Does a Nonstock, Nonprofit Organization or Religious Institution Still Have to Withhold Tax and Issue BIR Form 2307?

Yes — a nonstock, nonprofit corporation exempt under NIRC Section 30, including a church, religious order, foundation, or nonprofit school, still withholds expanded withholding tax (EWT) and issues BIR Form 2307 when it pays a contractor, supplier, professional, or landlord. Section 30 exempts qualifying income from income tax. It does not touch the separate duty, imposed on payors under Revenue Regulations (RR) No. 2-98 as amended, to withhold on payments that are otherwise subject to EWT.

What does a Section 30 exemption actually cover? #

NIRC Section 30 exempts specific categories of nonstock, nonprofit corporations and associations — religious, charitable, scientific, athletic, cultural, and educational institutions among them — from income tax, but only on income connected to the exempt purpose that qualifies each category. The exemption is a relief the organization receives in its capacity as a taxpayer on its own qualifying income. It is not a general release from every obligation the National Internal Revenue Code (NIRC) imposes, and it says nothing about the organization’s role when it pays someone else.

Organizations relying on this exemption typically hold a BIR Certificate of Tax Exemption (CTE) obtained under Revenue Memorandum Order (RMO) No. 38-2019, which sets the renewal cycle and documentary requirements for that certificate. And the exemption itself has a hard edge: income the organization earns from property or from an activity unrelated to its exempt purpose stays taxable regardless of how the proceeds are used, as covered in Is a Tax-Exempt Nonprofit’s Unrelated Business Income Still Taxed by the BIR? That is a question about income the organization receives. This article is about a different question: what the organization owes when it pays.

Why doesn’t the exemption excuse withholding on payments the organization makes? #

Income tax exemption and withholding-agent status are two separate legal questions, and RR No. 2-98 defines who must withhold by what they pay, not by whether their own income is taxable. Section 2.57.3(A) of RR No. 2-98 sets the general rule for who is constituted a withholding agent on the EWT payment categories listed in Section 2.57.2:

“In general, any juridical person, whether or not engaged in trade or business”

That single clause is deliberately broad. It does not carve out an exception for a juridical person that happens to be income tax-exempt under Section 30 — it reaches “any juridical person,” full stop, and adds “whether or not engaged in trade or business” precisely to sweep in entities, like a nonprofit foundation or a religious corporation, that do not operate as ordinary businesses. A parish paying a contractor to renovate a chapel, a foundation paying an accountant’s professional fee, or a nonprofit school paying rent on an annex building is each acting as a payor covered by that clause, independent of whatever CTE the organization holds as a taxpayer.

In practice this means a Section 30 organization keeps two obligations distinct: (1) it does not pay income tax on income tied to its exempt purpose, once its CTE is current; and (2) it still withholds EWT and issues BIR Form 2307 on qualifying payments to contractors, professionals, suppliers, and lessors, just like any taxable corporation. For the certificate’s general mechanics — who issues it, when, and how — see What Is BIR Form 2307 and When Must You Issue It?.

Does it matter whether the organization also has employees or runs a canteen? #

No — the withholding duty on contractor, supplier, and rental payments applies regardless of whether the organization additionally runs an unrelated trade or business, because that duty attaches to the payment, not to the organization’s overall tax profile. A diocese that also operates a bookstore, or a foundation that leases part of its building to a commercial tenant, may separately owe income tax on that unrelated income under the last paragraph of Section 30. But even a Section 30 organization with zero unrelated business income — one that earns nothing but exempt-purpose donations and tuition — still withholds on what it pays out. The two questions (is the organization’s own income taxable, and must the organization withhold on what it pays) are decided by different provisions of the NIRC and don’t offset each other.

This is the same underlying principle the site has already documented for two other exempt payor types: a BMBE’s RA 9178 exemption does not excuse it from withholding, as explained in Does a BMBE Still Have to Withhold Tax and Issue BIR Form 2307?, and a cooperative’s RA 9520 exemption on its own income likewise leaves its withholding duty as a payor intact, per Do You Withhold Tax When Paying a Registered Cooperative? A Section 30 nonprofit sits in the same position: exempt as a taxpayer on qualifying income, unexempt as a withholding agent on qualifying payments.

Worked example: a parish foundation pays a contractor and its bookkeeper #

A parish foundation renovating its chapel for ₱300,000 and paying a part-time bookkeeper ₱20,000 a month withholds on both, notwithstanding its Section 30 exemption on donations and mass offerings. Suppose Sto. Niño Parish Foundation, Inc., a nonstock, nonprofit religious corporation holding a current CTE under RMO No. 38-2019, hires an individual contractor to repair the chapel roof and retains a bookkeeper on a retainer basis to maintain its accounting records.

Sto. Niño’s own income from donations, mass stipends, and collections tied to its religious purpose stays exempt from income tax under its Section 30 certificate. But as the payor on both transactions, the foundation withholds ₱6,000 from the contractor’s invoice (ATC WI120, per BIR Form 2307 for Contractors and Subcontractors) and ₱1,000 each month from the bookkeeper’s retainer (ATC WI010, per BIR Form 2307 for Professional Fees). It remits both amounts through its EWT return and issues a BIR Form 2307 to each payee showing the gross payment, ATC, and tax withheld — exactly as a taxable parish supply store or a for-profit contractor’s client would. The contractor and bookkeeper each use their certificate to credit the withheld amount against their own income tax due; the foundation’s Section 30 status never enters that computation.

What if the roles are reversed and the organization is the one being paid? #

When a Section 30 organization is the payee rather than the payor, it may present a valid BIR Certificate of Tax Exemption to the party paying it, to stop EWT from being withheld on income tied to its exempt purpose — the opposite-direction claim from the withholding duties covered above. A parishioner’s employer, a diocesan office, or any other withholding agent paying the foundation for something connected to its exempt religious activity would ordinarily withhold on that payment; the foundation furnishing proof of its current CTE can seek relief from that specific withholding. That relief does not reach income from an unrelated trade or business the organization runs, and it has no bearing whatsoever on the foundation’s own duty to withhold when it is the one issuing the check — those remain two separate compliance tracks running in opposite directions.

Frequently asked questions #

Does a Section 30 tax-exempt nonprofit or church still withhold tax on what it pays out? #

Yes. NIRC Section 30 exempts a qualifying nonstock, nonprofit corporation from income tax on income tied to its exempt purpose, but that exemption runs to the organization as a taxpayer, not as a payor. When the same organization pays a contractor, supplier, professional, or landlord, it acts as a withholding agent under RR No. 2-98 Section 2.57.3 and must withhold expanded withholding tax (EWT) and issue BIR Form 2307, exactly like a taxable business.

Which organizations does NIRC Section 30 cover? #

Section 30 lists specific categories of nonstock, nonprofit corporations and associations — including religious, charitable, scientific, athletic, cultural, and educational organizations — and exempts each from income tax, but only on income connected to the exempt purpose that qualifies it under the statute. It does not create a general exemption from all BIR obligations.

Does a Certificate of Tax Exemption under RMO No. 38-2019 change the withholding-agent duty? #

No. The Certificate of Tax Exemption a Section 30 organization secures under RMO No. 38-2019 certifies that its own exempt-purpose income is not subject to income tax. It says nothing about payments the organization itself makes, so it does not relieve the organization of withholding EWT and issuing BIR Form 2307 to its contractors, suppliers, and lessors.

What is the withholding rate a church or foundation applies to a contractor’s fee? #

A contractor payment falls under the standard 2% expanded withholding tax rate under RR No. 2-98 as amended by RR No. 11-2018, using ATC code WI120 for an individual contractor or WC120 for a corporate one. The organization’s own Section 30 exemption has no bearing on this rate — it is the same rate any other payor applies to a contractor.

Can a Section 30 organization itself be exempt from having tax withheld when it is the payee? #

That is a separate question from the one this article covers. When a Section 30 organization receives payment for something tied to its exempt purpose, the party paying it may be able to stop withholding on that specific income if the organization furnishes a valid BIR Certificate of Tax Exemption. That payee-side relief does not extend to income the organization earns from an unrelated trade or business, and it never affects the organization’s own duty to withhold when it is the one paying someone else.

Summary #

A Section 30 nonstock, nonprofit corporation’s income tax exemption covers only tax on its own qualifying, exempt-purpose income — it creates no exception, express or implied, to the general EWT withholding rules in RR No. 2-98 Section 2.57.3, which reaches “any juridical person, whether or not engaged in trade or business.” A church, foundation, or nonprofit school that pays a contractor, professional, supplier, or landlord withholds exactly like any taxable payor: 2% on contractor payments (WI120/WC120), 5%/10% on professional fees (WI010/WI011), 5% on rent (WI100/WC100), and the applicable rate for any other EWT-covered category, issuing BIR Form 2307 to each payee. Before assuming a Certificate of Tax Exemption quiets any withholding duty, confirm which side of the transaction — payor or payee — the exemption actually applies to; start with What Is BIR Form 2307 and the BIR Form 2307 series hub for the underlying mechanics.