TYPES OF ORGANIZATIONS

Revised Corporation Code

Philippine President Rodrigo Duterte signed Republic Act No. 11232 or the Revised
Philippine Corporation Code on 20 February 2019. The Revised Code specifically revokes
Batas Pambansa Blg. 68 or the Philippine Corporation Code, and aims to improve the
country's business ability. On 23 February 2019 the Revised Code came into effect.

The Revised Code initiates major changes to the Philippine legal system for the
registration and operation of private corporations. This includes provision for simplifying
corporate registration where it simplifies the requirements for the establishment and
registration of a corporation with Securities and Exchange Commission. Also, part of the
revised code is the strengthening of corporate governance and minority shareholder rights,
and other important provisions.

In Section 87 of this law, various forms of a non-stock corporation can be made. This
ranges from charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, such as trade, industry, agricultural and
similar chambers, or any combination thereof. Moreover, it specifically stated that no portion
of its profits is paid as dividends to its shareholders, trustees, or officers, provided that any
profit that a non-stock company can obtain as an incident to its activities shall be used
whenever necessary or reasonable for the purposes or purposes for which the company was
formed.

Bureau of Internal Revenue, Revenue Regulation No. 13-98

This Revenue Regulation amends the National Internal Revenue Code wherein under
the Section 1 (a) pertains to non-stock, non-profit corporation or organization to which it
must be organized exclusively for one or more of the following purposes: religious,
charitable, scientific, athletic, cultural, rehabilitation of veterans, and social welfare.

Furthermore, under Section 1 (b) these accredited non-stock, non-profit domestic

corporation or organization must be organized and operated exclusively for one or more of
the following purposes: science, research, educational, character-building and youth and
sports development, health, social welfare, cultural or charitable purposes, or a combination
thereof, of which no part of the net income incurred for the benefit of any individual.
TAW LAWS

Philippine Tax Code

The Philippine Tax Code serves as a guideline that will help those applicable
entities to keep up with the latest developments in the Philippine taxation system. Under
Section 30, it sets out the rules on tax exemption of non-stock, non-profit organization.
Provided below are specific non-profit organization that are exempted from tax on
corporations:

(e) Non-stock organizations or associations organized and operated solely for religious,
charitable, scientific, athletic or cultural purposes or for the rehabilitation of veterans shall
not own or inure any portion of their net profits or assets to the benefit of any member,
organizer, officer or individual;

(g) Civic association or organization not organized for profit but operated solely to promote
social welfare;

(h) A non-stock educational institution and a non-profit;

With the amendment of National Internal Revenue Code, these organizations, have
basically nothing to subject to income taxes. However, the profits generated from business
activities that is not in accordance with the purpose of creation is taxed, regardless of the
disposition of the income.

Bureau of Internal Revenue, Revenue Memorandum Order 20-2013

This Revenue Memorandum lays down the policies and guidelines needed for the
issuance of Tax Exemption Rulings to those qualified non-stock, non-profit corporations and
associations.

Under Section 5 (b) of this memorandum order, all qualified entities are exempted
from income tax on donations, grants, and gifts, on condition that:

i. Its earnings do not inure for any private individual's benefit;

ii. It does not work to the advantage of private interests such as those of its founder or family
of the founder; and

iii. It does not operate for commercial purposes or business not related to its tax-exempt
intent.
Bureau of Internal Revenue, Revenue Regulation No. 13-98

This Revenue Regulation also applies to tax laws of non-profit organization because
it amends the National Internal Revenue Code which is relative to the deductions allowed in
computing taxable income.

Section 1 of this regulation pertains to the qualifications of accredited non-profit

organization to receive fully deductible donations. In order for that to happen, the entity shall
not exceed thirty percent (30%) in its administrative expenses on an annual basis.

Section 3 refers to the donation received by an accredited non-stock, non-profit

organization within the taxable year where it can be deductible up to ten percent (10%) for
individual donor and five percent (5%) for corporate donor of the donor's income derived
from trade, business or profession as calculated without the benefit of the donor. In addition,
donations can be deductible in full as long as it is permitted in the given condition.

TAX EXEMPTIONS

Philippine Tax Code

As the Section 30 of the Philippine Tax Code determines the type of organization
qualified to be exempted in income tax law, the exemption also explicitly applies to grants
and contributions received. Nonetheless, if these entities had an activities which is for profit
and not in line with the organization’s goal, they are required to pay tax regardless of the
disposition of such income.

Bureau of Internal Revenue, Revenue Memorandum Order No. 20-2013

This Revenue Memorandum requires tax-exempt organizations to apply for a Tax-

Exemption Ruling in non-profit educational institutions. Section 1 of this revenue
memorandum states that the nature of tax exemption and that tax exemption certificates will
only be issued after proper evaluation of documents submitted by the said corporations and
associations. It also emphasizes the importance for the Bureau of Internal Revenue to
continously monitor these organizations in order to meet the following objectives:

a. Ensure the conditions attached to the tax exemption are met.

b. Confirm the existence of other non-exempt incomes activities and adequate tax treatment
on these.
c. Impose other taxes for which no exemption has been given according to Philippine tax
laws (e.g. withholding tax, fringe benefit tax, and documentary stamp tax).

d. Reduce tax leakages resulting from inaccurate interpretation of relevant tax laws and
administrative issuances.

Section 2 covers the applications for tax exemption and revalidation of the qualified
corporations and associations. These corporations and associations are required to apply their
respective tax exemption or revalidation applications to the Revenue District Office (RDO)
where they are registered.

With regards to Section 5, it presents the general guidelines in the evaluation of the
application for tax exemption and revalidation. It pointed out that the branch office of a
foreign non-stock, non-profit corporation cannot qualify as a tax-exempt corporation under
Section 30 of the Tax Code. Listed below are the procedures that a Revenue District Officer
shall follow:

a. Making sure that the corporation or association are included in the category of qualified
organization by reviewing its Articles of Incorporation and By-Laws and other constituent
documents.

b. Determining whether or not the corporation or association is operating as qualified

organization by investigating its operating policies, financial statements and other relevant
records.

c. Verifying the sources of revenue of the corporation or association as well as its other
relevant transactions to determine which of them are taxable and non-taxable.

d. Checking whether or not the corporation or association is complying if it has stop-filer

cases, accounts receivable cases, and many more.

e. Checking whether the corporation or association is subject to any pending cases,

assessment, complaint, court appeal, and many more.

For the Section 9 of this memorandum, it indicates that the validity of tax exemption
ruling is valid only for a period of three (3) years unless sooner revoked. The tax exemption
ruling is deemed revoked if there are any material changes with regards to character, purpose,
or method of operation of the corporations or associations which are inconsistent with the
basis for its income tax exemption. The revocation takes place as of the date of the change in
content.

Section 10 is about renewal of tax exemption rulings in accordance with the same
requirements and procedure provided herein. A renewal application must be filed to extend
the three-year exemption ruling. The non-renewal of tax exemption ruling will be considered
as revocation upon the expiration of the tax exemption ruling.

Bureau of Internal Revenue, Revenue Memorandum Order No. 34-2014

This Revenue Memorandum is made in response to the questions posed against

Revenue Memorandum Order No. 20-13 and 28-13. This is created to clarify certain
provisions concerning the issuance of tax exemption rulings for qualified non-stock, non-
profit corporations and associations.

It states that applications for tax exemption rulings may be filed by umbrella
organizations or confederations duly recognized by the Bureau of Internal Revenue, the
Philippine Taxing Authority, on behalf of any of its non-stock, non-profit members.

When it comes to non-stock, non-profit entities with valid and existing tax exemption
rulings, they are presumably compliant with the conditions for availment of tax exemption
with respect to any income earned as such.

GENERAL LEGAL FORMS

Revised Corporation Code

The Revised Corporation Code repealed the Corporation Code of the Philippines.
With respect to Section 86 of this code, it states that no portion of the income of non-stock
corporation shall be distributed as dividends to its members, officers or trustees. Provided
that any incidental profit of a non-stock corporation shall, whenever necessary or proper, be
used in furtherance of the organization purpose or purposes.

INUREMENT

Bureau of Internal Revenue, Revenue Regulation No. 13-98

This Revenue Regulation refers to the deductibility in taxable income of accredited

donne institutions in the contributions or gifts made or paid by them. Section 1 of this
regulation pointed out that accredited non-profit organization will only receive full
deductions if the administrative expenses, including compensation and remuneration, didn't
exceed thirty percent (30%) of total expenses for the taxable year.

Section 10 provides the list of transactions that accredited non-profit organization are
phohibited to undertake because it can lead to direct or indirect private inurement. This
includes:

a. Lending any portion of the organization’s income or property without sufficient

consideration unless the organization has a structured micro-credit or micro-finance plan as
approved by its Board of Trustees;

b. Purchasing any security and/or property for more than adequate consideration.

c. Selling of any portion of the organization’s property for less than the adequate
consideration;

d. Diverting income or property rights of the organization to founders, principal officers,

directors, and persons closely related to them or to any corporation controlled directly or
indirectly by those same individuals;

e. Using any part of its property, income or seed capital for any purpose other than that for
which the corporation was established or organized; or

f. Participating in any activity that is contrary to law, public order or public policy.

DISSOLUTION

Revised Corporation Code

The Revised Corporation Code improves the ease of doing business in the country.
With regards to Section 93 of this code, the mannner on how the assets of non-profit
organization will be distributed after satisfying first the liabilities and other obligations. The
rules of distribution shall be applied as follows:

a. When the assets are held by the corporation upon a condition requiring a return, transfer,
or conveyance, and which condition occurs by reason of dissolution, the same shall be
returned, transferred, or conveyed in accordance with such requirements;

b. When the assets are received and held by the corporation subject to limitations permitting
their use only for charitable or similar purposes but not held upon a condition requiring
return, the same shall be transferred or conveyed to one or more corporations, societies, or
organizations engaged in activities in the Philippines substantially similar to those of the
dissolving corporation; and

c. Otherwise, the remaining assets of non-stock corporations may be distributed in the

manner and to those individuals or organizations indicated in the Articles of Incorporation.

Bureau of Internal Revenue, Revenue Regulations No. 13-98

This Revenue Regulation also provides the disposition of the assets of non-profit
organizations in a best manner. Under Section 1 (b) of this regulation, it states that the assets
of non-profit organization upon dissolution may be distributed to the state for a public
purpose. Also, it can be distributed by a competent court to another accredited non-profit
organization to be used in such a manner which, in the judgment of that court, will best
accomplish the general purpose for which the dissolved non-profit organization was created.

ACTIVITIES

Revised Corporation Code

The Revised Code presents the significant changes to the legal framework for the
registration and operation of private corporations in the Philippines. It is specifically stated in
Section 35 and 86 of this code that a non-profit organization has a corporate power and
capacity wherein it can sue and be sued in its corporate name, can deal with real and personal
property, can admit members, and to exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in the articles of incorporation. In
addition to Section 86, non-profit organization can only engaged in those income-generating
activities expressly specified in their articles of incorporation. Any incidental profits made
should be use in furtherance of the organization's objectives.

Also, the activities of a non-profit organization depends on the type of non-profit

organization formed with regards to Section 87 of this code whereas non-profit organization
may be formed or organized for charitable, religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service, or similar purposes (such as trade, industry,
agricultural, and similar chambers), or any combination thereof.

POLITICAL ACTIVITIES

Philippine Omnibus Election Code Section 95 (Prohibited Contributions)

 This Code covers all the election of public officers and, to the extent appropriate,
all referenda and plebiscites. Non-profit organizations may engage in lobbying activities, but
it must be within the norms for acceptable advocacy. In Section 81 of the code, it prohibits
any foreigner to aid directly or indirectly in any candidate or political party.

Moreover, in Section 95 of the code, it forbids the non-profit organizations receiving

government funding and tax benefits from making direct or indirect donation for campaign
activities. Similarly, it is unlawful for anyone to contribute in whatever form for the purposes
of influencing the results of an election, as stated in Section 96 of the code.

CONTROL OF ORGANIZATIONS

Securities and Exchange Commission Memorandum Circular No. 10, series of 2016

This Memorandum Circular is created to provide guidelines on the issuance of

certification on the nationality of non-stock corporations. According to this, a foreigner may
sit in a non-stock corporation as a trustee. However, the Philippine law is silent with regards
to the ability of foreign entities or individuals to control non-profit organization. With that, it
is recommended that these foreign entities must have a consultation with the Securities and
Exchange Commission to know the proper registration requirements specific to their plan of
operation in the country. Furthermore, the percentage of Philippine citizens in the board or
membership can affect the qualification of the organization as a Philippine National.

Bureau of Internal Revenue, Revenue Memorandum Order 20-2013

This Revenue Memorandum pertains to evaluation of qualified corporations and

associations. Moreover, Section 6 of the memorandum provides the specific requirements
that must be attain by the corporation or association applying for to become tax exempted. In
the list of requirements, it is stated in letter (d) that corporation or association applying must
not be a branch of a foreign non-stock, non-profit corporation. Therefore, the ownership of a
branch by a foreign non-stock, non-profit corporation can lead to having tax consequences.

VALUE ADDED TAXES AND TAX ON GROSS RECEPIENTS

Philippine Tax Code

 The Tax Code provides information for the strict implementation of guidelines and
rules in terms of taxation. Under Section 109 of the code, it concerns the value added tax
rules in the Philippines which discusses the exemption from value added tax applications. For
this, educational services offered by private and government educational institutions are
exempted from value added tax. In addition, it clarifies that those organization whose annual
gross receipts (for sale of services) and sales (for sale of goods) in excess of three million
(3,000,000) shall be subject to the standard value added tax rate of twelve percent (12%).

Another one is Section 116 of the code which pertains to organization that are not
VAT registered and engaged in trade or business whose annual gross receipts and sales fall
below three million (3,000,000) shall be subject to a tax equivalent of three percent (3%) on
its quarterly receipts or sales.

IMPORT DUTIES

Customs Modernization and Tariff Act

This Act is made for the purpose of modernizing customs rules and procedures for
better working operations. Specifically, Section 800 stipulates that the exemptions of certain
goods relevant to non-profit organizations. It provides a list of exempted goods including but
not limited to:

a.Imported goods donated to or on behalf of the Government of the Philippines or any

properly registered relief organization not operated for profit, for free distribution among the
needy, upon certification by the DSWD or the Department of Education (DepEd), or the
Department of Health (DOH), as the case may be;
b.Economic, technical, vocational, scientific, philosophical, historical, and cultural books or
publications, or those educational, scientific, or cultural materials covered by international
agreements or commitments binding upon the Philippine government so certified by the
DepED;

c. Religious books such as Bibles, Korans, missals, prayer books, and other religious books
of similar nature and extracts therefrom, including hymnals for religious uses.

The goods under Section 800 are exempt from paying import duties upon compliance
with the prescribed formalities.
REFERENCES:

https://www.bakermckenzie.com/en/insight/publications/2019/03/revised-corporation-
code#:~:text=On%2020%20February%202019%2C%20Philippine,the%20Philippines%20(Revised
%20Code).&text=68%20or%20the%20Corporation%20Code,doing%20business%20in%

http://www.sec.gov.ph/wp-content/uploads/2019/03/2019Legislation_Revised-Corporation-Code-
Comparative-Matrix.pdf

http://www.usig.org/countryinfo/laws/Philippines/Philippines%20Revenue%20Regulations%201.pdf

https://lawphil.net/statutes/repacts/ra2015/ra_10693_2015.html

https://businessmirror.com.ph/2019/07/30/revisiting-section-30-of-nirc-tax-
exemption/#:~:text=Section%2030%20of%20the%20National,no%20income%20to%20speak%20of.

https://www.bir.gov.ph/index.php/tax-code.html

https://www.bir.gov.ph/images/bir_files/old_files/pdf/73171RMO%2020-2013.pdf

http://www.usig.org/countryinfo/laws/Philippines/Philippines%20Revenue%20Regulations%201.pdf

http://www.usig.org/countryinfo/laws/Philippines/Philippines%20Revenue%20Regulations.pdf

http://www.sec.gov.ph/wp-content/uploads/2019/03/2019Legislation_RA-11232-REVISED-
CORPORATION-CODE-2019.pd

http://www.usig.org/countryinfo/laws/Philippines/Philippines%20Revenue%20Regulations.pdf

https://www.bir.gov.ph/index.php/tax-code.html

http://www.sec.gov.ph/wp-content/uploads/2019/03/2019Legislation_RA-11232-REVISED-
CORPORATION-CODE-2019.pdf

http://www.usig.org/countryinfo/laws/Philippines/Philippines%20Revenue%20Regulations%201.pdf

http://www.sec.gov.ph/wp-content/uploads/2019/03/2019Legislation_RA-11232-REVISED-
CORPORATION-CODE-2019.pdf

https://www.comelec.gov.ph/?r=References/RelatedLaws/OmnibusElectionCode/OECArt11

http://www.sec.gov.ph/wp-content/uploads/2016/03/2016_memo_circular_no.101.pdf
https://www.bir.gov.ph/images/bir_files/internal_communications_3/Digest%20of%20RMO
%202014/Digest%20of%20RMO%20NO%20%2034-2014.pdf

https://www.bir.gov.ph/images/bir_files/old_files/pdf/73171RMO%2020-2013.pdf

https://www.pwc.com/ph/en/publications/pdf/pwcph-tax-code-2019.pdf

http://customs.gov.ph/wp-content/uploads/2017/10/CMTA-RA-10863.pdf