RMC No. 78-2022

RMC No. 78-2022 (June 9, 2022) clarifies the Income Tax treatment and obligations of different classifications of educational institutions. Proprietary educational institutions that are domestic corporations are subject to the 10% preferential income tax rate under Section 27(B) of the Tax Code, temporarily reduced to 1% from July 1, 2020 to June 30, 2023; the same applies to domestic non-stock, non-profit (NSNP) schools whose income or assets benefit any member. If gross income from unrelated trade, business or other activity exceeds 50% of total gross income, the regular corporate income tax under Section 27(A) applies to the entire taxable income. Individual owners and resident foreign corporations are taxed under Sections 24/25 and 28(A), respectively. Government educational institutions are exempt per their charter or, absent an express provision, under Section 30(I). NSNP educational institutions are exempt from taxes and duties on revenues actually, directly and exclusively used for educational purposes, provided they factually prove such use, including filing a detailed expense breakdown with the annual income tax return. The circular also covers deductibility of donations (10% individual / 5% corporate limits, full deduction if Section 34(H)(2)(c) conditions are met), donor's tax exemption for gifts to NSNP schools limited by a 30% administration-use condition, and withholding tax: educational institutions may be constituted as withholding agents, and NSNP institutions are not subject to creditable or final withholding tax on revenues used for educational purposes, subject to presenting exemption certificates/rulings and SEC registration (new schools must secure a Certificate of Tax Exemption within three months from SEC registration).