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Non-Stock, Non-Profit Organization vs Foundation in the Philippines

June 24, 2022

In the Philippines, establishing a non-profit entity involves choosing between a non-stock non-profit organization (NPO) and a foundation, each governed by distinct legal frameworks, operational requirements, and tax implications under the Revised Corporation Code and the Tax Code. This article comprehensively compares these entities, detailing their structures, registration processes, funding mechanisms, tax benefits, compliance obligations, and considerations for foreign involvement. Tailored for philanthropists, community leaders, and international organizations, it offers clear guidance to navigate the complexities of setting up a foundation in the Philippines. Triple i Consulting is a trusted provider for professional assistance to streamline the process.

Legal Structures and Definitions

The legal distinctions between non-stock non-profit organizations and foundations shape their purpose and operations in the Philippines. Both entities fall under the Revised Corporation Code (Republic Act No. 11232) but serve different roles based on their structure and objectives. Below is a detailed breakdown:

Non-Stock Non-Profit Organization (NPO):
- A corporation formed for purposes other than profit, such as charitable, educational, religious, or civic activities, with no capital stock or shareholder dividends.
- Income is used solely to advance its mission, ensuring no financial benefit to members, trustees, or officers.
- It offers flexibility in scope, allowing activities like community development, education, or disaster relief without rigid structural constraints.
- It can be established by individuals, groups, or even foreign nationals, provided that at least 60% of trustees or members are Philippine citizens to qualify as Philippine nationals.
Foundation:
- A specific type of non-stock corporation focused on grant-making or funding charitable, educational, or cultural initiatives.
- It requires a minimum capital contribution of PHP 1,000,000, as evidenced by a notarized bank deposit certificate mandated by the Securities and Exchange Commission (SEC).
- Must include “Foundation” in its corporate name to distinguish it from other non-stock entities.
- Typically funded by endowments from founders, focusing on disbursing grants to support public welfare projects.

Both entities prioritize public benefit, but foundations are more structured, often serving as funding vehicles, while NPOs offer broader operational flexibility. Choosing between them depends on the organization’s goals, funding strategy, and scale.

Registration Requirements

Setting up a non-stock non-profit organization or a foundation in the Philippines involves navigating a structured registration process with the SEC and other agencies. Each entity has specific requirements to ensure compliance with national regulations. Here are the key steps and documents needed:

Non-Stock Non-Profit Organization:
- Submit Articles of Incorporation to the SEC, outlining the organization’s purpose, principal office, and term of existence (typically perpetual unless specified).
- Provide By-Laws detailing governance, membership rules, and operational procedures.
- Include a list of members or trustees, with at least five individuals, and ensure compliance with the 60% Filipino citizenship rule for national status.
- Register with the Bureau of Internal Revenue (BIR) for a Certificate of Registration and, if applicable, apply for tax-exempt status under Section 30 of the Tax Code.
- Secure barangay clearance, business permits, and registration with the Social Security System (SSS), PhilHealth, and Pag-IBIG if the organization employs staff.
Foundation:
- File Articles of Incorporation with the SEC, explicitly stating the foundation’s charitable purpose and including “Foundation” in the name.
- Submit By-Laws and a Notarized Certificate of Bank Deposit confirming the PHP 1,000,000 minimum capital contribution.
- Provide a list of contributors or trustees, ensuring compliance with citizenship requirements for national status.
- Register with the BIR for tax purposes and apply for tax-exempt status, often requiring endorsement from the Philippine Council for NGO Certification (PCNC).
- If required, obtain additional endorsements from relevant agencies (e.g., the Department of Social Welfare and Development for welfare-focused foundations).

The registration process for both entities is rigorous, with foundations facing stricter capital and naming requirements. Triple i Consulting can guide applicants to ensure compliance and efficiency.

Funding Mechanisms and Sources

Funding is a cornerstone of non-profit operations, and the sources available to non-stock non-profit organizations and foundations differ based on their structure and purpose. Below is a comparison of how each entity secures financial resources:

Non-Stock Non-Profit Organization:
- Relies on diverse funding sources, including membership dues, public donations, fundraising events, and government or private grants.
- Can engage in income-generating activities (e.g., selling services or products) as long as profits are reinvested into the organization’s mission.
- Benefits from flexibility in soliciting funds from local and international donors, subject to compliance with anti-money laundering regulations.
- May receive in-kind contributions, such as equipment or volunteer services, to support operations.
Foundation:
- Primarily funded through endowments or contributions from founders, often in the form of the initial PHP 1,000,000 capital.
- It focuses on distributing grants or donations to other charitable organizations or projects rather than directly implementing programs.
- It can accept additional donations or grants, but its primary role is to manage and disburse endowed funds for public benefit.
- Must maintain the capital endowment intact, using only income or interest for operational or grant-making purposes.

NPOs enjoy greater flexibility in fundraising, while foundations are designed to manage and distribute endowed funds. Both must adhere to strict financial reporting to maintain transparency and compliance.

Tax Benefits and Exemptions

Tax incentives are a significant consideration for non-profits and their donors in the Philippines. Non-stock non-profit organizations and foundations can qualify for exemptions, but the process and benefits differ. Here are the key tax considerations:

Non-Stock Non-Profit Organization:
- Eligible for income tax exemption under Section 30 of the Tax Code if it meets the organizational and operational tests, ensuring no income benefits to private individuals and activities aligned with the stated purpose.
- A BIR ruling or PCNC accreditation must be obtained to confirm tax-exempt status, which involves submitting financial statements and activity reports.
- Donors can deduct 100% of their donations from taxable income, and donations are exempt from donor’s tax if administrative expenses do not exceed 30% of total costs.
- Unless explicitly exempted, it may be subject to value-added tax (VAT) or percentage tax on income-generating activities.
Foundation:
- Qualifies for similar income tax exemptions under Section 30, provided it passes the BIR’s organizational and operational tests.
- Requires PCNC certification or a BIR ruling to secure tax-exempt status, often necessitating detailed documentation of grant-making activities.
- Offers the same donor benefits: full deductibility of donations and exemption from donor’s tax, subject to the 30% administrative expense cap.
- Must maintain accurate records of fund disbursements to ensure compliance with tax-exempt criteria.

Securing tax exemptions requires meticulous documentation and compliance, making professional guidance from firms like Triple i Consulting invaluable for navigating BIR and PCNC requirements.

Ongoing Compliance Obligations

Maintaining compliance with regulatory bodies is essential for non-stock non-profit organizations and foundations to retain their legal and tax-exempt status. The SEC and BIR impose ongoing reporting requirements to ensure transparency. Below are the key obligations:

Non-Stock Non-Profit Organization:
- File a General Information Sheet (GIS) with the SEC within 30 days of the annual members’ meeting, detailing officers, members, and operational updates.
- Submit Audited Financial Statements (AFS) within 120 days of the fiscal year-end, prepared by an accredited external auditor.
- Comply with BIR requirements, including annual information returns and activity reports, to maintain tax-exempt status.
- Register employees with SSS, PhilHealth, and Pag-IBIG and remit contributions if applicable.
- Report significant donations (PHP 500,000 or more) to the SEC, as required by SEC Memorandum Circular No. 15-2016.
Foundation:
- Submit the GIS and AFS to the SEC on the exact timelines as NPOs, ensuring details of endowment management are included.
- File annual information returns with the BIR, supported by PCNC certification if tax-exempt.
- As SEC guidelines require, maintain records of grant disbursements and ensure the endowment remains intact.
- Comply with employer registration and contribution requirements for SSS, PhilHealth, and Pag-IBIG if staff are employed.
- Add additional reporting for significant donations, similar to NPOs, to ensure transparency.

The complexity of these obligations underscores the need for expert assistance. Triple i Consulting specializes in guiding non-profits through compliance, ensuring all filings are accurate and timely to avoid penalties or loss of status.

Considerations for Foreign Involvement

For international organizations or individuals seeking to establish a foundation in the Philippines, understanding the role of foreign nationals is critical. Non-stock non-profit organizations and foundations allow foreign participation, but specific rules apply. Here are the key considerations:

Non-Stock Non-Profit Organization:
- Foreign nationals can serve as trustees or members, but at least 60% of the board or membership must be Filipino citizens to qualify as Filipino nationals, enabling certain restricted activities (e.g., land ownership).
- International NGOs can operate as NPOs, provided they comply with SEC registration and anti-money laundering regulations.
- Must secure endorsements from relevant agencies (e.g., Department of Foreign Affairs for international operations) if engaging in cross-border activities.
- Donations from foreign entities are permitted but must be reported to ensure compliance with tax and financial regulations.
Foundation:
- Foreign nationals can act as trustees or contributors, subject to the exact 60% Filipino citizenship requirement for national status.
- International foundations can establish a presence in the Philippines, but the PHP 1,000,000 capital requirement applies, and endowment funds must be deposited in a Philippine bank.
- Must comply with SEC and BIR regulations, including reporting of foreign-sourced donations or grants.
- Additional clearances for specific charitable activities may be required from agencies like the Department of Social Welfare and Development.

Navigating foreign involvement is complex due to citizenship and regulatory requirements. Triple i Consulting offers expert support to ensure compliance, making the process seamless for international clients establishing a foundation in the Philippines.

Final Insights

Choosing between a non-stock non-profit organization and a foundation in the Philippines depends on an organization’s mission, funding model, and operational goals. Non-stock NPOs offer flexibility for diverse charitable activities, while foundations focus on grant-making with a structured endowment model. Both require careful navigation of registration, tax exemptions, and ongoing compliance, with additional considerations for foreign involvement. The intricate legal and regulatory landscape highlights the value of professional guidance. Triple i Consulting, a trusted provider, offers comprehensive support to establish and manage these entities, ensuring compliance and efficiency.

Is Assistance Available?

Yes, Triple i Consulting provides expert services to streamline the complex process of setting up and maintaining a non-stock non-profit organization or foundation in the Philippines. Contact us today to schedule an initial consultation with one of our experts: