As of Philippine law and jurisprudence in force up to the present, with emphasis on the Constitution, the National Internal Revenue Code (NIRC), the Local Government Code (LGC), and leading Supreme Court cases.

I. Constitutional and Statutory Anchors

1987 Constitution, Article VI, §28(3). Exempts from real property tax: “charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes.” This is a property tax exemption, not a blanket immunity from all taxes.
National Internal Revenue Code (NIRC).
- Section 30. Grants income tax exemption to non-stock, non-profit corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, among others.
- Crucial caveat (Sec. 30, last paragraph): Income from any of their properties or activities conducted for profit is taxable, regardless of how the income is ultimately used (“destination of income” doctrine rejected; “use/source of income” governs).
- Donor’s tax and deductibility. Gifts to qualified donee institutions and to government for priority projects may be exempt from donor’s tax and/or fully deductible, subject to stringent accreditation and utilization rules (see Part VI).
Local Government Code (LGC).
- Section 234(b). Mirrors the Constitution for real property tax (RPT) exemption and limits it to portions actually, directly, and exclusively used for exempt purposes. Portions leased to commercial tenants lose the exemption to that extent.
- LGUs may impose local business taxes (LBT) and regulatory fees on business activities (e.g., leasing). Religious or charitable status does not automatically immunize income-earning operations from LBT.
Key Jurisprudence (core doctrines).
- Lung Center of the Philippines v. Quezon City (2004): “Actually, directly, exclusively” is use-based and strict; leased/for-profit portions are taxable pro tanto (that portion only).
- YMCA line of cases; St. Luke’s cases; other Sec. 30 jurisprudence: A tax-exempt entity remains taxable on income from property or for-profit activities (e.g., rentals, canteens, parking fees), and on operations that fail the “organized and operated exclusively” test (no substantial non-exempt purpose).

II. Real Property Tax (RPT): Churches, Foundations, and Leased Premises

A. Scope of the RPT Exemption

Covers land, buildings, and improvements owned by the exempt entity and actually, directly, and exclusively used for religious (worship, sacraments, formation), charitable (free clinics, shelters), or educational purposes (for non-profit schools).
Appurtenant parsonages/convents and mosques are likewise covered if they meet the “actual, direct, exclusive use” test.

B. When the Exemption is Lost (Wholly or Partly)

Leasing out part of church or foundation property (e.g., ground-floor stalls, cell sites, billboards, parking spaces for a fee, commercial canteens) subjects that portion to RPT. The remaining portions that are strictly used for exempt purposes remain exempt.
Mixed use requires area-based or unit-based assessment: assessors tax only the income-producing parts.

C. Compliance Notes

Maintain floor plans, lease maps, and usage logs to demonstrate which portions are exempt vs. taxable.
Expect LGU assessment and possible segregation of taxable/exempt areas. Contest assessments via local board of assessment appeals when needed.

III. National Taxes on Rental Income: Income Tax, VAT/Percentage Tax, and Withholding

A. Income Tax on Rentals

Churches and foundations covered by NIRC §30 are exempt on income related to their exempt purpose.
But: Rental income from leasing real property is income from property and therefore taxable to the exempt entity (even if rentals are used for charitable or religious programs). This is settled doctrine.

Practical effects:

Register the rental activity with the BIR (even if the entity is otherwise tax-exempt).
File the appropriate income tax return for the taxable activity; losses from exempt operations generally cannot be used to shelter for-profit income.

B. VAT or Percentage Tax on Rentals

Lease of real property is generally subject to VAT if the lessor is VAT-registered (mandatory if annual gross receipts exceed the VAT threshold) or opts to register voluntarily.
If the lessor’s gross receipts are below the VAT threshold and not VAT-registered, the activity is generally subject to percentage tax (rate per current law), unless a specific statutory exemption applies (e.g., low-rent residential leases below the monthly threshold are VAT-exempt).
Religious/charitable status does not, by itself, confer VAT exemption on a commercial lease.

Tip: Track gross rental receipts against the VAT threshold; once breached, register for VAT, issue VAT ORs, and remit output VAT (creditable input VAT applies).

C. Creditable Withholding Tax (CWT) on Rentals

Lessees who are withholding agents must withhold CWT on rentals paid to the lessor (even if the lessor is a church or foundation). Rates and categories depend on BIR regulations.
Withheld taxes are credits against the lessor’s income tax on the rental activity.

D. Documentation and Invoicing

For the rental line of business:
- BIR Registration for the activity; ATP (authority to print) or e-invoicing enrollment as applicable.
- Official Receipts compliant with invoicing rules; properly broken-out VAT (if applicable).
- Books of accounts (subsidiary ledger for rentals), lease contracts, and CWT certificates (2307) from lessees.

IV. Local Business Taxes (LBT), Mayor’s Permit, and Regulatory Fees

LGUs may levy LBT on persons engaged in business within their jurisdictions, including leasing of real property.
A church/foundation is not liable to LBT for its non-profit core activities, but is liable for business-type operations (e.g., commercial leasing, paid parking).
Obtain and renew Mayor’s/Business Permits for the rental activity; pay regulatory fees (fire, sanitary, etc.) tied to the business.

V. Donations: Donor’s Tax, Donee Accreditation, and Deductibility

A. Donor’s Tax Basics

Donor’s tax is generally imposed on gratuitous transfers. However, gifts to:
1. the National Government or its agencies/instrumentalities not conducted for profit; and
2. qualified donee institutions (religious, charitable, cultural, educational NGOs) that meet statutory and regulatory requirements, may be exempt from donor’s tax.

B. “Qualified Donee Institution” Status

To secure donor’s tax exemption for donations to an NGO (including religious organizations) and to enable full deductibility for donors, the NGO typically needs accreditation under BIR rules (historically via PCNC for NGOs) and must maintain:
- Non-profit status; no inurement to private individuals;
- Administrative expense cap (historically not more than 30% of total expenses);
- Utilization requirement (donations used within a prescribed period for the qualified purposes in the Philippines);
- Proper governance, books, and annual reporting.
Religious organizations may qualify if they apply and comply; religious nature alone does not automatically confer donee-exempt status for donor’s tax purposes.

C. Deductibility for Donors (Income Tax)

Donations are either fully deductible, limitedly deductible, or non-deductible, depending on donee status and documentation.
For full deductibility, donors must secure and retain:
- The donee’s BIR/PCNC accreditation,
- Donation/Deed of Donation, official receipts,
- Proof of utilization by the donee (when required).

D. In-Kind Donations and Importations

In-kind gifts (equipment, vehicles, supplies) follow the same donor’s tax rules; valuation and documentation are critical.
Separately, customs duties/VAT on importation may apply unless a specific exemption exists in the CMTA or special laws (exemptions are not presumed).

E. “Earmarked” Donations

If a donation is earmarked to build/renovate worship spaces, schools, or charitable facilities, ensure the project and eventual use align with the exempt purposes; otherwise, donor’s tax relief and deductibility can be jeopardized.

VI. Foundations and Their Properties

A. What Counts as a “Foundation”

Typically a non-stock, non-profit corporation organized for charitable, religious, educational, scientific, or cultural purposes.
A foundation may be a qualified donee if accredited; it may also hold real property used for its mission.

B. Property-Related Exemptions

RPT: Same use-based test as churches. Only the portions actually, directly, exclusively used for qualified purposes are RPT-exempt.
Income Tax: Foundations under Sec. 30 are exempt on mission-related income, but taxable on rentals and other income from property or for-profit ventures.
VAT/LBT: Business-type activities (leasing, fee-based services to the public) trigger VAT/percentage tax and LBT, respectively.

C. Governance and “No Inurement”

To preserve tax-exempt and donee-qualified status, foundations must avoid private benefit (e.g., unreasonable compensation, related-party self-dealing) and comply with utilization and reporting rules. Violations risk revocation of rulings/accreditations and tax assessments.

VII. Special Topics on Leasing by Churches and Foundations

Partial Leasing of a Worship/Education Compound.
- RPT: The leased portion is taxable; worship halls, classrooms, rectories remain exempt.
- National taxes: Rental income is taxable; VAT/percentage tax may apply; CWT must be withheld by qualified lessees.
- Local: LBT on leasing; Mayor’s Permit needed.
Parish Halls Rented for Occasional Events.
- If regular and for a fee, the activity looks like a business → national and local business taxes may apply.
- If occasional, incidental, and clearly in aid of the exempt purpose (e.g., minimal cost recovery), the risk is lower, but keep documentation (frequency, fees, purpose).
School/Charity Dorms and Canteens.
- If public-facing/for-profit, tax exposure increases. If restricted to beneficiaries at cost and integrated into the mission, stronger case for exemption on that activity—but rental concessions to outsiders are usually taxable.

VIII. Rulings, Registrations, and Filings

BIR Tax-Exempt Ruling/Confirmation.
- Even if qualified by law, entities typically secure a BIR ruling recognizing Sec. 30 status and, separately, donee accreditation for donor’s-tax/deductibility purposes. These may require renewal or periodic confirmation.
Annual Returns.
- 1702-EX/1702-MX (as applicable) and information returns must be filed; withholding and VAT/percentage tax returns for rental operations are separate.
Books, Receipts, e-Invoicing.
- Maintain books and issue compliant ORs for rentals; enroll in e-invoicing if mandated.
LGU Compliance.
- Business permits and LBT returns for the leasing unit; RPT payments for taxable portions.

IX. Common Pitfalls and How to Avoid Them

Assuming “non-profit” means “tax-free.” It does not. Use of income is irrelevant for income tax on rentals. The source (property/business) governs.
Failing to segregate spaces and books. Keep clear demarcations (floor area, meters) and separate ledgers for taxable rental operations vs. exempt activities.
Letting accreditations lapse. Loss of donee status can retroactively affect donor’s tax and deductibility.
Ignoring local taxes. LGUs routinely assess LBT on leasing; non-compliance triggers surcharges and closures.
Inurement/Private benefit. Related-party leases at below/above market, or excess perks to insiders, risk revocation of exemptions and penalties.

X. Quick Compliance Checklist (Rentals by a Church/Foundation)

☐ BIR registration of the leasing activity; proper COR annotations
☐ Official Receipts/e-invoicing set-up; books of accounts with rental ledger
☐ CWT: ensure lessees withhold and issue 2307; reconcile as tax credits
☐ VAT vs. Percentage Tax: monitor gross receipts vs. VAT threshold; register/remit accordingly
☐ LGU: Mayor’s Permit, LBT registration and returns
☐ RPT: secure segregated assessments; pay RPT on taxable portions only; keep use evidence
☐ Contracts: arm’s-length leases; clear use clauses; escalation; tax clauses (VAT, withholding, LBT)
☐ Rulings/Accreditations: maintain Sec. 30 ruling and donee accreditation (if applicable); renew timely

XI. Executive Takeaways

RPT: Exemption is use-based and portion-by-portion; leased parts are taxable.
Income/VAT/LBT: Rental income is taxable; VAT/percentage tax, CWT, and LBT can all apply—religious/charitable status does not immunize commercial leasing.
Donations: Donor’s tax exemption and full deductibility hinge on qualified donee status and strict compliance.
Governance: Preserve exemptions through no-inurement, utilization, segregated accounting, and timely filings.

Final Note

Specific rates, thresholds (e.g., VAT registration thresholds and residential lease VAT exemptions), forms, and accreditation procedures are periodically updated by law and BIR/LGU regulations. Always align implementations (leases, receipts, filings, board policies) with the current issuances and obtain tailored advice for your exact facts (property mix, receipts, counterparties, and LGU).