Fiscal Incentives - RA 9520 (Cooperatives)

RA 9520 entitled “An Act Amending the Cooperative Code of the Philippines” also known as the Philippine Cooperative Code of 2008 (February 17, 2009) provides for a strengthened and more comprehensive law on the promotion and development of the country’s cooperatives.

The law provides for the following incentives:

1. Duly registered cooperatives under the Code which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under internal revenue laws
and other tax laws; and

2. Cooperatives transacting business with both members and nonmembers shall not be subject 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 but not limited to final taxes on members’ deposits and documentary tax. Notwithstanding the provisions of any law or regulations to the contrary, cooperatives dealing with nonmembers shall enjoy the following tax exemption:



a. Cooperatives with accumulated reserves and undivided net savings of not more than P10 million 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 as certified to by the 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;

b. Cooperatives with accumulated reserves and undivided net savings of more than P10 million shall pay the following taxes at the full rate:

(i) Income Tax - On the amount allocated for interest on capital: Provided, that the same tax is not consequently imposed on interest individually received by the members. The tax base for all cooperatives liable to income tax shall be the net surplus arising from the business transactions with non-members after deducting the amounts for the statutory reserve funds as provided for in the Cooperative Code and other laws.

(ii) Value-Added Tax – On transactions with non-members, cooperatives duly registered with the CDA are exempt from the payment of value-added tax; subject to Section 109, sub-sections L, M and N of RA 9337, the NIRC, as amended:
Provided, that the exempt transaction under Section 109 (L) shall include sales made by cooperatives duly registered with the CDA 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 processed 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 their name and for the account of the cooperative shall be deemed a product 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;

(iii) All other taxes unless otherwise provided herein; and

(iv) Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible.

c. 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 except 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 CDA.