On June 9, 2022, BIR issued RMC No. 78-2022 which clarifies the Income Tax Treatment for the different classifications of educational institutions and their tax obligations.
Income Tax Treatment:
I. Proprietary Educational Institution
- Domestic Corporation
- The Income of a proprietary educational institution, as well as Non-stock, Non-Profit educational institution is subject to the ten percent (10%) preferential Income Tax rate under Section 27(B) of the Tax Code. Provided that beginning July 1, 2020, until June 30, 2023, the tax rate imposed shall be one percent (1%).
- If Unrelated trade, business, or other activity exceeds fifty percent (50%) of the total gross income is derived from all sources, the Regular Corporate Income Tax (RCIT) shall be imposed on the entire taxable income of the said institution.
II. Government Educational Institutions(GEI)
- If the GEIs Charter expressly provides that it is exempt from taxes, then the GEI is exempt from applicable taxes. However, if GEI’s Charter does not explicitly provide that it is exempt from tax, then Section 30 (I) of the 1997 Tax Code, as amended, shall govern its claim of tax exemption.
III. Non-Stock and Non-profit Educational Institutions (NSNP)
- All revenues and assets used directly and exclusively for educational purposes shall be exempt from taxes and duties.
Tax Treatment of Contributions or Gifts/Donations to Educational Institutions
- Deduction from Gross Income of Donor subject to the following based on the donor’s taxable income: (1) 10% in the case of an individual (2) 5% in the case of a corporation or (3) full deductibility if the conditions under Section 34(H)(2)(c) of the Tax Code are complied with, the contributions or gifts may be deductible in full.
- Exemption from Donor’s Tax is subject to the condition that not more than thirty percent (30%) of said gifts shall be used by the donee institution for administration purposes.
Withholding Tax Obligations
- Withhold on income payments such as compensation and purchases of goods and services
- NSNP educational institutions shall not be subject to any Creditable or Final Withholding Tax (CWT/FWT) on their revenues and assets used actually, directly and exclusively for educational purposes subject to the presentation of Certificate of Tax Exemption (CTE) or exemption rulings, and Securities and exchange commission (SEC) registration. Newly organized NSNP educational institutions must secure their Certificate of Tax Exemption within three (3) months from the issuance of their Certificate of Registration with SEC.
- The income payments to proprietary educational institutions, including NSNP educational institutions, which are subject to preferential Income Tax under Sec. 27(B) are subject to creditable and Final Withholding Taxes. The creditable Withholding Tax on the income payments to these institutions should not be more than the statutory Income Tax rate imposed on proprietary educational institutions under Section 27(B) of the Tax Code.
- Register with the BIR
- Secure Authority to Print Receipts/Invoices
- Register Books of Accounts and update registration information
- Issue receipts/invoices
- File tax returns
- Secure Certificate of Income Tax Exemption