Tax Guide – Understanding Tax Exemptions and Requirements in the Philippines - Mazars - Philippines (2024)

Tax Exemption, as its name suggests, is the legal right of an organisation or an individual to get an exemption or reduction to the taxes they owe to the Bureau of Internal Revenue (BIR) – provided that they meet certain requirements. Those entitled to tax exemptions are then issued with a Certificate of Tax Exemption (CTE) as proof that they are not required to pay certain taxes.

Securing a Certificate of Tax Exemption in the Philippines

The tax exemption benefit is given to an individual or organization based on the existing tax laws in the Philippine Constitution, National Internal Revenue Code, Local Government Code, tax treaties, special laws and other BIR issuances and rulings. In essence, the CTE does not grant the exemption but is simply the document to prove the applicable tax exemption.Nevertheless, because of the nature of tax exemptions which follows the concept of strictissimi juris where the tax laws are construed strictly against the taxpayers, the tax-exempt individuals or organizations must submit certain requirements to the BIR before the issuance of the CTE. CTEs are issued by the Revenue District Office (RDO) where the taxpayer is registered.

Tax Exemption Qualifications in the Philippines

The Tax Code of the Philippines lists the following individuals or organizations that are qualified for tax exemption:

1. Individuals with no income, minimum wage earners, and those whose taxable income does not exceed PHP 250,000.
2. Non-stock, nonprofit educational institutions.
3. Non-stock, nonprofit corporations that fall under Section 30 of the National Internal Revenue Code.
4. Cooperatives registered in the Cooperative Development Authority (CDA) which transact business with members only.
5. CDA-registered cooperatives which transact business with members and non-members, with accumulated reserves and undivided net savings of not more than PHP 10 million.

Understanding Personal Income Tax Exemptions in the Philippines

In the Philippines, personal income tax refers to the tax paid to the BIR based on the individual’s income, ranging from wages, salaries, and other types.

Contrary to other people’s knowledge, the civil status and presence of dependents no longer matter when it comes to the personal exemptions for income tax purposes. With the amendments made in the Tax Reform for Acceleration and Inclusion (TRAIN) LAW effective beginning 2018, individuals can be exempted from personal tax income if he/she has no income during the year, minimum wage earners (those earning less than or equal to the DOLE-mandated daily minimum wage), and those whose annual taxable income does not exceed PHP 250,000. Additional exemptions further exempt the 13^th month pay and other benefits equivalent to PHP 90, 000 from tax.

List of Required Documents for CTE

Individuals and organisations have different requirements depending on their classification

1.) For Scholarship and Job/Livelihood Programs

- According to the Bureau of Internal Revenue (BIR) Citizen Charter of 2020, the following are the requirements:

• Certificate of Low Income or No Income signed by the Barangay Chairman of the place where the applicant resides.
• Duly notarized Affidavit of Low Income or No Income from a notary public.
• Proof of payment of PHP 100 Certification Fee and PHP 30 loose Documentary Stamp Tax from the Collection Section of your RDO.

Additional documents are needed for those transacting through a representative:

• Special Power of Attorney executed by the applicant.
• Government-issued ID of the authorized representative.

2.) For Cooperatives

- Required documents pursuant to BIR’s Revenue Memorandum No. 124-2022:

A.) Requirements for a new application

• Certified True Copies of the Articles of Cooperation and By-Laws, as certified by the CDA;
• Certified True Copy of the New Certificate of Registration issued by the CDA under the new Cooperative Code, as certified by the CDA;
• Certified True Copy of the current Certificate of Good Standing issued by the CDA effective on the date of application;
• Certified True Copy of the BIR Certificate of Registration of the Cooperative; and
• Original Copy of Certification under Oath of the List of Cooperative Members with their respective Taxpayer Identification Number (TIN), if already available, and their capital contributions prepared by the authorized official of the Cooperative.

B.) Requirements for a renewal

• Certified True Copies of the Latest Articles of Cooperation and By-Laws, as certified by the CDA;
• Certified True Copy of the new Certificate of Registration issued by the CDA under the new Cooperative Code, as certified by the CDA;
• Certified True Copy of the current Certificate of Good Standing issued by the CDA effective on date of application; and
• Certified True Copy of Latest financial statements of the immediately preceding year duly audited by a BIR-accredited independent Certified Public Accountant.

3.) For Non-Stock, Nonprofit Educational Institutions

- Requirements for these organisations are provided in BIR Revenue Memorandum Order No. 44-2016:

• Original copy of the application letter for the issuance of Tax Exemption Ruling
• Certified True Copy of the Certificate of Good Standing issued by the Securities and Exchange Commission
• Original copy of the Certification under Oath of the Treasurer as to the amount of the income, compensation, salaries or any emoluments paid to its trustees, officers and other executive officers
• Certified True Copy of the Financial Statements for the last three years
• Certified True copy of government recognition/ permit/ accreditation to operate as an educational institution issued by the Commission on Higher Education (CHED), Department of Education (DepEd), or Technical Education and Skills Development Authority (TESDA);
• If the government recognition/permit/accreditation was issued five years prior to the application, an original copy of a current Certificate of Operation/Good Standing or other equivalent document issued by the appropriate government agency (CHED, DepEd, or TESDA) shall be submitted as proof that it is operating as non-stock and nonprofit educational institution
• Original copy of the Certificate of Utilization of Annual Revenues and Assets by the Treasurer or his equivalent of the non-stock and nonprofit educational institution

4.) For Non-Stock, Nonprofit Corporations

- The following requirements are listed in BIR’s Revenue Memorandum Order No. 38-2019:

• Original application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC upon which the application for exemption is being based;
• Certified true copy of the latest Articles of Incorporation (AOI) and By-Laws issued by the Securities and Exchange Commission (SEC)
• Original Certification under Oath by an executive officer of the corporation or association as to:
  • full description of its past, present, and proposed activities,
  • the sources and disposition of income,
  • detailed description of all revenues which it seeks to be exempted from income tax, and
  • amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers.
• Original Certification issued by the RDO where the corporation or association is registered, indicating the TIN of the corporation, and certifying that said corporation is not subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if there be any, the Original Certification issued by the RDO on the status thereof; and
• Certified True Copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years.

Tax exemptions are tax benefits enjoyed by specific individuals and organizations in accordance with the different tax laws. By taking note of the aforementioned requirements, the entitled taxpayer will be able to secure the CTE. By presenting the certification to their suppliers and customers, the taxpayer can maximize their tax benefit of being exempt from paying certain taxes.