Tax Alert No. 16 [Revenue Regulation (RR) No. 3-2022 dated 07 April 2022]

Implementing the Provisions of Republic Act (RA) No.11635, entitled "An Act Amending Section 27 (B) of the National Internal Revenue Code of 1997, as Amended, and for Other Purposes" on the Income Taxation of Proprietary Educational Institutions and Hospitals Which Are Non-Profit

RR No. 3-2022 has been issued to implement the provisions of RA No. 11635 on the income taxation of proprietary educational institutions and hospitals which are non-profit.

Under Section 3 thereof, the following institutions shall be covered by the preferential corporate income tax rate of ten percent (10%) provided that beginning 1 July 2020 until 30 June 2023, the rate of one percent (1%) shall apply, as imposed under Section 27 (B) of the Tax Code, as amended:

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 10%. 

Note that the regular corporate income tax rate (RCIT) of twenty-five percent (25%) shall be imposed on the entire taxable income of the above mentioned institutions, if their gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income they derived from all sources. 

Moreover, a Non-Stock, Non-Profit Educational Institution, not falling under Section 3 of the said issuance, shall be subject to the RCIT rate of 25% on the portion of its revenues or assets not used actually, directly, and exclusively for educational purposes, as provided in Section 27(A) of the Tax Code, as amended.