Is a Daycare or Preschool VAT-Exempt? Why Accreditation Decides

A daycare or preschool’s tuition and fees are VAT-exempt under NIRC Section 109(H) only if the center itself holds accreditation as an educational institution from the Department of Education (DepEd) — not simply because it cares for young children. A formal preschool or kindergarten running DepEd’s curriculum is typically accredited and falls under the exemption; a daycare or childminding service registered instead with the Department of Social Welfare and Development (DSWD) or a local government unit, without DepEd accreditation, does not automatically qualify.

That distinction has real consequences: an unaccredited daycare’s fees are ordinary VATable receipts, and once they exceed the VAT threshold, the center must register and charge VAT — or pay percentage tax below it — like any other service business.

If you run a small daycare or preschool and handle your own bookkeeping and BIR filings, the free tools at BIR Online Tools help you track gross receipts against the VAT threshold, prepare your DAT files, and keep your compliance calendar straight — without paying for accounting software built for larger businesses.

What does Section 109(H) actually require? #

NIRC Section 109(H) exempts educational services rendered by private educational institutions duly accredited by DepEd, CHED, or TESDA, and by government educational institutions, from 12% VAT — the exemption is written into the tax code around accreditation, not around the age of the students served or the word “school” in a business name. As VAT-Exempt Transactions Under NIRC Section 109 and this site’s dedicated post on the provision both note, the core statutory language reads:

“Educational services rendered by private educational institutions, duly accredited by the DepEd, CHED, TESDA and those rendered by government educational institutions.”

— NIRC Section 109(H), quoted in Are Tuition Fees VAT-Exempt? NIRC Section 109(H) Rules for Schools

For basic education — which is where preschool, kindergarten, and grade school sit — the accrediting agency named in the provision is DepEd. A center that actually holds current DepEd accreditation for its preschool or kindergarten program is rendering an “educational service” within the meaning of Section 109(H), and its tuition is exempt on the same basis as any accredited grade school’s.

Why daycare and preschool aren’t automatically the same thing #

The reason this question comes up at all is that “daycare,” “preschool,” “nursery,” and “childminding” get used loosely in everyday speech, but they can describe legally different services for tax purposes. A formal preschool or kindergarten that delivers DepEd’s Kindergarten Education curriculum, follows DepEd’s learning competencies, and holds a DepEd permit or recognition to operate is providing formal, curriculum-based instruction — the kind of service the accreditation framework in Section 109(H) was built to cover.

A daycare center, by contrast, is often primarily custodial: supervised childminding, feeding, naps, and basic activities for children too young for formal schooling, typically operating under a day care center registration with DSWD or the local government (many barangay- and city-level day care centers exist specifically under this framework, separate from DepEd’s school-accreditation track). That kind of registration exists to regulate child welfare and safety standards, not to certify the center as an educational institution for tax purposes. Because the two agencies serve different regulatory purposes, a DSWD or LGU-registered daycare does not automatically inherit DepEd’s accreditation status, and therefore does not automatically inherit Section 109(H)’s VAT exemption either.

This is the same principle the tuition-fees post applies to tutorial centers and review courses: accreditation by the specific agency named in the statute is what does the legal work, not the general subject matter of the service. A center that markets itself as a “preschool” but has never actually secured DepEd accreditation for that program is in the same position as an unaccredited tutorial center — it does not get Section 109(H)’s exemption just by using education-adjacent language.

The practical test: what should an operator actually check? #

Before assuming your center’s fees are VAT-exempt, confirm — in writing, from the agency itself — which accreditation your center actually holds, because that document is what the exemption turns on, not your center’s name or your own description of what you do. Run through this checklist:

1. Identify what your center actually does day to day. Does it follow a DepEd-prescribed curriculum with instructional objectives and progression (kindergarten-readiness lessons, structured learning periods), or is it primarily supervised childminding, feeding, and rest for children not yet enrolled in formal schooling?
2. Check whether you hold a DepEd permit or recognition for the specific program you operate (e.g., a Kindergarten or preschool permit to operate). This is the document that supports a Section 109(H) claim.
3. If you instead hold a DSWD or LGU day care center registration rather than DepEd accreditation, do not assume the VAT exemption carries over. Treat your fee income as you would any other service business for VAT purposes unless and until you can point to actual DepEd accreditation.
4. When in doubt, confirm directly with DepEd (for accreditation status) and with DSWD or your local social welfare office (for what your existing registration does and doesn’t cover) rather than relying on assumptions — this article describes the general shape of the distinction, not a specific DSWD regulation number, and the exact registration mechanism for day care centers can vary by locality. A BIR ruling request or a consultation with a tax professional is the safest way to confirm your specific center’s treatment if the facts are mixed (for example, a center running both a DepEd-accredited kindergarten class and a separate unaccredited toddler daycare program).
5. Track your VATable gross receipts against the ₱3,000,000 threshold if any part of your operation isn’t covered by the exemption — see VAT Registration Threshold in the Philippines for how the threshold is measured and what happens once you cross it.

Worked example: two centers, two outcomes #

Consider two small operators, each charging fees to the parents of young children.

Little Learners Preschool’s ₱2.4 million in annual fees is exempt under Section 109(H) because the center holds actual DepEd accreditation for the curriculum it delivers — the exemption applies whether its gross receipts are ₱1 million or ₱10 million, since Section 109(H) is not a threshold-based exemption. Sunshine Daycare & Childminding, on the other hand, has no DepEd accreditation; its ₱3.6 million in annual fees is ordinary VATable gross receipts, and because that figure exceeds the ₱3,000,000 threshold, the center is legally required to register as a VAT taxpayer, issue VAT invoices, and remit 12% output VAT going forward — the same obligation any non-exempt service business would face at the same revenue level.

Frequently asked questions #

Is a daycare center automatically VAT-exempt like a school? #

No. The VAT exemption under NIRC Section 109(H) is tied to accreditation as an educational institution by DepEd, CHED, or TESDA. A daycare center that provides custodial childcare and is registered with DSWD or a local government unit, without DepEd accreditation, does not automatically qualify for the same exemption a DepEd-accredited school enjoys.

What makes a preschool different from a daycare for VAT purposes? #

The distinction that matters for VAT is accreditation and the nature of the service, not the age group served. A preschool or kindergarten that delivers a DepEd-prescribed curriculum under a DepEd permit or recognition is rendering an educational service exempt under Section 109(H). A daycare offering primarily custodial childminding under a DSWD or LGU registration is not automatically treated the same way.

What should a daycare or preschool operator check to confirm VAT status? #

Confirm the specific accreditation the center actually holds — a DepEd permit to operate an educational program supports the Section 109(H) exemption, while a DSWD or LGU day care registration alone does not. Operators with mixed or unclear facts should confirm directly with DepEd and DSWD, or consult a tax professional, rather than assuming either way.

Does an unaccredited daycare need to register for VAT? #

Only once its gross receipts exceed the ₱3,000,000 VAT registration threshold in any 12-month period, the same rule that applies to any other business under NIRC Section 236(F). Below that threshold, it may instead be subject to percentage tax. See VAT Registration Threshold in the Philippines for how the threshold is applied.

Can a center run both an exempt program and a VATable program at the same time? #

Yes — this happens when, for example, a center’s DepEd-accredited kindergarten class is exempt while a separate toddler daycare program it also runs is not accredited by DepEd. In that situation, the two revenue streams generally need to be tracked and classified separately, similar to how a school’s tuition and its non-academic income (like canteen rentals) are analyzed separately under Section 109(H).

Summary #

A daycare or preschool’s fees ride on the same NIRC Section 109(H) framework as any other school’s tuition, but the exemption only follows actual DepEd accreditation of the educational program being delivered — not the center’s name, its target age group, or a DSWD or LGU day care registration on its own. Operators should confirm their specific accreditation status directly with DepEd, keep custodial and curriculum-based revenue lines separate if they run both, and track gross receipts against the ₱3,000,000 VAT threshold for any income that isn’t covered by the exemption. For the full accreditation framework and its limits, see Are Tuition Fees VAT-Exempt? NIRC Section 109(H) Rules for Schools, and for the threshold mechanics, see VAT Registration Threshold in the Philippines.