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Non-Profit Association Income Tax Non-Exemption Cases

Non-Profit Association: Income Tax Non-Exemption Cases

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On October 28, 2021, SUNAT issued Report No. 091-2021-SUNAT/7T0000, answering an institutional consultation on the meaning and scope of the tax regulations related to the non-profit association, as follows:

1. Consultations

Concerning the provisions of paragraph b) of Article 19 of the Income Tax Law, the following consultations are raised: 

  • Is a non-profit association whose articles of incorporation include the purposes of protecting, promoting, disseminating all those actions contributing to the care of the environment, natural resources, and ecological systems, and promoting education to contribute to the social responsibility and sustainable development of the region and the country, exempt from income tax if it provides consulting services on several environmental issues for valuable consideration to all types of users, members, and third parties, and reinvests such income for the institution? 
  • Is a non-profit association whose articles of incorporation include the purpose of promoting and disseminating a culture of peace through conciliation, arbitration, and other dispute resolution mechanisms, exempt from income tax if it provides in its conciliation and arbitration center, services for valuable consideration to all types of users, members, and third parties, and reinvests such income for the institution? 
  • A non-profit association whose instrument of incorporation includes the purpose of providing services and activities strengthening the competitiveness, management, and leadership of its members, a) Providing the following services for valuable consideration to all types of users, members, and third parties: (i) Training and updating on several businesses, environmental, and legal topics. (ii) Rental of the entity’s facilities such as conference rooms and other events. (iii) Advertising in the sent magazine periodically to its members or in its social networks. And b) Reinvesting the income obtained from such services for the institution: Is such association exempt from income tax?

Article 19, section b), the first paragraph of the Income Tax Law, establishes that until 12.31.2023, the income of foundations and non-profit associations whose articles of incorporation exclusively include one or more of the following purposes are exempt from income tax: Charity, social assistance, education, cultural, scientific, artistic, literary, sports, political, trade union, and/or housing, only if their income is intended for their specific purposes in the country and not to be distributed, directly or indirectly, among the associates or parties related to them, and that the property is provided for in their bylaws as intended, in case of dissolution, for any of the purposes outlined in this subsection.

Likewise, in reiterated jurisprudence, the Tax Court has indicated that the association’s bylaws must undoubtedly show that the scope of its purposes is exclusively those outlined in Article 19(b) of the Income Tax Law.

3. Conclusions

Concerning the provisions of paragraph b) of Article 19 of the Income Tax Law, the following must be complied with: 

  1. In the case of a non-profit association whose instrument of incorporation includes the purposes of protecting, promoting, and disseminating all those actions that contribute to the care of the environment, natural resources, and ecological systems and promoting education to contribute to the social responsibility and sustainable development of the region and the country, this association is not exempt from income tax, even if it reinvests for the institution, the income obtained from the provision of advisory services on several environmental issues for valuable consideration to all types of users, members, and third parties.
  2. A non-profit association whose instrument of incorporation includes the purpose of promoting and disseminating a culture of peace through conciliation, arbitration, and other conflict resolution mechanisms, is not exempt from income tax even if it reinvests the income obtained in its conciliation and arbitration center for the provision of services in return for payment to all types of users, members, and third parties for the institution. 
  3. The non-profit association whose incorporation instrument includes the purpose of providing services and activities that strengthen the competitiveness, management, and leadership of its associates is not exempt from income tax; and that: a) Provides the following services for valuable consideration to all types of users, members, and third parties: (i) Training and updating in various business, environmental and legal topics. (ii) Rental of the entity’s facilities such as conference rooms and other events. (iii) Advertising in the magazine it periodically sends to its members or in its social networks. b) And reinvest the income obtained from such services for the institution. 
Source: SUNAT 09/11/21

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