Do You Withhold Tax When Paying a Registered Cooperative? BIR Form 2307 and the RA 9520 Exemption

Not automatically — you generally still withhold expanded withholding tax (EWT) and issue BIR Form 2307 when paying a registered cooperative, unless the cooperative proves it qualifies for the Republic Act (RA) No. 9520 exemption by furnishing a valid BIR Certificate of Tax Exemption (CTE). The exemption clears transactions between the cooperative and its own members outright, and can clear non-member transactions too, but only when the cooperative’s accumulated reserves stay within a set threshold and the exemption is documented before you pay.

This guide is part of the BIR Form 2307 series. For the certificate’s general mechanics, see What Is BIR Form 2307 and When Must You Issue It?; for how the RA 9520 exemption works from the cooperative’s own side, see Are Cooperatives Exempt From BIR Income Tax and VAT? Requirements Under RA 9520.

Why doesn’t RA 9520 automatically stop withholding on a payment to a cooperative? #

RA 9520 exempts a cooperative’s transactions with its own members from national internal revenue taxes, and that exemption can extend to non-member business — but a tax exemption and a withholding exemption are two different legal questions, and a payor needs documented proof before it can skip withholding on a specific invoice. Withholding under BIR Form 2307 is a collection mechanism imposed on the payor; it does not disappear automatically just because the payee’s underlying income happens to be exempt from tax.

Article 61 of RA 9520, the Philippine Cooperative Code of 2008, is the operative provision. It is reproduced in cooperative-law compilations as follows:

“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.”

This site could not directly fetch the BIR’s or the Cooperative Development Authority’s (CDA) own hosted copy of RA 9520 or its implementing rules to re-verify the exact typesetting, so the quotation above is drawn from secondary legal compilations rather than a screenshot of the primary text — confirm current wording against the BIR or CDA’s published copy before relying on it for a formal filing position. The provision exempts the transaction from tax; it does not, on its own, tell a payor how to document that exemption at the point of payment — that mechanism comes from the BIR’s separate implementing issuances covered below.

What does the ₱10,000,000 ARUNS threshold change for non-member sales? #

A cooperative’s transactions with non-members — which is what most businesses paying a cooperative supplier or vendor actually are — are not automatically exempt the way member transactions are; the tax treatment instead turns on the cooperative’s Accumulated Reserves and Undivided Net Savings (ARUNS). Under the Joint Rules and Regulations implementing Articles 60, 61, and 144 of RA 9520 (issued jointly by the BIR, the CDA, and the Department of Finance), a cooperative whose ARUNS does not exceed ₱10,000,000 is exempt from national taxes on its business done with non-members as well as members. A cooperative whose reserves exceed that ₱10,000,000 figure is instead subject to tax on its non-member transactions under the rates the same implementing rules set out.

For a business paying a cooperative, this threshold is the practical fork in the road: a small cooperative under the ₱10,000,000 ARUNS mark can generally support a claim that its non-member sales are exempt too, while a larger cooperative above that mark cannot rely on RA 9520 to exempt its non-member business, and payments to it should generally be withheld under the ordinary EWT rules for that type of purchase.

What proof should the cooperative give you before you stop withholding? #

A cooperative’s RA 9520 exemption becomes usable at the withholding step only once it is documented through a BIR-issued Certificate of Tax Exemption (CTE) — you should not stop withholding on a cooperative’s say-so alone. Revenue Memorandum Order (RMO) No. 76-2010 prescribes the policies for issuing a cooperative’s CTE, and the cooperative applies for it by filing BIR Form No. 1945 with its Revenue District Office, attaching its CDA Certificate of Registration, Certificate of Good Standing, Articles of Cooperation and By-Laws, and related documents.

Revenue Memorandum Circular (RMC) No. 124-2020 later clarified RMO No. 76-2010’s application, including the treatment of small, occasional purchases the cooperative itself makes. As summarized in secondary BIR-compliance commentary on RMC No. 124-2020:

“The cooperative is exempt from the assessment of the 1% and 2% creditable withholding tax on isolated purchases of not more than P10,000.00 each from non-regular suppliers, provided that it is not considered a Top Withholding Agent under Section 2.57.2(l) of RR No. 2-98 as amended.”

That specific clarification addresses purchases the cooperative makes, not payments a business makes to the cooperative — but it confirms the same underlying documentary chain applies throughout: BIR Form 1945, a BIR-issued CTE, and Top Withholding Agent status all feed into whether creditable withholding tax attaches to a given cooperative transaction. Before you skip withholding on a payment to a cooperative, ask for its current CTE and keep a copy on file, the same way a payor keeps an annotated BMBE Certificate of Registration on file to support not withholding from a BMBE-registered supplier.

What if the cooperative has no valid CTE, or its reserves exceed the threshold? #

Without a current CTE on file — or where the cooperative’s ARUNS exceeds ₱10,000,000 and no other exemption applies — a payor withholds on a payment to a cooperative exactly as it would on a payment to any other supplier, contractor, or lessor. That means applying the ordinary EWT rate for the type of payment: 1% on local goods purchases if you are a classified Top Withholding Agent (ATC WC158/WI158), 2% on services (ATC WC160/WI160), or the applicable rate for rent, professional fees, or another EWT category, following the same rules covered throughout the BIR Form 2307 series.

If you withhold on a cooperative that does hold a valid CTE — because the CTE wasn’t presented in time, or out of default caution — the cooperative keeps the BIR Form 2307 certificate you issue and can pursue the withheld amount as an overpayment, since it has no income tax due against exempt income to credit it against. That mirrors how a BMBE recovers CWT withheld despite its own RA 9178 exemption: the certificate is the evidence needed to support a later refund or tax credit claim, so withholding in doubt is not costless to either side, but it is not a compliance failure on the payor’s part either.

Worked example: paying a multipurpose cooperative ₱500,000 for supplies #

A construction supply buyer paying a registered multipurpose cooperative ₱500,000 for materials withholds nothing if the cooperative’s CTE and reserve level support the RA 9520 exemption, but withholds and issues BIR Form 2307 as normal if either condition fails.

Suppose Prime Builders Supply Co., a classified Top Withholding Agent, buys ₱500,000 worth of construction materials from Bayanihan Multipurpose Cooperative, a non-member supplier it sources from regularly.

In Scenario (a), Bayanihan furnishes Prime Builders a copy of its current BIR-issued CTE before payment, and its financial statements support ARUNS well under the ₱10,000,000 threshold. Prime Builders pays the full ₱500,000 with nothing withheld and keeps the CTE copy as its documentary basis for that decision — no BIR Form 2307 exists for this transaction because no tax was actually withheld to certify. In Scenario (b), Bayanihan either has no current CTE, or its latest audited reserves have grown past ₱10,000,000, so Prime Builders withholds the standard 1% TWA goods rate, remits ₱5,000, and issues BIR Form 2307 showing the gross payment, ATC WC158, and the tax withheld — exactly as it would for any other corporate supplier under BIR Form 2307 for Purchases of Goods: Top Withholding Agent 1% Rate Explained.

Does this mean cooperatives are exempt from withholding tax altogether? #

No — a cooperative’s RA 9520 exemption runs one direction: it can excuse tax on income the cooperative receives, not the cooperative’s own duty to withhold on money it pays out. A registered cooperative that leases premises, hires a contractor, engages a professional, or pays compensation above the minimum-wage threshold is a withholding agent on those payments just like any other business, regardless of its own exempt status. This is the mirror image of the question this guide answers: see Does a BMBE Still Have to Withhold Tax and Issue BIR Form 2307? for the same principle applied to a different exempt small-entity structure — the reasoning is identical even though the underlying law (RA 9520 for cooperatives, RA 9178 for BMBEs) differs.

Frequently Asked Questions #

Do I withhold tax when I pay a registered cooperative for goods or services? #

Not automatically, but not automatically exempt either. A cooperative’s transactions with its own members are fully exempt from national internal revenue taxes under Republic Act No. 9520, and non-member transactions can also be exempt if the cooperative’s accumulated reserves and undivided net savings stay within the BIR’s threshold. Either way, you keep withholding as a normal payor unless the cooperative furnishes a valid BIR Certificate of Tax Exemption covering that transaction.

What is the ₱10,000,000 ARUNS threshold and why does it matter? #

ARUNS stands for Accumulated Reserves and Undivided Net Savings, a cooperative’s retained reserve fund reported on its financial statements. Under the Joint Rules and Regulations implementing Articles 60, 61, and 144 of RA 9520, a cooperative whose ARUNS does not exceed ₱10,000,000 is exempt from national taxes on its business with non-members as well as members. A cooperative above that threshold is taxed on non-member transactions under the applicable rules, which affects whether you withhold on your payment to it.

What proof should a cooperative give me before I stop withholding? #

A valid BIR Certificate of Tax Exemption (CTE), issued after the cooperative files BIR Form No. 1945 under Revenue Memorandum Order No. 76-2010, as clarified by Revenue Memorandum Circular No. 124-2020. Keep a copy of the current, unexpired CTE on file before you stop withholding on that cooperative’s invoices — a verbal claim of tax-exempt status is not documentary proof.

What happens if I withhold from a cooperative anyway, or it has no valid CTE? #

If the cooperative has no CTE on file, or its accumulated reserves exceed the ₱10,000,000 threshold with no other exemption basis, you withhold and issue BIR Form 2307 exactly as you would for any other payee. If you withhold despite a valid CTE being presented, the cooperative keeps the certificate and can pursue the excess as a tax credit or refund, since it has no income tax due to apply the credit against for that income.

Are cooperatives themselves exempt from withholding tax on payments they make? #

No. A cooperative’s own RA 9520 exemption covers income tax and related national taxes on qualifying income it receives — it does not exempt the cooperative from acting as a withholding agent on payments it makes to its own suppliers, contractors, or employees. A cooperative that pays a contractor, leases office space, or pays compensation above the minimum wage still withholds and issues BIR Form 2307 or BIR Form 2316 as any other payor would.

Summary #

A registered cooperative’s RA 9520 exemption does not automatically stop a business from withholding when it pays that cooperative — it clears member transactions outright and can clear non-member transactions too, but only when the cooperative’s ARUNS stays at or below ₱10,000,000 and it presents a valid BIR-issued Certificate of Tax Exemption obtained through BIR Form No. 1945. Absent that documentation, or where the reserve threshold is exceeded, a payor withholds and issues BIR Form 2307 exactly as it would for any other supplier. The exemption also runs one direction only: it never excuses the cooperative from its own withholding duties as a payor. Start with What Is BIR Form 2307 and the BIR Form 2307 series hub for the underlying certificate mechanics, and see Are Cooperatives Exempt From BIR Income Tax and VAT? for how the RA 9520 exemption works on the cooperative’s own tax return.