Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 4-2013)
Proprietary non-profit hospitals are subject to an income tax at the rate of 10% on their taxable income under Section 27(B) of the NIRC, as amended.
If the gross income from unrelated trade, business, or other activities exceeds 50% of the total gross income derived by the hospital from all sources, the entire taxable income shall be subject to the tax prescribed under Subsection (A) of Section 27, which is the regular corporate income tax rate.
An unrelated trade, business, or other activity means any trade, business, or activity not substantially related to the exercise or performance by the hospital of its primary purpose or function.
A proprietary educational institution is a private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), in accordance with existing laws and regulations.
Some proprietary non-profit hospitals, owned and/or operated by non-stock non-profit institutions, secured tax exemption rulings on the ground that these institutions are charitable or social welfare organizations and thus exempt from corporate income tax under Section 30 of the NIRC.
The Supreme Court case Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc., G.R. Nos. 195909 and 195960, dated September 26, 2012, provides guidelines for determining whether a proprietary non-profit hospital may be exempt from income tax.
All tax-exempt hospitals must secure revalidated tax exemption rulings/certificates by submitting an application and supporting documents to the Revenue District Office where they are registered.
The required documents include: a letter application stating the specific paragraph of Section 30 for exemption; copies of the latest Articles of Incorporation and By-Laws certified by the SEC; BIR Certificate of Registration; Tax Clearance from the Revenue District Office; Income Tax Returns or Annual Information Returns and Financial Statements for the last three years; and a statement of modus operandi including sources of revenue.
The Revenue District Office evaluates the application; if insufficient, the applicant is notified and documents returned; if valid, a report recommending tax exemption is prepared and forwarded to the Regional Director; if approved, the case proceeds to the Legal Service for review and issuance of the Certificate of Tax Exemption signed by the Commissioner or authorized representative.
No. All tax exemption rulings issued prior to November 1, 2012, granting tax exemption to proprietary non-profit hospitals or non-stock non-profit entities operating hospitals under Section 30 of the NIRC are no longer valid.