BIR Issues Regulation Implementing Amendment on Income Taxation of Proprietary Educational Institutions and Hospitals Which Are Non-Profit

On 7 April 2022, the Bureau of Internal Revenue (“BIR”) promulgated Revenue Regulations No. 3-2022 which implements the amendment to Section 27(B) of the National Internal Revenue Code (“NIRC”) on the income taxation of Proprietary Educational Institutions and Hospitals which are non-profit.

As defined in the regulation, Proprietary Educational Institutions are any private schools maintained and administered by private individuals or groups, with an issued permit to operate from the concerned government agencies. Hospitals which are non-profit refer to any private hospitals which are non-profit and maintained and administered by private individuals or groups. Finally, a Non-Stock, Non-Profit Educational Institution are those whose revenues and assets are used actually, directly, and exclusively for educational purposes and are exempt from taxes and duties. 

Under the NIRC, beginning 1 July 2020 until 30 June 2023, these institutions shall only pay one percent (1%) corporate income tax:

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 specific person.

After 30 June 2023, the rate shall revert to the preferential corporate income tax rate of ten percent (10%). 

However, in case the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources, the regular corporate income tax rate of twenty-five percent (25%) shall be imposed. Unrelated trade, business or other activity is any trade, business or other activity that is not substantially related to the performance by such educational institutions or hospitals of its primary purpose or function.

Lastly, a Non-Stock, Non-Profit Educational Institution which does not fall under the enumeration above, shall be subject to the rate of twenty-five percent (25%) regular corporate income tax on the portion of its revenues or assets not used actually, directly, and exclusively for educational purposes. 
A copy of the Revenue Regulation may be accessed here.