpose falls under Section 30 of the NIRC.
Operational Test
The corporation’s regular activities must be exclusively devoted to achieving the purposes specified in Section 30. It fails to meet this test if it has no activities conducted in furtherance of the purpose for which it was organized or if a substantial part of its operations constitutes profit-driven activities.
Inurement Prohibition
As required by law, corporations under Section 30 of the NIRC must operate as non-profits; thus, their earnings or assets must not inure to the benefit of any of their trustees, organizers, officers, members, or any specific persons. The following are considered prohibited inurements:
- Payment of compensation, salaries, or honoraria to their trustees or organizers;
- Payment of exorbitant or unreasonable compensation to employees;
- Provision of welfare aid and financial assistance to their members (except those organizations under Section 30(C) of the NIRC that provide for the payment of life, sickness, and other benefits exclusively to members);
- Donation to any person or entity (except donations made to other entities formed for purposes similar to their own);
- Purchase of goods or services for amounts in excess of the fair market value of such goods or value of such services from an entity in which one or more of their trustees, officers, or fiduciaries have an interest; and
- Distribution of the remaining assets to the trustees, organizers, officers, or members upon dissolution and satisfaction of all liabilities.
BIR Certificate of Tax Exemption (CTE)
A BIR Certificate of Tax Exemption (CTE) is an official document issued by the Bureau of Internal Revenue (BIR) through the local Revenue District Office (RDO) to certify that a non-profit organization or NGO is exempt from income taxes in accordance with the National Internal Revenue Code (NIRC) of 1997, as amended, and other applicable laws and regulations. Read the full discussion here for the application process.
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