BIR Regs on Tax Deductibility for NGOs

Legal basis and policy objectives

Republic Act No. 8424 is implemented through these Regulations to govern when donations and contributions to accredited non-stock, non-profit corporations/NGOs are deductible and when donor benefits apply.
These Regulations establish an accreditation system for qualifying donee institutions so that only accredited non-stock, non-profit entities receive the tax treatment for donations.
These Regulations require strict conditions for deductibility benefits through utilization requirements, administrative expense limits, governance rules, and asset-distribution rules in dissolution.
These Regulations impose prohibitions and compliance requirements to prevent misuse of donor-supported funds and preserve the integrity of tax incentives.

Core definitions for NGOs and purposes

Section 1(a) defines a “Non-stock, non-profit corporation or organization” as a corporation or association/organization under Section 30 (E) and (G) of the Tax Code, created exclusively for one or more purposes listed in Section 1(a)(i) to (vii), with no part of net income or asset inuring to the benefit of any member, organizer, officer, or specific person.
Section 1(b) defines a “Non-government Organization (NGO)” as a non-stock, non-profit domestic corporation or organization under Section 34 (H)(2)(c), organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes (or a combination), with no part of net income inuring to any private individual.
Section 1(b)(i) requires an accredited NGO to make utilization directly for the active conduct of its purposes not later than the fifteenth (15th) day of the third month after the close of its taxable year in which contributions are received, unless an extended period is granted by the Secretary of Finance upon recommendation of the Commissioner.
Section 1(b)(ii) requires annual administrative expenses to not exceed thirty percent (30%) of total expenses for the taxable year.
Section 1(b)(iii) requires that, upon dissolution, assets be distributed to another accredited NGO for similar purposes, or to the State for public purpose, or distributed by competent court to another accredited NGO for the general purpose.
Section 1(c) defines “Utilization” to include (among others) amounts paid or utilized in cash or in kind (including administrative expenses) to accomplish the NGO’s purposes; amounts paid to acquire assets used directly for the purposes; and amounts set aside for specific projects only if prior conditions are met, including a utilization period not to exceed five (5) years and compliance with Section 5.
Section 1(d) defines an “Accrediting Entity” as a designated non-stock, non-profit organization composed of NGO networks that establishes and operationalizes accreditation to determine qualification for accreditation as qualified-donee institutions, overseen and coordinated by the Secretary of Finance and Commissioner of Internal Revenue, with ex-officio voting representation.
Section 1(d) provides that the Secretary of Finance designates an accrediting entity that has: (a) countrywide membership of NGOs from the intended sector, (b) NGOs in existence for at least five (5) years, and (c) membership where not more than 50% belong to other existing NGOs or Private Accrediting Agencies.
Section 1(d) further recognizes the Philippine Council for NGO Certification, Inc. (PCNC) as an accrediting entity designated by the Secretary of Finance pursuant to a Memorandum of Agreement dated January 29, 1998.
Section 1(e) to (m) defines specific organizational purposes, including religious purpose, charitable activity, scientific and research purpose (including basic research and applied research and public-interest criteria), character building and youth and sports development, cultural activity, educational activity (including formal and non-formal instruction and TESDA certification for non-formal educational program accreditation), rehabilitation of veterans, social welfare purposes, and health purposes.

Accreditation requirements and process

Section 2(a) requires the Accrediting Entity to examine, evaluate, and accredit non-stock, non-profit corporations and NGOs as a prerequisite for their registration with the BIR as qualified-donee institutions under Section 34 (H)(1) and (2)(c) of the Tax Code.
Section 2(b) requires newly-organized and existing non-stock, non-profit corporations/NGOs to apply for accreditation and submit:
- Articles of Incorporation and By-laws;
- Certificate of Registration with the Securities and Exchange Commission;
- Affidavit of Modus Operandi showing the organization’s character; purpose; lists of projects/activities for the past two (2) years (or proposed for the first two (2) years for newly-organized entities); source of income and utilization (or target fund sources); and other facts relevant to qualification; and
- Duly audited financial statements for the past two (2) years showing assets, liabilities, receipts, and disbursements (or financial projections for the first two (2) years for newly-organized entities).
Section 2(c) directs evaluation using major criteria: (i) Mission and Goals, (ii) Resources, (iii) Program Implementation and Evaluation, and (iv) Planning for the Future, including review of corporate governance, budgets, minutes, organizational plans, monitoring tools, and evidence of effective program delivery and continuity.
Section 2(d) allows the Secretary of Finance, upon recommendation of the Accrediting Entity’s Board of Trustees, to waive submission of duly audited financial statements for newly-organized entities organized for national significance, making them eligible for three (3)-year probationary accreditation and registration as qualified donee institutions.
Section 2(e) provides a transition for entities previously qualified under BIR-NEDA Regulations 1-81, as amended: they must secure a Certificate of Accreditation from the Accrediting Entity within three (3) years from the effectivity of these Regulations.
Section 2(e) states that failure to secure accreditation within the three (3)-year period is a ground for cancellation by the BIR of the Certificate of Registration as qualified-donee institutions.
Section 2(e) preserves deductibility for donors during the three (3)-year period for donations and contributions to those entities, subject to Section 4; after the three (3)-year period, only donations and contributions to accredited entities are deductible.
Section 2(f) requires the Accrediting Entity to issue a Certificate of Accreditation if criteria are met, with validity of maximum five (5) years for existing entities and three (3) years for newly-organized entities.
Section 2(g) requires denial of accreditation when criteria are not met, with notice to the applicant of the reasons and evaluators’ recommendations; it gives a one (1)-year period to implement recommendations before reapplication.
Section 2(h) requires the Secretary of Finance and the Commissioner of Internal Revenue to oversee, monitor, and coordinate with the Accrediting Entity for compliance.

Tax benefits for donations and contributions

Section 3(a) provides that donations to accredited non-stock, non-profit corporations/NGOs entitle donors to tax benefits based on the type of accredited donee institution.
Section 3(a)(1) provides limited deductibility for donations, contributions, or gifts actually paid or made within the taxable year to accredited non-stock, non-profit corporations, capped at: ten percent (10%) for an individual donor and five percent (5%) for a corporate donor of the donor’s income derived from trade, business or profession computed without the benefit of this deduction.
Section 3(a)(2) provides full deductibility for donations, contributions, or gifts actually paid or made within the taxable year to accredited NGOs, subject to conditions including utilization timing, administrative expense limits, dissolution asset distribution rules, property valuation rules for non-cash charitable contributions, and trustee compensation limits.
Section 3(a)(2)(i) requires accredited NGOs to make utilization directly for active conduct of their activities by not later than the fifteenth (15th) day of the third month after the close of the accredited NGO’s taxable year in which contributions are received, unless an extended period is granted by the Secretary of Finance upon recommendation of the Commissioner.
Section 3(a)(2)(ii) requires accredited NGOs’ annual administrative expenses to not exceed thirty percent (30%) of total expenses for the taxable year.
Section 3(a)(2)(iii) requires that on dissolution, assets be distributed to another accredited NGO for similar purposes, or to the State for public purpose, or distributed by competent court to another accredited NGO to best accomplish the general purpose.
Section 3(a)(2)(iv) requires non-cash (property other than money) charitable contribution amounts to be based on the acquisition cost of the property.
Section 3(a)(2)(v) requires that all Board of Trustees members of the non-stock, non-profit corporation/organization/NGO do not receive compensation or remuneration for their service.
Section 3(a)(3) provides exemption from donor’s tax for donations and gifts made in favor of accredited non-stock, non-profit corporations/NGOs, subject to a limitation that not more than thirty percent (30%) of donations and gifts for the taxable year may be used for administration purposes pursuant to Section 101(A)(3) and (B)(2) of the Tax Code.

Utilization approvals and project set-asides

Section 4(a) provides that amounts set aside or to be set aside for a specific project must have the prior approval of the Commissioner in writing.
Section 4(a) allows the Commissioner to grant approval based on a certification by the Accrediting Entity that the specific project can be better accomplished by setting aside funds than by immediate payments.
Section 4(a) requires the application for prior approval to include:
- (a) the nature and purpose of the project and the amount programmed;
- (b) a detailed description of the project, including estimated costs, sources of any future funds for completion, and location(s) for facilities to be acquired or constructed; and
- (c) a statement by an authorized organization official that the set-aside amount will be disbursed within five (5) years from the Commissioner’s approval unless the project nature makes the five-year period impracticable.
Section 4(a) requires set-aside amounts to be evidenced by book entries and documents showing evidence of deposits or investments (including the set-aside funds) or other documents the Commissioner may require.

Certificates, notices, and filing duties

Section 5(a) requires accredited non-stock, non-profit corporations/NGOs to issue a certificate of donation in the form prescribed by the BIR for every donation or gift received.
Section 5(a) requires the certificate to be accomplished in triplicate and distributed within thirty (30) days after receipt, as follows:
- Original copy to Donor;
- Duplicate copy to BIR;
- Triplicate copy to Donee.
Section 6(a) requires donors to give a notice for every donation worth over One Million pesos (P1,000,000) to the Revenue District Officer where the donor’s place of business is located within thirty (30) days after receipt of the Certificate of Donation, attaching the copy of the Certificate of Donation issued by the accredited donee.
Section 7(a) provides that claims for limited or full deductibility must be filed by donors at the time of filing their income tax returns.
Section 7(a) requires accredited non-stock, non-profit corporations/NGOs to file their annual information return not later than the fifteenth (15th) day of the fourth month after the close of their taxable year to maintain accredited status.
Section 7(b) provides that the donor’s and donee’s income tax returns and/or annual information returns must be filed with the Revenue District Office where the donor or donee’s place of business is located, as the case may be.
Section 8(a) requires substantiation for donors claiming deductions: submission of Certificate(s) of Donation showing (i) actual receipt by the accredited entity and date of receipt; and (ii) amount if in cash, or acquisition cost if property.
Section 8(a) requires substantiation for donors claiming exemption from donor’s tax: submission of evidence showing amount if in cash; zonal value at time of donation if real property; acquisition cost if personal property; and if personal property was already used, the depreciated or book value.
Section 8(b) requires accredited entities, upon filing income tax returns/annual information returns, to furnish the Revenue District Officer where the entity is located with:
- (i) a list of donations and income received during the year, showing donor name and address, sources of income, amount or market value of each donation and item of income, and disposition;
- (ii) a list of activities/projects undertaken with costs and where/how donations were utilized;
- (iii) a list of projects, corresponding costs, amounts “set aside,” and status of funds at year-end;
- (iv) a declaration that utilization requirements under Section 2(c) and 8 have been sufficiently complied with;
- (v) a declaration that no part of net income inures to private stockholders or individuals; and
- (vi) a declaration of project implementation status.

Monitoring, prohibited transactions, and withdrawal consequences

Section 9 provides that, notwithstanding any provision of existing general or special law to the contrary, the BIR may examine books of accounts, other records, and operations of accredited NGOs annually to ascertain compliance with conditions for tax exemptions/incentives and their tax liability if any.
Section 9 requires strict monitoring of compliance with conditions under incentive grants in Section 4 to determine continued eligibility as a qualified-donee institution.
Section 10 prohibits any accredited non-stock, non-profit corporation/NGO enjoying benefits under Section 4 from engaging in prohibited transactions, including:
- (a) lending any part of income or property without adequate security and/or reasonable rate of interest unless covered by a formal micro-credit or micro-finance program approved by the Board of Trustees;
- (b) purchasing securities and/or property for more than adequate consideration in money or money’s worth;
- (c) selling securities or other property for less than adequate consideration in money or money’s worth;
- (d) diverting income or transferring property by lease or sale to Board members, founders/principal officers, their families, or corporations controlled by them or their families, following the attribution of stock ownership under Section 73(A) and (B) of the Tax Code;
- (e) using property, income, or seed capital for purposes other than those for which the corporation was created or organized; and
- (f) engaging in any activity contrary to law, public order, or public policy.
Section 11(a) authorizes the Accrediting Entity to withdraw the Certificate of Accreditation upon determination that the entity no longer meets accreditation criteria under Section 2(c).
Section 11(a) requires the private Accrediting Entity to inform the Legal Service of the National Office or the concerned division of the Regional Offices of the withdrawal and recommend BIR revocation of the Certificate of Registration.
Section 11(b) requires the Accrediting Entity to report violations by an accredited entity to the Legal Service of the National Office or concerned Regional Office division; any violation constitutes a ground for withdrawal of accreditation and BIR revocation of Certificate of Registration.
Section 11(c) provides that any donor found to have participated in or consented to violations is deprived of benefits under Section 4 implementing Sections 34(H)(1), (2)(c) and 101(A)(3), (B)(2) of the Tax Code.
Section 11(c) requires disallowance of limited or full deductibility for the affected donor and assessment and collection of donor’s tax due on the donation, including statutory increments or penalties under the Tax Code.
Section 11(c) states that the stated penalties are in addition to any administrative or criminal penalty provided by law or regulations.

Repeal rule and general effect

Section 12 repeals, amends, or modifies any internal revenue issuances, rules, regulations, or parts thereof that are contrary to or inconsistent with BIR Revenue Regulations No. 13-98.