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Are Cooperatives Exempt From BIR Income Tax and VAT? Requirements Under RA 9520

·7 mins
Guides BIR Tax Compliance VAT Philippines

A duly registered cooperative is generally exempt from BIR income tax and value-added tax (VAT) on transactions with its own members under Republic Act (RA) No. 9520, the Philippine Cooperative Code of 2008. Non-member transactions depend mainly on the size of its accumulated reserves and undivided net savings — and in every case, the exemption is not automatic: a cooperative must apply for and maintain a BIR Certificate of Tax Exemption to rely on it.

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RA 9520, the Philippine Cooperative Code of 2008, amended the earlier RA 6938 and governs how Philippine cooperatives are registered, regulated, and taxed. Its tax provisions are implemented jointly by the Cooperative Development Authority (CDA) and the Bureau of Internal Revenue (BIR) through joint implementing rules that translate the law’s exemptions into concrete BIR procedures — registration with the CDA alone does not automatically confer BIR tax-exempt status.

The law opens with a declaration of policy toward cooperatives as an economic development tool:

“…it is a declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice.”

This is quoted from Article 2 of RA 6938, as amended by RA 9520 (the Philippine Cooperative Code of 2008), as reproduced in Cooperative Development Authority briefing materials — a secondary-sourced excerpt, since a direct fetch of the primary RA 9520 text was not available for this article. Cooperatives considering the exemption should still confirm current wording against the BIR or CDA’s published copy of the law before relying on it for a specific filing position.

For how this cooperative exemption compares to another common small-entity tax break, see BMBE Registration and BIR Income Tax Exemption — BMBE status also exempts qualifying businesses from income tax, but through a different law, a different registering office, and a narrower scope than the cooperative exemption below.

Member Transactions: Exempt From Income Tax and VAT #

Transactions between a cooperative and its own members are exempt from both income tax and VAT under RA 9520, regardless of the cooperative’s type or size. This member-transaction exemption is the broadest and least conditional part of the tax treatment: it covers income the cooperative earns from selling goods or services to members, and it extends further to exempt final taxes on members’ savings and time deposits held with the cooperative, and to exempt documentary stamp tax on transactions between the cooperative and its members.

  • Income tax: not due on net income from member transactions.
  • VAT: not due on sales of goods or services to members.
  • Final tax: not withheld on members’ deposits with the cooperative.
  • Documentary stamp tax: not due on member transactions.

Because this exemption depends on the transaction being genuinely with a member, cooperatives need reliable membership records and should be able to show, transaction by transaction, which sales were member sales — a distinction that becomes directly relevant once non-member business enters the picture.

Non-Member Transactions: It Depends on Reserve Size #

A cooperative’s transactions with non-members are not automatically exempt the way member transactions are — the tax treatment instead turns on the size of the cooperative’s accumulated reserves and undivided net savings. Under RA 9520’s implementing rules, a cooperative whose accumulated reserves and undivided net savings do not exceed ₱10,000,000 is exempt from all national taxes for which it would otherwise be liable on business done with non-members, subject to the conditions in the joint CDA-BIR rules. A cooperative whose reserves exceed that ₱10,000,000 threshold is instead subject to certain taxes on its non-member transactions, with the applicable rates set out in the same implementing rules rather than in RA 9520 itself.

This size-based distinction matters for compliance planning: a small cooperative that stays under the ₱10,000,000 reserve threshold can generally treat both member and non-member income as exempt, while a larger cooperative needs to track non-member transactions separately and apply the correct tax treatment to that portion of its business. Either way, the exemption on non-member business is conditional, not automatic — it depends on staying within the size threshold and continuing to meet the requirements below.

Applying for the BIR Certificate of Tax Exemption (Worked Example) #

A cooperative does not receive BIR tax-exempt status simply by registering with the CDA — it must separately apply to the BIR for a Certificate of Tax Exemption (CTE) within 60 days of the date its CDA Certificate of Registration is issued. Walking through a concrete example makes the timeline and the member/non-member split easier to apply in practice.

Suppose Bayanihan Farmers Cooperative receives its CDA Certificate of Registration on March 1. To lock in its BIR exemption:

  1. It must file its application for a BIR Certificate of Tax Exemption within 60 days of March 1 — by April 30 — submitting the documentary requirements the joint CDA-BIR rules call for.
  2. The BIR is required to act on a complete application within 45 days of receipt, issuing the CTE once it confirms all documentary requirements are met.
  3. The CTE must be signed by the BIR Regional Director, or by the Assistant Commissioner, Legal Service, depending on the case — it is not a form a cooperative can self-issue or assume by default.
  4. Once issued, the CTE covers income from the cooperative’s core activity: in this case, Bayanihan Farmers Cooperative’s sales of farm inputs to its own members at the co-op store, which is exempt income tax and VAT under the member-transaction rule above.
  5. Bayanihan also sells a modest amount of surplus fertilizer to non-members. Because its accumulated reserves are well under the ₱10,000,000 threshold, that non-member income is generally exempt too — but the cooperative should still record member and non-member sales separately, both to support its exemption claim and to make renewal and audit easier later.

Documentary checklist for the CTE application typically includes:

  • CDA Certificate of Registration (or renewal).
  • Cooperative’s Articles of Cooperation and By-laws.
  • List of officers and members, and proof of the cooperative’s type and activity.
  • Financial statements supporting the reserve and net-savings figures relevant to the ₱10,000,000 threshold.
  • Any other documents the joint CDA-BIR rules specify for the cooperative’s category.

A cooperative should also apply for a separate Certificate of VAT Exemption (CVE), which is valid for three years unless revoked earlier — meaning the CVE, unlike the underlying statutory exemption, has its own expiration and renewal cycle to track.

Keeping the Exemption: Annual Reporting #

A BIR Certificate of Tax Exemption is not a one-time grant — a cooperative keeps it valid only by meeting ongoing reporting obligations, chiefly the annual submission of CPA-audited financial statements to both the CDA and the BIR. Failure to submit these audited statements can lead to revocation of the exemption, at which point the cooperative would be treated as subject to the taxes the CTE had exempted it from, going forward.

For Bayanihan Farmers Cooperative, this means that securing the April 30 CTE is only the first compliance milestone, not the last: it must also plan for annual CPA audits and timely submission to CDA and BIR, and it should renew its Certificate of VAT Exemption before the three-year validity period lapses. A cooperative that also has any VAT-exempt sales beyond the cooperative-specific rules discussed here should cross-check against the general list in VAT-Exempt Transactions Under NIRC Section 109, since some transactions may be exempt under Section 109 independently of a cooperative’s RA 9520 status.

Summary #

A registered cooperative is exempt from BIR income tax and VAT on transactions with its own members under RA 9520, and that exemption can extend to non-member transactions as well when the cooperative’s accumulated reserves and undivided net savings stay at or below ₱10,000,000. None of this is automatic: a cooperative must apply for a BIR Certificate of Tax Exemption within 60 days of its CDA registration, wait for the BIR’s decision within its 45-day window, and then keep the exemption alive by filing CPA-audited financial statements with the CDA and BIR every year and renewing its Certificate of VAT Exemption before its three-year term expires.