I

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE

Date irlili ol ZfiZl

REvENUE REGULATIoNs l{o.3 - A oa 2

S[JBJECT : Implementing the Provisions of Republic Act (RA) No. 11635, entitled"An
Act Amending Section 27 (B) of the National Internal Revenarc Code o/' 1997,
as Antended, and.for Other Purposes" on the Income Taxation of Proprietary
Educational Institutions and Hospitals Which Are Non-Profit

TO : All Revenue Officers and Others Concerned

SECTION 1. SCOPE. - Pursuant to the provisions of Sections ?44 and 245 of the National
Internal Revenue Code of 1997 (NIRC), as amended, in relation to Section 2 of Republic Act
(RA) No. 11635, these Regulations are hereby promulgated to implement the amendment to
Section Z7(B\ of the NIRC, as contained in the said Act, on the income taxation of
Proprietary Educational Institutions and Hospitals which are non-profit.

SECTION 2. DEFINITION. - The following words or phrases, when used in these

Regulations, shall have the following meaning:

A. Proprietary Educational Institutions -

refer to any private schools maintained and
administered by private individuals or groups, with an issued permit to operate from the
Department of Education (DepEd) or the Commission on Higher Education (CHED) or
the Technical Education and Skills Development Authority (TESDA), as the case may
be, in accordance with existing laws and regulations.

The most common organizational structure of educatiorial institutions fegistered with

Securities and Exchange Commission (SEC) under Section 27(B) of the NIRC, as
amended, are:

a. Stock Corporations are those which have capital stock divided into shares and are
authorized to disffibute to the holders of such shares, dividends, or allotments of the
surplus profits on the basis of the shares held; characterized as organized for profit to
be enjoyed by stockholders; profits are declared and they are distributed to
stockholders; composed of stockholders (also called shareholders or share owners);
and governed by a Board of Directors (BOD).

b. Non-stock Corporations are those organized not as a stock corpomtion;

characterized generally, as organized for purposes other than profit; income earned
are not so distributed but used to further its own purposes; composed of members;
and governed by what is generally called a Board ofTrustees (BOT).
 B. Hospitals Which are Non-Profit - refer to any private hospitals, which are non'
profit for the purpose of these Regulations, maintained and administered by private
individuals or groups.

C. Non-Stock, Non-Profit Educational Institutions are those institutions mentioned in the

first paragraph of Section 4(3), Article XIV of the 1987 Constitution and Section 30 (H)
of the NIRC, as amended, whose revenues and assets that are used actually, directly and
exclusively for educational purposes shall be exempt from taxes and duties.

D. Non-profit - as used in the definition of Proprietary Hospitals and Non-Stock, Non-

Profit Educational Institutions, means that no net income or asset accrues to or benefits
any member or specific person, with all the net income or assets devoted to the
institution's purposes and all its activities conducted not for profit.

For purposes of these Regulations, the grant of per diems such as transportation
allowance in attendance of meetings, compensation and/or endowments for services
trl c rendered, or any other similar emoluments to the Board of Trustees, officers, employees,
a
; or any members of the above-merrtioned instifutions shall not be prohibited and shall not
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o necessarily be considered a private inurement that would negate the status of the
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(} institutions as non-profit; Provided, that such per diems, compensation or emoluments
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\-' 6d. O filnstiorrs anir& services rendered. lrr such a c,ase) the same shalt be cotsidered as
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The reasonableness of the expense shall be determined by the BIR on a case-to-case

basis.

E. Unrelated Trade, Business or Other Activity means any kade, business or other
activity, the conduct of which is not substantially related to the exercise or performance
by such educational institutions or hospitals of its primarypurpose or funcJion,

SECTION 3. COVERAGE OF THE PRETERENTIAL CORPORATE INCOME TAX

RATE. - The following institutions shall be covered by the preferential ten percent (10%)
corporate income tax rate; Provided, that beginning July 1,202A until June 3A,2A23, the rate
of one percent (1%) shall apply, as imposed under Section 27 (B) of the NIRC, as amended:

( 1 ) Proprietary Educational Institutions;

(2) Hospitals which are non-profit; and,
(3) Non-Stock, Non-Profit Educational Institutions whose net income or assets
accrue/inure to or benefit any member or specitic person.

After June 30,2023, the rate shall revert to the preferential corporate income tax rate
of l0%.

SECTION 4. APPLICATION OF THE REGULAR CORPORATE INCOME TAX

RATE. - The twenty-five percent (25%) regular corporate income tax rate prescribed under
Section 27( ) of the NIRC, as amended, shall be imposed on the entire taxable income of the
institutions rnentioned in Section 3 hereof if their gross income from unrelated trade,
business or other activity, as defured herein, exceeds fifty percent (50%) of the total gross
income they derived from all sources. Moreover, a Non-Stock, Non-Profit Educational
 Institution, not falling under Section 3 of these Regulations, shall be subject to the rate of
twenty-five (25%) regular corporate income tax on the portion of its revenues or assets not
used actually, directly, and exclusively for educational purposes, as provided in Section
27(A) of the NIRC, as amended.

Illustrations:

(1) Rosa Private School of Values or RPSV is a proprietary educational institution with
an issued permit to operate from the Commission on Higher Education (CHED). It is
maintained and administered by MCGJ Inc., a private domestic corporation registered
underthe Securities and Exchange Commission.

RPSV uses a fiscal year accounting ending July 3 I st of each year. On July 3 I , 2021, it
recorded total gross receipts amounting to P18,000,000.00, of which Pl0,000,000.00
came from education-related activities, while P8,000,000.00 from other unrelated
business activities. Also, RPSV recorded cost of service and operating expenses from
related activities amounting to P2,000,000.00 and P1,000,000.00, respectively, and
&om unrelated business activities amounting to P3,000,000.00 and P2,000,000.00,
respectively.

Related Unrelated Total

activities Activities

Gross Receipts/Sales 10,000,000.00 8,000,000.00 18,000,000.00

Less: Cost of ServicelSales 2,00a,000.00 3,000,000.00 5,000,000.00

Gross Income 9,000r000.00 5,0001000.00 13r000r000.00

Less: Allowable Deductions 1,000,000.00 2,000,000.00 3,000,000.00

NETTAXABLE I}\ICOME 7,000,000.00 3,000,000,00 10,000,000.00

REGI]LAR RATE 1o/o

TAXDIJE 100,000.00
* The educational institution is subject to income tax at the rate of 1%o since its
gross income from unrelated activities did not exceed 50Vo of the totai gross
income.

(2) ILR Hospital, a private non-profit hospital, has gross receipts of P15,000,000.00 with
a cost of P6,000,000.00 and allowable deductions of P3,250,000.00 frorn related
activities, while for its unrelated activities, it incurred P5,000,000.00 and
P2,000,000.00 as cost of sales and allowable deductions, respectively, with a gross
income of P 1 8,000,000.00, for Calendar Year 2021 .

Cornputation of tax shall be as follows:

Related Unrelated Total

activities Activities

Gross Sales 15,000,000.00 i 18,000,000.00 33,000,000.00

Cost of Sales 6,000,000.00 5,000,000.00 1 1,000,000.00

;,jA

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 Cross Income 9,000,000.00 l3,oo0o0oo.o0 22r0000000.00

Less: Allowable Deductiorrs 3,250,000.00 2,000,000.00 5,250,000.00

NET TAXABLE INCOME 5,7 50,000.00 I 1,000,000.00 16,,7 50,000.00

REGULAR RATE 250h

TAX DUE 41197,500.00

* ILR Hospital is subject to the regular rate of 25o/o since its gross income from non-
related activities is more than 50Yo of its total gross income.

SECTION 5. REPEALING CLAUSE. - Any provisions of existing revenue regulations or

revenue issuances which are inconsistent with these Regulations are hereby repealed,
modified or amended accordingly.

SECTION 6. EFFECTMTY. - These regulations shall take effect immediately upon

publication in the Official Gazette or in a newspaper of general circulation, whichever comes
earlier.

CARLOS G. DOMING
Secretary of Finance

Recom m endin g Approval :

BUREAU OF IhITTQI.I5I REVENIJE

ffiCAESAR R.
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DI.JLAY'
IR\IN/-!"
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Comntissioner of Internal Revenue lP/ f)8

fiew&07 RECORDS
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