Law Summary
Tax Exemption and Conditions for Non-Stock, Non-Profit Educational Institutions
- Exemption covers internal revenue taxes on revenues/assets used actually, directly, and exclusively for educational purposes as per the Constitution.
- Revenues from ancillary activities like cafeterias and bookstores, if owned and located within school premises, are tax-exempt.
- VAT exemption applies only to educational services if accredited by the Department of Education, Culture and Sports or the Commission on Higher Education.
- Income from unrelated trade or business activities is subject to taxation.
Special Provisions on Interest Income for Educational Institutions
- Interest income from deposits used directly and exclusively for educational purposes is exempt from the 20% final tax and 7.5% tax on expanded foreign currency deposits.
- Compliance requirements include submission of an annual information return and audited financial statements.
- Certifications from depository banks on exempt interest income and utilization, plus board resolutions on funded projects, must be submitted annually to the Revenue District Office.
Obligations as Withholding Agents and Bookkeeping Requirements
- Educational institutions must withhold taxes on employee compensation and taxable payments to third parties.
- Both non-stock, non-profit corporations and educational institutions must maintain books of accounts as prescribed by law.
- They must also issue duly registered receipts or invoices for sales or services not related to their exempt activities.
Fees and Regulatory Compliance
- Both entities are subject to a mandatory annual registration fee of P500.00.
- Compliance with issuance of registered receipts and maintenance of records is mandated under the Tax Code provisions.
Summary of Administrative and Compliance Requirements
- Annual submission of audited financial statements and relevant certifications.
- Taxation on unrelated business income or property-derived income.
- Recognition as withholding agents for employment and other taxable payments.
- Maintenance of accounting records and adherence to sales documentation requirements.
This circular clarifies the scope, conditions, and procedural obligations of non-stock, non-profit corporations and educational institutions on tax exemptions, ensuring proper tax compliance and revenue collection.