Tax Exempt Corporationunder Tha Nirc

8/11/2019 Tax Exempt Corporationunder Tha Nirc

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TAX EXEMPT CORPORATION UNDER THE NIRC

The following organization shall not be taxed(sec. 30 NIRC):1. Labor, agriculture or horticulture organization not organized principally forprofit.

2. Mutual savings bank and cooperative bank3. Fraternal beneficiary society, order or association4. Cemetery company5. Religious, Charitable, Scientific, Athletic or Cultural corporation6. Business league chamber of commerce, or board of trade7. Civic league8. A non-stock and non-profit educational institution9. Government educational institution10. Farmers' or other mutual typhoon or fire insurance company and like

organization

11. Farmers', fruit growers', or like association

Common limitation : The income of whatever kind and character of the foregoing organizationsfrom any of their properties, real or personal, or from any of their activities conducted forprofit regardless of the disposition made of such income, shall be subject to tax imposedunder this Code.( last par, sec. 30 NIRC)


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1. Labor, agricultural or horticultural organization not organized principally forprofit(sec.30 par. a of NIRC)

It must not organized principally for PROFIT. Corporation engaged ingrowing agriculture or horticultural products or raising livestock orsimilar products for profit are subject to TAX.(section 25, Rev. Reg. No.2)

Provincial fairs and like association of quasi-public in character ifdesigned to encourage development of better agricultural andhorticultural products through a system of awards, prizes or premiumsand whose income is derived from gate receipt, entry fee, donations,etc is used exclusively to meet necessary expenses.

Profit from which inure to the benefit of their stockholder are not tax-exempt.


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2. Mutual savings bank not having a capital stock represented by shares, andcooperative bank without capital stock organized and operated for mutual

purposes and without profit(sec. 30 par. b of NIRC)

Requisite for exemption:a. No Capital stock represented by shares

b. Earnings, less only the expenses of operating are distributable wholly amongthe depositorsc. Operated for mutual purposes and without profit. (not qualified as mutual

saving bank if the deposit are made compulsory under contract and isoperated for speculation rather than for saving.

Exemption applies to foreign as well as domestic bank.


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3. A beneficiary society, order or association, operating for the exclusive benefitof the members such as a fraternal organization operating under the lo dge

system , or mutual aid association or a non-stock corporation organized byemployees providing for the payment of life, sickness, accident, or otherbenefits exclusively to the members of such society, order, or association, ornonstock corporation or their dependents. (sec.30 par. c of NIRC)

Lodge System a society shall be deemed to be operating on the lodge system if it hassupreme governing body and subordinate lodges into which members are elected,initiated or admitted in accordance with its law, rules and ritual.

Requisite for exemption;a. Operated under lodge system or for the exclusive benefit of the member of a society .b. Established system of payment to its member or their dependents of life, sick , accident

, or other benefits.c. No part of the net income inures to the common benefit of the stockholder or members.


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4.Cemetery company owned and operated exclusively for the benefit of itsmembers. (sec. 30, par. d of NIRC)

(1987 Constitution: Article VI, sec. 28, par. 3) Non-profit cemetery shallbe exempt for taxation.

Requisites for exemption:a. Owned and operated exclusively for the benefit of its owners.b. Not operated for profit.

Any cemetery corporation chartered solely for burial purposes andnot permitted by its charter to engage in any business not necessarily

incident to that purpose is exempt income tax.-Provided: that no part of its net earnings inures to the benefit of anyprivate shareholders or individual .


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5.Non-stock corporation or association organized and operated exclusively forreligious, charitable, scientific, athletic, or cultural purposes , or for the

rehabilitation of veterans, no part of its net income or asset shall belong to orinures to the benefit of any member, organizer, officer or any specific person .

Requisites for exemption:a. Organized and operated for one or more of the speified purposes. (exclusively

for religious, charitable, scientific, athlethic, or cultural purposes or

rehabilitation of veterans)b. No part of its net income must inure to the benefit of private stockholder orindividuals. With respect to its non-paying patients, St. Lukes is exempted from income tax for beinga non-stock corporation or organization operated exclusively for charitable or social welfare purposes. Accepting paying patients does not destroy the exemption of St. Lukes under section 30 of NIRC. Instead last par. of sec. 30 of NIRC provides that St. Lukess activities conducted for profit, regardless of its disposition of such income, shall besubject to tax.(CIR vs St. Lukes Medical Center, Inc. Sept. 26 2012)Conduct strictly religious activities : fees recieved in baptismal, solemnizingmarriages, attending burials, holding masses, and other like income areEXEMPT.


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6.Business league chamber of commerce, or board of trade, not organized forprofit and no part of the net income of which inures to the benefit of anyprivate stock-holder, or individual

Requisite for exemption:a. Association of persons having some common business interestb. Limited its activities to work for such common interest

c. Not engaged in a regular business for profitd. No part of the net income inures to the benefit of any private

stockholder or individual.

An association of person who are engaged in the transportationbusiness whether by land or water, which is designated to promotethe legitimate object of such business, and all of the income of whichis derived from membership fees dues and expended for officeexpenses is exempt (sec. 31, Rev. Reg. No. 2)


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7.Civic league or organization not organized for profit but operated exclusively

for the promotion of social welfare

Requisite for exemption:a. Not organized for profit but operated exclusively for beneficial to the community as a

whole. In general, organization engaged in promoting the welfare of mankind. (section32, Rev. Reg. No. 2)

b. Sworn affidavit with the BIR showing the following:-Character of the league or oraganization;-Purpose for which it was organized;-actual activities-Source of income and disposition-All facts relating to the operation of the organization which affects its right of exemption

c. The copy of article of incorporation, by-laws and financial statements should beattached in the sworn affidavit. (BIR rulling no. 21, Jan. 23 1961)

Example: organized for maintenance of sanitation, afford community policeprotection, fire prevention.


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8. A nonstock and nonprofit educational institution

All revenue and assets of non-stock, non profit educational institution usedactually, directly , and exclusively for educational purposes shall be exemptfrom tax and duties. (par. 3,sec. 4, article XIV of 1987 Constitution)-refers to internal revenue taxes imposed by National Government-all revenue and assets used actually, directly and exclusively for educational purposes.

Revenue derived from the assets used in operation of canteen and bookstore are exemptprovided they are: owned and operated by the school as an ancillary activities , and sameare located within the school premise .Rental payment from their building/premises: -subject to internal revenue tax.reason : not related to exercise or performance of their educational purpose.Unlike non-profit and non-stock corporation. Their interest income from currency bankdeposit used actually, directly and exclusively in pursuance of their purposes are exemptunder expanded foreign currency deposit system. (exempt from 20% final tax and 7 %tax on interest income)Exemption does not cover with holding taxes:Reason: they are constituted as withholding agent for the government required to withhold tax on compensation income from their employees.


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9.Government educational institution

University of Philippines(UP) is subject to 20% final tax. Other governmenteducational institution are likewise subject thereto. (Act no. 1870, asamended)Reason: income from properties, real or personal or from any of their activitiesconducted for profit, regardless of its disposition made of such income shallbe subject to tax. (BIR ruling 21-90, 28 February 1990)


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10. Farmers' or other mutual typhoon or fire insurance company , mutual ditch orirrigation company , mutual or cooperative telephone company , or like organization of a

purely local character , the income of which consists solely of assessments, dues, andfees collected from members for the sole purpose of meeting its expenses

Requisite for exemption:a. Income derived solely from assessment, dues and fees collected from membersb. Fees collected from members are for the sole purpose of meeting its expenses


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11. Farmers', fruit growers', or like association organized and operated as asales agent for the purpose of marketing the products of its members and

turning back to them the proceeds of sales, less the necessary selling expenseson the basis of the quantity of produce finished by them.

Requisite for exemption:

a. Formed and organized as sale agent for the purpose of marketing the productof its member.

b. No net income to the membersc. Proceeds of the sale shall be turned over to them less the expenses on the

basis of the quantity of the product finished by them.


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COMMON REQUISITES:a. Not organized and operated principally for profitb. No part of net income inures to the benefit of any member or individualc. No capital represented by shares of stockd. Educational or instructive in Character.

Tax Exempt GOCC (sec. 27(c) as amended by RA 9337)

GSISSSSPhilippine Health Insurance Corporation

PCSO

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Tax Exempt Corporationunder Tha Nirc