Tax Treatment of Educational Institutions

The BIR has issued Revenue Memorandum Circular (RMC) No, 78-2022, dated June 8, 2022, to clarify the tax treatment and other tax compliance requirements of the different classifications of educational institutions referred to in the National Internal Revenue Code of 1997, as amended (Tax Code).


This RMC covers the following educational institutions:


In connection with the foregoing, the RMC also provides the following tax treatments for these educational institutions:


A. Income Tax

It should be noted that for a Non-stock, Non-profit (NSNP) educational institution to qualify for tax exemption, it must provide factual evidence that its income or revenues are used actually, directly, and exclusively for educational purposes. Moreover, none of its net income or asset should accrue to the benefit of any member of the corporation. The institution must also secure a one-time certificate of income tax exemption or exemption ruling from the BIR, subject to the submission of applicable documents, pursuant to RMC No. 24-2016 and Revenue Memorandum Order (RMO) No. 44-2016. Otherwise, the income of the NSNP educational institution shall be subject to the applicable taxes under the Tax Code, as amended.


Donations


Donations to educational institutions may be deducted from the gross income of the donor in an amount not exceeding 10% of the donor’s taxable income in the case of an individual and 5% in the case of a corporation; provided, that no part of the net income or asset of the donee inures to the benefit of any individual or private stockholder. Donations to accredited non-government institutions may be deducted in full, subject to conditions.


Certain donations to an NSNP educational institution may be exempted from donor’s tax, subject to the condition that not more than 30% of the gifts shall be used by the donee institution for administration purposes.


B. Other Applicable Taxes

  • An educational institution shall be constituted as a withholding agent on the compensation income paid to its employees or if it makes income payments to individuals or corporations subject to withholding tax.

  • NSNP educational institutions shall not be subject to any withholding tax on their revenues and assets used actually, directly, and exclusively for educational purposes as provided under the Constitution.

  • The income payments to proprietary educational institutions, including NSNP educational institutions, which are subject to preferential income tax under Section 27(B), are subject to 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) and Section 24(A)(2)(b) of the Tax Code, as applicable.

  • In case of a sale, barter, exchange, or lease of goods and/or services other than educational services, both the corporation (proprietary educational institution and NSNP educational institution) and sole proprietorship are required to file business tax returns (either VAT or Percentage tax returns, as the case may be) using BIR Form Nos. 2550M, 2550Q, or 2551Q, respectively.

C. Other Compliance Requirements

  • Educational institutions are required to be registered with the BIR on or before the commencement of their operations.

  • In the regular conduct of business, all educational institutions shall issue duly registered receipts or sales/commercial invoices showing the date of transaction, quantity, unit cost, and description of merchandise or nature of service for each sale or transfer of merchandise or for services rendered valued at one-hundred pesos (PI00.00) or more. These receipts or sales/commercial invoices should be supported by an Authority to Print Receipts and Invoices that must be secured by the educational institution before the commencement of its business operations.

  • Educational institutions shall register their books of accounts and/or secure appropriate Permits to Use Loose Leaf Books of Accounts/Computerized Books of Accounts before their use. The books or chart of accounts and other pertinent records should be in the institution, ready to be presented to or examined by authorized Revenue Officers.

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