Taxation of Cooperatives

As one form of business corporation, cooperatives calculate taxable income and use tax
rates like other corporations, but with one principal difference. This difference reflects
cooperatives distinct way of distributing net margins to its patrons based on use, rather than to
investors based on investment.

Definition of Terms
a) Cooperative - means cooperative duly registered with the Cooperative Development
Authority or whose registration has been confirmed by the latter, including primary, secondary or
tertiary cooperatives.
b) Cooperative Development Authority means the government agency in charge of the
registration and regulation of cooperatives as such, hereinafter referred to as the CDA.
c) Registration - means the operative act granting juridical personality to a proposed cooperative
as evidenced by a Certificate of Registration from the CDA.
d) Certificate of Tax Exemption - means the ruling granting exemption to the cooperative
issued by the Bureau of Internal Revenue.
e) Income Tax - means corporate/cooperative income tax under the National Internal Revenue
Code.
f) Sales Tax - refers to either the value-added tax or percentage tax.

Legal Basis
1. Cooperative Code of the Philippines
a. Article 60
b. Article 61
2. Bureau of Internal Revenue
a. Section 109 of National Internal Revenue Code
b. Revenue Regulation No. 20-2001
3. Local Government Code of The Philippines
a. Section 133
b. Section 234

Cooperative Code of the Philippines

"ART. 60. Tax Treatment of Cooperative. Duly registered cooperatives under this Code which do
no transact any business with non-members or the general public shall not be subject to any taxes
and fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling
under this article shall be governed by the succeeding section.
"ART.61. Tax and Other Exemptions. Cooperatives transacting business with both members and
non-members shall not be subjected to tax on their transactions with members. In relation to this,
the transactions of members with the cooperative shall not be subject to any taxes and fees,
including not limited to final taxes on members deposits and documentary tax. Notwithstanding
the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions:
"(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten
million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or
barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs
duties, advance sales or compensating taxes on their importation of machineries, equipment and
spare parts used by them and which are not available locally a certified by the department of
trade and industry (DTI). All tax free importations shall not be sold nor the beneficial ownership
thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the
transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and /
or duties.
"(2) Cooperatives with accumulated reserves and divided net savings of more than Ten million
pesos (P10,000,000.00) shall fee the following taxes at the full rate:
"(a) Income Tax On the amount allocated for interest on capitals: Provided, That the same tax is
not consequently imposed on interest individually received by members: Provided, further, That
cooperatives regardless of classification, are exempt income tax from the date of registration
with the
Authority

"(b) Value-Added Tax On transactions with non-members:

Provided, however, That cooperatives duly registered with the Authority are exempt from the
payment of value-added tax subject to
Section 109, subsections L, M and N of Republic Act No. 9337, the National Internal Revenue
Code, as amended: Provided, That the exempt transaction under Section 109 (L) shall include
sales made by cooperatives duly registered with the Authority organized and operated by its
member to undertake the production and processing of raw materials or of goods produced by its
members into finished or process products for sale by the cooperative to its members and nonmembers:
Provided, further, That any processed product or its derivative arising from the raw materials
produced by its members, sold in then name and for the account of the cooperative: Provided ,
finally, That at least twenty-five per centum (25%) of the net income of the cooperatives is
returned to the members in the form of interest and/or patronage refunds
"(c) All other taxes unless otherwise provided herein and
"(d) Donations to charitable, research and educational institutions and reinvestment to
socioeconomic projects within the area of operation of the cooperative may be tax deductible.
"(3) All cooperatives, regardless of the amount of accumulated reserves and undivided net
savings shall be exempt from payment of local taxes and taxes on transactions with banks and
insurance companies: Provided, That all sales or services rendered for non-members shall be
subject to the applicable percentage taxes sales made by producers, marketing or service
cooperatives: Provided further, That nothing in this article shall preclude the examination of the
books of accounts or other accounting records of the cooperative by duly authorized internal
revenue officers for internal revenue tax purposes only, after previous authorization by the
Authority.
"(4) In areas where there are no available notaries public, the judge, exercising his ex officio
capacity as notary public, shall render service, free of charge, to any person or group of persons
requiring the administration of oath or the acknowledgment of articles of cooperation and

instruments of loan from cooperatives not exceeding Five Hundred Thousand Pesos
(P500,000.00).
"(5) Any register of deeds shall accept for registration, free of charge, any instrument relative to a
loan made under this Code which does not exceed Two Hundred Fifty Thousand Pesos
(P250,000.00) or the deeds of title of any property acquired by the cooperative or any paper or
document drawn in connection with any action brought by the cooperative or with any court
judgment rendered in its favor or any instrument relative to a bond of any accountable officer of
a cooperative for the faithful performance of his duties and obligations.
"(6) Cooperatives shall be exempt from the payment of all court and sheriffs fees payable to the
Philippine Government for and in connection with all actions brought under this Code, or where
such actions is brought by the Authority before the court, to enforce the payment of obligations
contracted in favor of the cooperative.
"(7) All cooperatives shall be exempt from putting up a bond for bringing an appeal against the
decision of an inferior court or for seeking to set aside any third party claim: Provided, That a
certification of the
Authority showing that the net assets of the cooperative are in excess of the amount of the bond
required by the court in similar cases shall be accepted by the court as a sufficient bond.
"(8) Any security issued by cooperatives shall be exempt from the provisions of the Securities
Act provided such security shall not be speculative.

National Internal Revenue Code

SEC. 109. Exempt Transactions. (L) Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce, whether in its original state or
processed form, to non-members their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority
(N) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15, 000) and regardless of the aggregate
capital and net surplus ratably distributed among the members

RR No. 20-2001
SUBJECT : Regulations Implementing Articles 61 and 62 of Republic Act No. 6938,
Otherwise Known as the Cooperative Code of the Philippines, in Relation to R.A. Nos.
7716, 8241 and 8424, Thereby Amending Revenue Memorandum Circular (RMC) No. 48-91.
SEC. 3. EXEMPTION FROM TAXES
3.1 Duly registered cooperatives dealing/transacting business with members only shall be exempt
from paying the following taxes for which they are directly liable, viz:
a. Income Tax on income from operations
b. Value-Added Tax (VAT) under Section 109 pars. (r), (s), (t) and (u) of the Tax Code of 1997
c. 3% Percentage Tax under Section 116 of the Tax Code of 1997
d. Donors tax on donations to duly accredited charitable, research and educational institutions,
and reinvestment to socio-economic projects within the area of operation of the cooperatives
e. Excise tax under Title VI of the Tax Code of 1997
f. Documentary Stamp Tax imposed under Title VII of the Tax Code of 1997, provided, however,
that the other party to the taxable document/transaction who is not exempt shall be the one
directly liable for the tax and
g. Annual Registration Fee of P500.00 under Section 236(B) of the Tax Code of 1997.

(B) Annual Registration Fee - An annual registration fee in the amount of Five hundred
pesos (P500) for every separate or distinct establishment or place of business, including
facility types where sales transactions occur, shall be paid upon registration and every
year thereafter on or before the last day of January: Provided, however, That
cooperatives, individuals earning purely compensation income, whether locally or
abroad, and overseas workers are not liable to the registration fee herein imposed.
The registration fee shall be paid to an authorized agent bank located within the revenue
district, or to the Revenue Collection Officer, or duly authorized Treasurer of the city of
municipality where each place of business or branch is registered.
3.2 Taxability/Exemption of duly registered cooperatives dealing/transacting business with both
members and non-members:
I. For cooperatives with accumulated reserves and undivided net savings of not more than Ten
Million Pesos (P10,000,000.00)a. Exemption from all national internal revenue taxes for which they are directly liable, as
enumerated under Sec. 3.1 of these Regulations.
II. For cooperatives with accumulated reserves and undivided net savings of more than Ten
Million Pesos (P10,000,000.00)
a. Exemption from income tax for a period of ten (10) years from the date of registration with the
CDA, provided, that at least twenty-five percent (25%) of the net income of the cooperative is
returned to the members in the form of interest and/or patronage refund.
For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year
period shall be reckoned from March 10, 1987 (meaning, tax exemption is valid only until March
10, 1997).
After the lapse of the above ten-year period, they shall be subject to income tax at the full rate on
the amount allocated for interests on capital, provided that the same is not consequently imposed
on interest individually received by members

The tax base for all cooperatives liable to income tax shall be the net surplus arising from
business transactions with non-members after deducting the amounts for the statutory reserve
funds as provided for in the Cooperative Code and other laws.
b. Exemption from VAT under Section 109 (r), (s) (t) and (u), 3% percentage tax under Section
116, and the P500.00 annual registration fee imposed under Section 236 (B), all of the Tax Code
of 1997
c. Subject to all other internal revenue taxes unless otherwise provided by law and
d. Entitled to limited or full deductibility from the gross income of amount donated to duly
accredited charitable, research and educational institutions and reinvestment to socio-economic
projects within the area of operation of the cooperative.
Notwithstanding the foregoing, all income of the cooperative not related to its main/principal
business/es shall be subject to all the appropriate taxes under the Tax Code of 1997. This is
applicable to all types of cooperatives, whether dealing purely with members or both members
and non-members.
In any event, all types of cooperatives are required to register with the Bureau of Internal
Revenue.
SEC. 4. TAXABILITY OF COOPERATIVES TO OTHER INTERNAL REVENUE TAXES. All Cooperatives, regardless of classification shall be subject to:
a) 20% final income tax on interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar arrangements and
royalties derived from sources within the Philippines
b) 7.5% final income tax on interest income derived from a depository bank under the expanded
foreign currency deposit system
c) Capital Gains Tax on sales or exchanges of real property classified as capital assets or shares
of stock

d) Documentary Stamp Taxes on transactions of cooperatives dealing with non-members when

the accumulated reserves and undivided net savings of such cooperatives exceed Ten Million
Pesos (P10,000,000.00)
e) VAT billed on purchases of goods and services, except the VAT on the importation by
agricultural cooperatives of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or processing of their produce,
and importation by electric cooperatives of machineries and equipment, including spare parts,
which shall be directly used in the generation and distribution of electricity, pursuant to Section
109 (r) and (s) of the Tax Code of 1997 but which are not available locally as certified by the
Department of Trade and Industry. All tax-free importations shall not be transferred to any
person until five (5) years, otherwise, the cooperative and the transferee or assignee shall be
solidarily liable to pay twice the amount of the tax and/or the duties thereon
f) All other taxes for which the cooperatives are not otherwise expressly exempted by any law.
Moreover, all cooperatives, regardless of classification, are considered as withholding agents and
are required to file withholding tax returns and remit withholding taxes on all income payments
that are subject to withholding.
SEC. 5. TAXABILITY OF MEMBERS/STOCKHOLDERS OF COOPERATIVES.
The exemption of the cooperatives does not extend to their individual members. Thus, members
of cooperatives are liable to pay all the necessary internal revenue taxes under the National
Internal Revenue Code, including the tax on earnings derived from their capital contribution.
Provided, however, that interests received by members of a cooperative with accumulated
reserves and undivided net savings greater than Ten Million Pesos (P10,000,000.00), after the
lapse of the ten-year exemption under Sec. 3.2 (II) above, shall no longer be taxable in the hands
of such members.
SEC. 6. DOCUMENTS TO BE ATTACHED TO THE LETTER APPLICATION FOR THE
ISSUANCE OF TAX EXEMPTION CERTIFICATE. A Letter-Application signed by the President/General Manager of the Cooperative, or his duly
authorized representative, should be submitted to the Legal Division of the Revenue

Region having jurisdiction over the principal place of business of the cooperative, attaching
thereto the following documents:
a) Articles of Cooperation and By-Laws
b) Certified true copy of the Certificate of Registration issued by the CDA
c) Certified true copy of the Certificate of Confirmation of Registration from the CDA (in the
case of Cooperative already existing and previously registered under P.D. 175, P.D. 775, and
E.O. 898, before the creation of the CDA)
d) Certificate under oath by the President/General Manager whether the Cooperative is
transacting business with members only or with both members and non-members, whichever is
applicable
e) Original copy of the Certificate of Good Standing from the CDA
f) Certification under oath by the Chairman/President/General Manager of the Cooperative (if
previously registered as above stated) as certified by the CDA, as to the amount of accumulated
reserves and undivided net savings, and that at least 25% of the net income is returned to the
members in the form of interest and/or patronage refund
g) Certification under oath of the list of members and the share capital contribution of each
member and
h) Latest Financial Statements duly audited by an independent CPA.
SEC. 7. VALIDITY OF TAX EXEMPTION CERTIFICATE
The Tax Exemption Certificate shall be valid during such period that the Cooperative is in good
standing as ascertained by the CDA on an annual basis.
SEC. 8. ANNUAL RETURN AND DOCUMENTS TO BE FILED WITH
THE BUREAU OF INTERNAL REVENUE. A copy of the Certificate of Good Standing
issued by the CDA to the cooperative shall, together with the Annual Information Return (for
non-taxable cooperative) or Income Tax Return (for taxable cooperative) and Financial

Statements, be submitted to the Bureau of Internal Revenue on or before the 15th day of the
fourth month following the close of the taxable year.
SEC. 9. VERIFICATION OF ANNUAL INFORMATION RETURN/ INCOME TAX RETURN,
FINANCIAL STATEMENTS, ATTACHMENTS AND RECORDS. - Pursuant to the last
paragraph of Section 235 of the Tax Code of 1997, any provision of existing general or special
law to the contrary notwithstanding, the books of accounts and other pertinent records, as well as
the operations of all cooperatives, may be examined by the Bureau of Internal Revenue annually
for purposes of ascertaining compliance with the conditions under which they have been granted
tax exemptions or tax incentives, and their tax liabilities, if any, upon previous consultation with
the CDA..
SEC. 10. REPEALING CLAUSE. - All revenue rulings, regulations and other issuances,
including Revenue Memorandum Circular No. 48-91, or parts thereof which are inconsistent
with these Regulations are hereby amended or repealed accordingly.
Local Government Code
Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight
(R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines" respectively

Section 234. Exemptions from Real Property Tax. - The following are exempted from payment
of the real property tax:
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938