A Corporation is not automatically exempt from income tax simply because it is not

organized or operated for profit. In order to be relieved of the duty of filing regular
income tax returns and payment of tax, exemption must be established by filing an
affidavit with the Collector of Internal Revenue of the district in which the corporation is
located, setting forth the following data (a) Character of the organization; (b) purpose for
which organized; (c) actual activities; (d) sources of income: (e) disposition of income;
(1) whether any income is credited to surplus, or may inure to the benefit of any (g) copy
of the private shareholder or individual : ices of Incorporation; (h) copy of the by-laws;
latest financial statements showing assets and liabilities, and receipts and
disbursements.

Qualifications for Exemption

The two most important qualifications necessary to substantiate a claim for exemption
are that the corporation be not organized or operated for profit, and that none of its
income inure to the benefit of any shareholder or member.

As a rule, domestic corporations are subject to income tax in the Philippines at the rate
of 30% based on their taxable net income after allowable deductions from gross
income. Income tax liability is then determined after considering the effect of tax credits
such as creditable withholding taxes (BIR Form No. 2307), minimum corporate income
taxes paid, and other allowable tax credits. Under Section 30 of the Tax Code of the
Philippines, as amended, the following corporations or organizations shall be exempt
from income tax in the Philippines in respect to income received by them as such:

1. Labor, agricultural or horticultural organization not organized principally for profit;

2. Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual
purposes and without profit;
3. A beneficiary society, order or association, operating for the exclusive benefit of
the
 1. members such as a fraternal organization operating under the lodge system, or a
mutual aid association or a non-stock corporation organized by employees
providing for the payment of life, sickness, accident, or other benefits exclusively
to the members of such society, order, or association, or non-stock corporation or
their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its
members;
5. Non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or asset shall belong to or
inure to the benefit of any member, organizer, officer or any specific person;
6. Business league, chamber of commerce, or board of trade, not organized for
profit and no part of the net income of which
7. Civic League or organization not organized for profit but operated exclusively for
the promotion of social welfare;
8. A non-stock and nonprofit educational institution;
9. Government educational institution;
10. Farmers' or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like
organization of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purpose of
meeting its expenses; and
11. Farmers', fruit growers', or like association organized and operated as a sales
agent for the purpose of marketing the products of its members and turning back
to them the proceeds of sales, less the necessary selling expenses on the basis
of the quantity of produce finished by them;

However, the income of whatever kind and character of the above corporations or
organizations from any of their properties, real or personal, or from any of their activities
conducted for profit regardless of the disposition made of such income, shall be subject
to tax imposed under this Code. The Bureau of Internal Revenue (BIR or Tax Authority)
is now strict in seeing to it that only corporations or organization listed above shall be
entitled to the income tax exemptions in the Philippines, and that, only their income as
such corporations are covered by the income tax exemption in the Philippines. Based
on the latest issuance of the BIR, the following are not covered by the above:

 Revenue Memorandum Circular No. 35-2012 - Clubs organized and operated

exclusively for pleasure, recreation, and other non-profit purposes are subject to
income tax in the Philippines despite being a non-stock and non-profit because
they do not fall under any of the above exempt corporations.
 Revenue Memorandum Circular No: 65-2012 - Condominium corporations
under the Condominium Act are subject to income tax with respect to their gross
receipts from association dues, membership fees, and other assessment or
charges because they are the return of tenants and members to the
condominium corporations on the benefits, advantages, and privileges.

As such, it would be prudent for those corporations and organizations claiming income
tax exemptions in the Philippines to review their corporate entities and determine if
indeed, they fall under corporations exempt from income tax in the Philippines as listed
above.