BIR issued a Revenue Memorandum Circular No. 24-2016 dated February 24, 2016 to reiterate the requirements provided under Department of Finance (DOF) Order No. 149-95 for tax exemption of non-stock, non-profit educational institutions.
The following documents are required to submit annually to the Revenue District Officer:
- Certification from their depository banks as to the amount of interest income earned from passive investments not subject to 20% final withholding tax;
- Certification of actual utilization of the said income; and
- Board Resolution by the school administration on proposed projects to be funded out of money deposited in banks or placed in money markets.
A non-stock, nonprofit educational institution is a private corporation formed by private individuals, registered with the Securities and Exchange Commission as a non-stock corporation to engage in sustaining and administering a school. These institutions are said to be exempt from taxes and duties according from the Section 4(3), Article XIV of the 1987 Constitution. However, they shall be subjected to internal revenue taxes on income from trade, business, or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions.
Likewise, depository banks of these educational institutions may periodically require them to submit a certificate of income tax exemption or tax rulings complying their exemption from income tax as a non-stock, non-profit educational institutions to confirm the non-imposition of the 20% and 7 ½% final withholding taxes on interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly, and exclusively in pursuance of their purposes as an educational institution.
BIR shall carry out an audit of the annual information return filed to determine compliance with the circumstances set forth in the certificate of exemptions and the tax liabilities, if any.