Eagle Eye Management Consultancy Firm5th Avenue corner 26th Street Cebu Business Park, Cebu 6000

032-414-4748

Feb. 19, 2014

Mr. Carrie Ton, CPATax AdvisorChoceur Trade AssociationAlaska, MambalingCebu City, Cebu 6000

Dear Mr. Carrie:

This letter is in response to your query as to Choceur Trade Association’s qualification as a non-stock, non-profit organization and its taxability.

Background Information

Your entity is a local trade association for hotels, resorts and restaurants; and is primarily organized to promote the welfare of its members and the tourism industry, and governed by a board of trustees who do not receive any remuneration.

The office is run by a small staff receiving compensation ranging from the minimum wage benefits up to Php30,000 per month. The association’s primary sources of funds are the membership fees, and assessments for activities conducted by the trade association, and occasionally the donations received.

Response

A non-stock non-profit (NSNP) organization is a type of corporation which may be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic services, or other similar purposes such as trade, industry, agricultural and like chambers. No part of its income is distributable to its members, trustees or officers and any profits earned by such corporation as an incident to its operations shall be used for the furtherance of the purposes for which it was organized. It is also governed by a set of the board of trustees.

Your association does not remunerate its board and it is primarily organized to promote the welfare of its members, thus, your entity is a non-stock, non-profit organization.

As to taxability, the bureau of Internal Revenue (BIR) issued a Revenue Memorandum Circular No. (RMC) 65-2012 last August 3, 2012 which clarifies that association dues, membership fees and other assessments/charges collected by Cubs Organized and Operated Exclusively for Pleasure,

Recreation and Other Non-Profit Purposes from its members and tenants (which are previously tax-exempt) are taxed in accordance with the table below:

Income Tax Clubs which are organized and operated exclusively for pleasure and other non-profit purposes are subject to income tax from whatever source but not limited to membership fees, assessment dues, rental income and service fees

Value-Added Tax The regular conduct or pursuit of commercial or an economic activity including transactions thereto, by any person regardless of whether or not the person engaged in a nonstock, nonprofit private organization, or government entity. Clearly, the gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income and service fees are subject to VAT

Based on the site of Bureau of Internal Revenue (www.bir.gov.ph),

INCOME TAX Tax Rate Tax BaseIn general 30% (effective January 1,

2009)Net Taxable income from all sources

Minimum Corporate Income Tax*

2% Gross Income

Improperly Accumulated Earnings

10% Improperly Accumulated Tax Table

*Beginning on the 4th year immediately following the year in which such corporation commenced its business operations, when the minimumcorporate income tax is greater than the tax computed using the normal income tax.

PASSIVE INCOME Tax Rate

1. Interest from currency deposits, trust funds and deposit substitutes 20%2. Royalties (on books as well as literary & musical composition) 10%    - In general 20%3. Prizes (P10,000 or less ) 5%    - In excess of P10,000 20%4. Winnings (except from PCSO and lotto) 20%5. Interest Income of Foreign Currency Deposit 7.5%6. Cash and Property Dividends  - To individuals from Domestic Corporations 10 %  - To Domestic Corporations from Another Domestic Corporations 0%7. On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset)

6%

8. On capital gains for shares of stock not traded in the stock exchange- Not over P100,000 5%- Any amount in excess of P100,000 10%9. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates

Exempt

Upon pretermination before the fifth year , there should be imposed on the entire

income from the proceeds of the long-term deposit based on the remaining maturity thereof:        Holding Period

-       Four (4) years to less than five (5) years 5%-       Three (3) years to less than four (4) years 12%-       Less than three (3) years 20%

VALUE ADDED TAX

Tax Rate Tax Base

On sale of goods and properties

(12%) gross selling price or gross value in money of the goods or properties sold, bartered or exchanged

On sale of services and use or lease of properties

(12%) gross receipts derived from the sale or exchange of services, including the use or lease of properties

On importation of goods

(12%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such as tax to be paid by the importer prior to the release of such goods from customs custody; provided, that where the customs duties are determined on the basis of quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any

On export sales and other zero-rated sales

0%

Feel free to contact us for more questions.

Sincerely,

Ms. Mee Na Tai, CPAManagement Consultant