Department of Finance issues new regulation to implement Republic Act No. 11635

May 6, 2022

On 7 April 2022, the Department of Finance (DOF) issued Revenue Regulation (RR) No. 3-2022 to implement Republic Act (RA) No. 11635. RA No. 11635 provides for income tax on proprietary educational institutions and hospitals, which are non-profit organisations. RR No. 3-2022 expressly provides that, proprietary educational institutions may benefit from the preferential income tax rates of 1% (available from 1 July 2020 to 30 June 2023) and 10% (from 1 July 2023), provided that their gross income from trade, business, or any other activity that is not related to education, is not more than 50% of their total gross income from all sources. The 1% rate is based on the Corporate Recovery and Tax Incentives for Enterprises Law (CREATE), which amended the National Internal Revenue Code (Tax Code). RR No. 3-2022 and RA No. 11635 clarify that a proprietary educational institution is not required to be "nonprofit" in order to benefit from the preferential income tax rates.

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