Income Sources and Business Operations for Non-Stock Corporations (Philippine Law)

This is a practical, no-nonsense guide to how Philippine non-stock corporations may lawfully earn, spend, and operate. It blends the Revised Corporation Code (RCC), the National Internal Revenue Code (NIRC), constitutional rules, and key regulatory practice. It isn’t legal advice; complex situations deserve counsel.

1) Non-stock ≠ automatically non-profit (and vice-versa)

“Non-stock” is a corporate form under the RCC. There is no capital stock and no dividends. It’s commonly used by schools, hospitals, churches, clubs, foundations, professional and business associations, civic groups, and NGOs.
“Non-profit”/“tax-exempt” is a tax status under the NIRC (and, for certain schools, under the Constitution). A non-stock entity may be taxable or tax-exempt depending on how it’s organized and operated.
No inurement. Even when tax-exempt, no part of net income may inure to the benefit of any member, organizer, officer, or trustee (beyond reasonable compensation, per diems, and legitimate reimbursements).

2) Quick corporate law primer (RCC essentials)

Purpose. Non-stock corporations are formed for purposes other than profit (e.g., religious, charitable, educational, cultural, civic, professional, social welfare, scientific, athletic).
Members & trustees. They have members (not shareholders) and a board of trustees (at least five). Trustees owe fiduciary duties of diligence and loyalty.
Compensation. Trustees generally may not receive compensation as trustees (per diems allowed), but they may be paid reasonable compensation for other roles (e.g., as officers or employees).
Asset distribution. No dividends. On dissolution, foundations and charitable entities typically must transfer remaining assets to another qualified non-profit per their Articles/By-laws and applicable rules; membership clubs may follow their Articles/By-laws subject to the no-inurement rule and taxes.
Commercial activity. The RCC allows operations and even business undertakings so long as they are consistent with, and in furtherance of, the corporate purposes. The tax consequences depend on whether the activity is related or unrelated to those purposes.

3) Lawful income sources (what non-stock corporations may earn)

Below are common revenue streams and the typical legal/tax angles that go with them. The key test is whether the income is substantially related to the entity’s stated purposes and whether no inurement occurs.

Donations, grants, bequests, endowments
- From individuals, companies, multilaterals, or foreign donors.
- Donee institution status (BIR) may allow donors enhanced deductibility/relief from donor’s tax; accreditation (often via PCNC for NGOs) and strict use-of-funds rules apply.
Membership dues and assessments
- Classic for clubs, chambers, professional and trade associations, homeowners’ associations.
- Amounts from members used for members’ mutual benefit may be protected by the doctrine of mutuality (facts matter: sales to non-members or commercial exploitation can destroy mutuality).
Program/mission fees
- Schools: tuition, lab fees, dorm fees, bookstore/press, testing/assessment services.
- Hospitals/clinics: room charges, diagnostics, pharmacy, professional fees arrangements.
- Cultural/scientific institutions: ticket sales, exhibitions, workshops, archives, publications.
- Social welfare NGOs: training fees, community enterprise revenues, livelihood program sales.
- Generally related income when integral to the mission; pricing must be reasonable and governance robust.
Service contracts & consulting consistent with mission
- Research/services for government or private sector if tied to core expertise (e.g., a science foundation performing studies; an education NGO doing teacher training). Watch for procurement, COA, and deliverable controls if public funds are involved.
Fundraising events
- Galas, auctions, charity dinners, concerts, fun runs.
- Typically allowed with proper permits (e.g., DSWD solicitation permits under the Solicitation Permit Law; raffles and games of chance may require PCSO/DTI/LGU clearances). Public solicitation without permits is risky.
Merchandise and publications
- Mission-aligned sales (books, curricula, branded items, museum gift shop).
- Related if subordinate to and materially advances the purposes (education, culture outreach, etc.). Large-scale retail looks more like unrelated business.
Use of property
- Rentals/leases of idle space, theaters, sports facilities, dorms, function halls, parking, canteens.
- Licensing of IP (logos, curricula, research outputs).
- Often unrelated unless tightly integrated into mission or incidental; tax may apply on the net or gross depending on regime.
Investments and treasury
- Bank interest, dividends, bond coupons, gains on securities, FX gains, time deposits.
- Passive income may be subject to final taxes even for exempt orgs unless a specific exemption applies. Implement an investment policy (prudence, liquidity for programs, conflict checks).
Government subsidies, vouchers, reimbursements
- e.g., scholarships, PhilHealth reimbursements for hospitals, LGU project sub-grants.
- Track use-restricted funds separately; expect audit (COA/third-party) obligations.
Microfinance and social enterprises

If operating a microfinance NGO, special rules apply (licensing, governance, special tax on gross receipts for qualifying microfinance activities). For broader social enterprises housed in a non-stock entity, separate them cleanly if they become materially commercial.

4) What “business” can a non-stock actually do?

Short answer: A lot—if aligned with purpose and run with the right guardrails.

Related vs. unrelated activities. Income substantially related to the purpose (school instruction, hospital care, museum exhibits) supports or preserves exemption for those streams. Unrelated business (e.g., leasing a building to a mall operator) is generally taxable and can, if dominant, jeopardize exemption.
The operational test (tax). To qualify under NIRC §30 categories (charitable, educational, religious, scientific, civic, business league, etc.), the entity must be organized and operated exclusively for those purposes. “Exclusively” tolerates incidental commercial activity; it does not tolerate a commercial enterprise as an end in itself.
No inurement (tax & corporate). Compensation must be reasonable; related-party transactions must be disclosed, approved by disinterested trustees, and fair. Expense reimbursements need receipts and clear policies.
Segregate unrelated business. If an unrelated line grows, consider ring-fencing (e.g., a separate taxable subsidiary; inter-company agreements at arm’s length; transfer pricing ready).
Permits still apply. City business permits, sanitation, fire, health, DOLE, etc., apply when you operate venues, cafés, dorms, clinics, bookstores, etc.

5) Tax map (high-level)

Tax outcomes turn on what you are (category), how you operate, and how each peso is earned and used.

A. Corporate income tax

NIRC §30 entities (e.g., religious/charitable/scientific/civic entities; business leagues; chambers) are exempt on income received in furtherance of their purposes, but taxable on income from property or any profit-oriented activity. The destination of income (even if used for charity) does not by itself exempt unrelated income.
Non-stock, non-profit educational institutions enjoy constitutional tax exemption for revenues and assets used actually, directly, and exclusively for educational purposes. Income from unrelated activities (e.g., leasing to private businesses) is generally taxable.
Non-stock hospitals and proprietary educational institutions may face preferential income tax regimes for their taxable income; jurisprudence (e.g., the St. Luke’s case) stresses that the charitable exemption covers income actually, directly used for the exempt purpose; commercial portions are taxable at the preferential/regular rate, as the law provides at the time.
Business leagues/chambers/clubs. Dues used for members’ mutual benefit may be protected by mutuality, but sales to the public or profit-making ventures are generally taxable.

B. VAT and percentage taxes

VAT applies to the sale of goods or services in the course of trade or business, regardless of profit motive. Many non-stock entities register for VAT if they meet thresholds or choose to do so.
Certain transactions are VAT-exempt (e.g., educational services by accredited private educational institutions; select medical services; sales by registered cooperatives). Exemptions are transaction-based and rule-specific.
If not VAT-registered and under thresholds, an other percentage tax may apply (rate depends on the prevailing law). Check current thresholds and rates before choosing VAT or OPT.

C. Withholding taxes

You must withhold on compensation, on payments to professionals/suppliers (EWT), and on certain passive incomes (FWT) as applicable. Non-stock status does not remove withholding agent duties.

D. Donor’s tax and deductibility (for your donors)

Donations to government are often deductible (sometimes fully) when aligned with priority programs.
Donations to accredited donee institutions (certain NGOs, schools, etc.) can be deductible and/or exempt from donor’s tax subject to accreditation and BIR certification. Spend funds strictly per approved purposes and maintain fund accountability.

E. Local taxes and real property tax (RPT)

Local business taxes (LBT) and fees may apply to business activities within an LGU.
RPT exemption is available for lands/buildings actually, directly and exclusively used for religious, charitable, or educational purposes. Portions leased or used commercially are generally taxable pro-rata.

F. Documentary stamp tax (DST)

DST can apply to leases, loans, share/bond holdings, donations and other instruments. Don’t overlook DST in leases and financing.

6) Permits, accreditations, and sector-specific rules

SEC registration. Articles & By-laws should state the non-distribution constraint and proper purpose clauses. Foundations must meet minimum initial contributions and special reporting (programs/funding sources).
BIR registration & exemption. Register (books, receipts/invoices, COR). To claim §30 exemption or school constitutional exemption, apply for a Certificate of Tax Exemption (CTE) and maintain it (compliance, renewals as required).
DSWD permits for public solicitation. A solicitation permit is usually required for fundraising from the public; national or local scope determines the issuing authority. Raffles/lotteries have separate PCSO/DTI/LGU rules.
PCNC/BIR donee status. For NGOs seeking donee institutional recognition to unlock donor incentives.
Sector regulators. – Schools: DepEd/CHED/TESDA permits/recognition. – Hospitals/clinics: DOH licensure, PhilHealth accreditation. – Microfinance NGOs: special registration and gross receipts tax regime. – Homeowners’ associations: DHSUD registration and rules. – Religious entities: may organize as non-stock religious corporations with special provisions.
AML/CTF & beneficial ownership. Implement donor/beneficiary due diligence, sanctions screening, and keep beneficial ownership information per SEC rules.
Data Privacy. If you process personal data (donors, students, patients, beneficiaries), comply with the Data Privacy Act (privacy notices, DPIAs, security measures, data subject rights).

7) Governance and controls that regulators (and donors) expect

Board independence & conflicts. Adopt a written conflict-of-interest policy; document disinterested board approval for related-party deals; minute the fairness analysis (benchmarks, bids, appraisals).
No inurement practices. Ban profit-sharing; cap allowances; require liquidation with receipts; benchmark compensation; avoid trustee self-dealing.
Fund accounting. Separate restricted vs unrestricted funds; track project codes; lock restricted balances.
Investment policy. Prudent investor rules, liquidity ladders, counterparty limits, ESG/mission screens where relevant; pre-clear insider holdings to avoid conflicts.
Procurement controls. Bids/quotations thresholds, segregation of duties, competitive processes—especially for government-funded projects.
Whistleblowing & internal audit. Hotline, audit trails, rotation, spot checks; external audit by independent CPAs.
Risk and insurance. Directors & Officers (D&O), general liability, property, cyber/privacy, and event insurance when fundraising.

8) Designing revenue the “right” way (practical patterns)

A. Mission-aligned retail that stays “related”

Keep it subordinate to the mission (e.g., a museum gift shop curated to the exhibits).
Use program staff to integrate content (exhibit tie-ins, educational notes).
Cap SKU scope; avoid generic retail.

B. Facilities use without losing exemptions

Draft facility-use policies: priority to mission events; time-box commercial rentals; pro-rata RPT and income tax ready.
Get fair market value rent (defensive pricing evidence). Related-party tenants require extra rigor.

C. Events and raffles

Obtain permits before marketing.
Use escrow or separate event bank accounts; reconcile ticket stock; audit raffle draws; publish winners; retain records.

D. Investment income

Ladder deposits; prefer low-risk, liquid instruments for operating reserves; document board resolutions approving placements; understand final withholding impacts.

E. Social enterprises and “ring-fencing”

If a program becomes a business line, consider a taxable subsidiary (stock corporation) that upstreams dividends (mind tax on dividends) to the non-stock parent. Use service agreements and transfer pricing to keep everything arm’s length.

9) Common compliance calendar (typical, not exhaustive)

SEC: General Information Sheet (GIS) annually; Audited Financial Statements (AFS); foundations—program reports/use of funds.
BIR: – Registration (books, COR, ATP for receipts/invoices). – Monthly/quarterly withholding and VAT/percentage tax returns. – Annual ITR (even if claiming exemption) and audited FS attachments as required. – CTE application/renewals and donee documentation (if applicable).
Local government: Business permit renewals, LBT payments, RPT (and exemption applications, if any).
Data privacy: NPC registrations where required, breach drills, privacy impact assessments.
Labor: SSS, PhilHealth, Pag-IBIG registrations and periodic remittances; DOLE reports.

10) Red flags that jeopardize exemption or trigger penalties

Dominant commercial activity unrelated to mission (e.g., acting like a landlord or retailer).
Private benefit/inurement (excessive pay, perks, insider contracts without safeguards, related-party loans).
Failure to withhold taxes or issue official receipts.
Fund commingling (restricted funds spent on overhead unrelated to the restriction).
Public solicitation without permits, or illegal raffles/games.
Ignoring RPT split-use (failing to pay for the portion leased to private entities).
Missing board actions (no resolutions/investment policy; undocumented approvals).

11) Frequently-seen categories and their quirks

Non-stock, non-profit educational institutions
- Constitutional shield for revenues and assets used actually, directly, exclusively for education.
- Ancillary (bookstores, dorms, cafeterias) can be related if clearly educational/supportive; off-campus leases or purely commercial ventures are usually taxable.
- Maintain separate ledgers and usage documentation.
Non-stock hospitals/healthcare
- Charity care policies matter. Commercial diagnostics and pharmacy income are scrutinized; preferential tax rules may apply to taxable portions—check current law.
Foundations
- Typically grant-making or program-running using endowments/donations. Expect minimum endowment, board independence, restricted fund tracking, and use-of-funds reporting.
Business leagues/chambers/professional associations
- Dues and member-only services can fit mutuality; public conferences, advertising, sponsorships, and sales can be taxable.
Homeowners’ associations
- Member assessments for common areas typically mutual; commercial rentals or services to non-members change the analysis.
Microfinance NGOs
- Subject to special tax on gross receipts from qualifying microfinance operations and separate compliance under the Microfinance NGOs law and its rules.

12) Start-to-finish checklist (income & operations)

Draft purpose-tight Articles/By-laws. Bake in no-distribution clauses and dissolution clauses (assets to another qualified non-profit where required).
Map income streams into related vs unrelated; decide early if any line should be ring-fenced.
Secure permits: SEC, BIR, LGU. If soliciting from the public, DSWD permit; if raffles, PCSO/DTI/LGU clearances.
Apply for CTE (and donee status if relevant). Set up fund accounting and withholding processes.
Adopt board policies: conflicts, investments, procurement, compensation, gifts, whistleblowing.
Implement controls: receipts/invoicing, inventory, event ticketing controls, bank reconciliations, restricted-fund schedules.
Review real property use annually for RPT exemptions/pro-rata taxation.
Annual compliance: SEC GIS/AFS, BIR returns, LGU permits, data privacy, labor.
Audit & refresh: independent audit; board training; test your exemption assumptions every year.

13) Illustrative “what ifs”

We’re a school leasing a wing to a café chain. Lease income is typically unrelated; expect income tax/VAT on that stream and RPT on the leased area. Keep a separate schedule and pay pro-rata taxes.
Our foundation runs a bookshop with general titles. If it’s more than incidental and not curated to mission, that’s unrelated business—taxable, and if it becomes dominant it may threaten exemption.
A chamber offers conferences open to the public with sponsor booths. Dues may be mutual, but public event revenues/sponsorships are commonly taxable; withhold on speakers and suppliers.
A hospital offers charity care but most revenue is from paying patients and ancillary labs. Charity parts can be exempt; commercial parts are taxable (often at a preferential rate if the law so provides).

14) Bottom lines to remember

Form ≠ status. Being non-stock doesn’t grant automatic tax exemption. Your purpose and operations do.
Relatedness rules everything. Income integral to your mission is treated differently from unrelated business.
No inurement—ever. Compensation and related-party dealings must be reasonable, disclosed, and fairly approved.
Permits and paperwork matter. Solicitation permits, proper receipts, withholding, and clean books are not optional.
Segment and document. Keep related vs unrelated income, restricted vs unrestricted funds, and taxable vs exempt uses separately tracked.

Need a template?

If you want, I can draft:

a one-page revenue policy (related vs unrelated, pricing, approvals),
a conflict-of-interest policy, and
an investment policy statement tailored to a non-stock entity.