Legislation and Registration of NGOs in South Africa

 

Codes of Good Practice for South African Non-profit Organisations (NPOs)

The Code of Good Practice is comprehensive, but it does not provide detailed standards of conduct. Office bearers of nonprofit organisations are responsible for the effective and efficient management and administration of their organisations, and also the maintenance of discipline according to their constitutions. Recognising that these codes will be used by a wide variety of nonprofit organisations, operating under many different circumstances, the text is broad ranging and in a style that makes the code understandable and useable.

The Department of Social Development has developed these codes in keeping with the
requirements of the Nonprofit Organisations Act of 1997, in consultation with a representative number of nonprofit organisations throughout South Africa. These codes are the result of a shared vision for what constitutes good practice in leading and managing nonprofit organisations of all sizes across all interest sectors, with a particular focus on governance, administration, fundraising and the donor community

Download this document here (319.25KB, 52pg)

Guide to the Nonprofit Organisations (NPO) Act

This booklet is part of a series of booklets which focus on the laws which are relevant to NPOs. It discusses the Non-Profit Organisations Act, a new law that came into operation during 1997, which is relevant to the establishment and regulation of NPOs.

Access this document as an HTML here

Non-Profit Organisation Annual Reports. In Terms of the Nonprofit Organisations Act, 1997(Act No, 71 Of 1997)

The accompanying guideline will help registered Non-profit organisation office bearers (Chief Executive Officers, or governing body Chairpersons, or both) prepare and submit their annual narrative and financial reports to the Department of Social Development’s Non-profit organisation's Directorate.

These two reports together tell the story of your organisation’s activities, its income and expenditures for the past year. The reports must reach the Directorate within nine (9) months of your organisation’s financial year end. We urge you to adhere to this timing. Please indicate any difficulty you may be having well in advance of the date.

Download this document here (115.82 KB, 9pg)

A Concise Guide to the Nonprofit Organisations Act 71 0f 1997. What Nonprofit Organisations Must Know. (2009)

A concise guide to the Nonprofit Organisations Act no. 71 of 1997 (the Act) was published by Inyathelo – The South African Institute for Advancement, in October 2009 and is available as a free download

The Act aims to create a supportive and enabling environment for the non-profit sector.  Inyathelo’s guide to the Act will assist non-profit organisations (NPOs) in making sense of the legislation and providing clarity on the implications of it for NPOs.

Topics covered in the guide include which organisations can register and how, benefits and impacts of the Act on registered NGOs, and what happens if a registered NPO fails to comply with the Act.
The guide includes a list of useful resources for NPOs related to legal compliance and good governance and including a Founding Document Compliance Checker – which is a practical tool for organisations to determine whether they have included all the necessary elements in their founding document (ie. the constitution of the organisation).

Click here to download the guide (PDF, 12p, 172.79KB.)

 

Application to Register a Non-Profit Organisation.

Information about the process in South Africais is available here

Making Sense of the Alphabet Soup. 3/4/2013

Valuable Summary for NPOs in South Africa from Greater Good

Because of the number of regulatory, compliance and taxation mechanisms that apply to civil society organisations in South Africa (not to mention the alphabet soup of acronyms), there is a great deal of confusion around legal and tax status. Most people tend to conflate legal entity with official registration, compliance and tax exemption status. But all these things are quite distinct.

Legal entity

Not for profit organisations in South Africa can be established in three forms:

VOLUNTARY ASSOCIATIONS

An agreement between three or more people to achieve a common object which cannot be profit-making, usually used by small community groupings because there is no requirement for registration with a public office. It is regulated by common law, rather than statute, and must meet three requirements:

  • Demonstrate perpetual succession (to be able to continue despite a change in membership)
  • Be able to hold property distinct from its members
  • Declare that no member can have any rights to the property of the association.

NON-PROFIT TRUSTS

Established in terms of the Trust Property Control Act of 1988 when ownership of property is transferred to another party, to be administered for the benefit of certain people or the achievement of a particular goal. The structure is often used for Wills because it is tax efficient. A founding trust deed must be lodged with the Master of the High Court who polices the duties of the trustees. Trustees can only act in their capacity as trustees after having been authorised by the Master in writing.

NON PROFIT COMPANIES (NPCs)

Trading companies registered with the Companies and Intellectual Property Commission that are incorporated for a “public benefit purpose” and whose income and property may not be distributed to the incorporators, members, directors or officers, except for reasonable compensation for services. These used to be known as Section 21 companies until The Companies Act, No. 71 of 2008 came into operation in May 2011. 

This table summarises the differences between legal entities. Only the first three would be able to apply for Non Profit or Public Benefit Organisation status. Click on the table to download it as a pdf.

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Registration and compliance

So now that you have established what your legal entity is, you can look at the registrations you may have - this is your status.

NON PROFIT ORGANISATIONS (NPOs)

The Non Profit Organisations Act of 1997 (the NPO Act) provides for a voluntary registration facility for non profit organisations. The NPO Act replaced the apartheid-era Fundraising Act of 1978 which was often used to suppress the fundraising activities of organisations opposed to the state. It is no longer a precondition for a Public Benefit Organisation (which enjoys tax exemption status) to register with the Directorate of Non-Profit Organisations. However, most foundations and CSI departments expect to see an NPO registration certificate and number. Foundations or Organisations that receive funding from the United States of America always require NPO registration to comply with the Patriot Act.

The Act defines a non profit organisation as “a trust, company or other association of persons established for a public purpose and the income and property of which are not distributable to its members or office-bearers except as reasonable compensation for services rendered”.

To register as an NPO, organisations must:

  • Be not for profit
  • Have a legal personality distinct from its members (a body corporate)
  • Not be part of government
  • Provide their founding document/s and complete an application form to demonstrate the above.

Online registration has recently been made available on this website: www.npo.gov.za.  A registered non profit organisation is issued with a certificate of Registration and an NPO number, which is considered proof that the organisation is registered. An NPO is required to reflect its registered status and registration number on all of its documents.

Registered NPOs must:

  • Keep accounting records of income, expenditure, assets and liabilities
  • Draw up financial statements within six months of their financial year-end
  • Submit an annual report to the NPO Directorate which includes an Accounting Officer’s report (financial statements) and a prescribed narrative report of activities.
  • Inform the NPO Directorate within one month of any changes to the names or physical, business and residential addresses of their office-bearers or registered address of the organisation or any appointment of office-bearers.

If an organisation fails to comply, it can be deregistered by the NPO Directorate.

PUBLIC BENEFIT ORGANISATIONS (PBOs)

While NPOs are governed by the NPO Directorate, Public Benefit Organisations (PBOs) are the domain of the South African Revenue Service’s Tax Exemption Unit (TEU) as set out in the Income Tax Act of 1962.

The benefits of being a PBO are:

  • PBOs do not pay income tax
  • PBOs do not pay donations tax
  • People donating to PBOs can get a tax deduction on their donations. 

To qualify for approval as a PBO, organisations must have as their sole or principal object, one or more Public Benefit Activities. These activities are listed in detail in the Ninth Schedule to the Income Tax Act, 1962 and fall into the following categories:

  1. Welfare and Humanitarian
  2. Health Care
  3. Land and Housing
  4. Education and Development
  5. Religion, Belief or Philosophy
  6. Cultural
  7. Conservation, Environment and Animal Welfare
  8. Research and Consumer Rights
  9. Sport
  10. Providing of Funds, Assets or Other Resources
  11. General

The legislation now provides that a PBO can (under certain conditions) grant funds to voluntary or informal groups of people even if these groups have no formal founding document or status. The promotion of political objects is not considered to be for the public benefit. 

Public benefit activities must have an altruistic or philanthropic intent and should not promote the economic self-interest of any person, aside from reasonable remuneration (salaries). At least 85% of the activities of a PBO must be for the benefit of residents of South Africa. In special circumstances (for example, in emergencies), the Minister may relax these limits and allow more than 25% of the activities to be carried on outside the country. Donations received from organisations or donors not resident in South Africa are not subject to these restrictions.

Being a registered NPO is not enough to get tax exemption. Organisations are awarded public benefit status if they:

  • Have at least three people, who are not connected to each other, accept the fiduciary responsibility of the organisation – in other words, no single person can control the decision-making in the organisation.
  • Do not directly or indirectly distribute any of their funds to any single person.
  • Use their funds for the benefit of the general public.

The investment of surplus funds is allowed but the income from the investment must only be used to further the object of the PBO itself and not benefit a particular person. A PBO may not, on dissolution, distribute any of its funds to individuals or other tax-paying entities.

PBOs must submit an annual return for assessment together with an audit certificate confirming that all donations received or accrued were used for the object/s of the PBO. If a PBO is found to be non-compliant, SARS can revoke PBO status and any related tax exemption.

NON PROFIT COMPANIES (NPCs)

South Africa is quite unusual in allowing Non Profit Companies - which are registered with, and governed by, the Companies and Intellectual Property Commission (CIPC) - to register as non profit or public benefit organisations. This means that you can generate an income just like any other for-profit company. BUT, NPCs must:

  • Have a minimum of three ‘incorporators’ who must sign the Memorandum of Incorporation (MoI)
  • Appoint a minimum of three directors
  • Use all income and property to advance its objects as set out in the MoI - profits can not be paid to directors, except in reasonalbe exchange for services (salary packages)
  • Comply with a special set of rules for non profit companies. For example, on dissolution, non profit companies must distribute their assets with certain restrictions. Most of these special rules take the non profit nature of the company into account and are aimed at making compliance and auditing less burdensome.

Non profit companies must submit annual returns to the CIPC and register any change in directors’ details.

For more information, visit:
www.sars.gov.za - Basic Guide to Income Tax for Public Benefit Organisations

 

The ABCs of Taxes in the Nonprofit Sector

Both South African nonprofit organisations and donors can enjoy tax benefits if the former are registered as Public Benefit Tuesday, April 9 - Author(s): Hoosen Agjee - Published: Sangonet
 

Many charities do not realise or understand the benefits of being registered as a public benefit organisation (PBO), Hoosen Agjee explains.

In our many years working with the nonprofit sector (NPO) sector, we have identified that a significant number of organisations are still unaware of the specific tax benefits available to them,’ says Hoosen Agjee, managing director of Turning Point Consultants (TPC) and author ofTax Benefits for the Nonprofit Sectorand A Guide to the New Companies Act and Nonprofit Organisations.

In fact, he adds, “There’s a common misconception that an exemption from Income Tax and certain rates are perhaps the only benefits available to the sector’. Agjee says that, “All is not lost for NPOs who haven’t been tax efficient in the past.” TPC has designed a system tailored specifically for such organisations, measuring the quantitative impact of such inefficiencies, and more importantly focusing on practical solutions to remedy this. With many organisations experiencing significant reductions in donor funding, these savings and recoveries have also opened up an additional recurring income stream for NPOs.

When Agjee published his first book,Tax Benefits for the Non Profit Sector, in August 2002, the general comments received from NPOs included:

  • What has tax got to do with NPOs?
  • As an NPO we are exempt from taxes – we don’t pay taxes;
  • We have an NPO number therefore we can access all the tax-benefits; and
  • As we are a Section 21 company, we can issue our donors tax deductible certificates.

‘These comments could not be further from the truth, he says.

What is a Nonprofit Organisation (NPO)?

An NPO is any entity (whether formally registered or not) which carries out activities in a nonprofit manner.This means that any surplus or gains that the NPO makes will not be distributed to any individual, member or trustee of the organisation but shall be for the benefit of such organisation. NPO activities could relate to social, religious, educational, welfare and the list goes on. The fundamental requirement is that the NPO should not promote the economic interest of any individual or employee. Therefore, most or all organisations may be regarded as NPOs if they meet these criteria.

What are the benefits of an NPO number?

The NPO Act regulates NPOs in South Africa. Once an NPO meets the requirements of the NPO Act, it may apply to the Department of Social Development and on qualification, the organisation will be issued with an NPO number which results in the following benefits:

  • Public recognition;
  • Promotes good standing;
  • Transparency and accountability in activities; and
  • Promotes access to government and corporate funding. 

However, an NPO number does not give the organisation any tax benefits.

Unlocking tax benefits

Our government, recognising that NPOs play a significant role in society, has designed specific tax benefits and exemptions to assist NPOs in meeting their objectives. Their principal aim is to ensure monies that are required to provide goods and services, which are generally for the benefit of the poor and needy, are not trapped as a tax cost.

Obtaining a tax exemption

The Income Tax Act defines the types of activities that an NPO can undertake before it is granted a tax-exempt status. Inaddition, the NPOs’ founding documents must comply with the requirements of the Act. NPOs that meet these requirements can take advantage of the tax benefits to reduce their tax burden and obtain other benefits. Obtaining a Tax exemption is not automatic. An application must be made to the South African Revenue Service (SARS) who, on review, will grant the NPO a tax exemption status. Once tax exemption is approved by SARS, the NPO obtains a Public Benefit Organisation (PBO) status.

Who can access tax benefits?

To access the tax and other benefits, the NPO has to be classified as a PBO and must undertake PublicBenefit Activities (PBAs).

What is a PBO?

A PBO is any welfare, religious or cultural body, private school, bursary fund, charitable body, charitable trust or sporting body approved by SARS. The PBO can be structured either as a nonprofit company (commonly known as a section 21 company), a trust or an association of persons.

What are Public Benefit Activities (PBAs)?

SARS has defined different fields of activities that a PBO can undertake for it to qualify for tax exemption. These activities are known as PBAs and are classified under:

  • Welfare and humanitarian;
  • Religion, belief or philosophy;
  • Cultural;
  • Health care;
  • Education and development;
  • Land and housing;
  • Conservation, environment and animal welfare;
  • Research and consumer rights;
  • Sport; and
  • Provision of funds to other PBOs 

Tax benefits to donors

Donors also benefit when donating to a PBO compared to any other organisation.By donating to a tax-exempt PBO, the donor may achieve, among others, the following tax benefits:

  • 20 percent donations tax;
  • 20 percent estate duty; and
  • 10-14 percent capital gains tax. 

To further incentivise donors to donate towards certain PBAs, government has also introduced additional tax savings to donors.Where a donor donates cash or in kind to PBOs, which are conducting certainPBAs, the donor will also achieve income tax savings by claiming a deduction of the donation against their taxable income.

Claiming tax deductions from SARS

Where donors have made donations to those PBO’s limited to conducting PBA’s under the following categories:

  • Welfare and humanitarian;
  • Healthcare;
  • Education and development;
  • Land and housing;
  • Conservation; and
  • Environment and animal welfare.

They obtain income tax benefits because they can be issued with tax deduction receipts from that PBO (knownas an 18A certificate). The donors may then use these receipts to claim their donations as tax deductible expenses from SARS in their annual income tax returns. PBAs of a religious or cultural nature (such asart galleries and museums), and sportand recreational bodies do not qualify for an 18A status from SARS and consequently cannot issue 18A receipts for these donations.

Who can claim and how much canbe claimed?

All donors - including salaried employee, a company or close corporation - can claim this deduction from SARS. The claim is however limited to 10 percent of the donor’s taxable income. The donation can be in the form of cash or in-kind (e.g. a supermarket may donate groceries and still qualify for this tax benefit).
 
Donors prefer tax–exempt charities

There are thousands of NPOs all competing to get their share of donor funding. A tax-exempt PBO stands a better chance of getting donor funding than one that doesn’t have this status. Tax exemption is a win-win situation for both donor and recipient because:

  • The donor gets the satisfaction that, where an organisation is tax-exempt, every cent of the donation reaches the targeted beneficiary instead of it being earmarked for taxes and duties;
  • The organisation’s expenditure is reduced by the tax saved and it can use the savings for its activities; and
  • The donor achieves income tax benefits on donations made to section 18A PBOs. 

About the Turning Point Consultants

Turning Point Consultants (TPC) began as a consultancy practice established more than 25 years ago. As a multi-disciplinary firm, TPC offers a comprehensive and seamless tax recovery and related consultancy service tailored specifically to meet clients’ needs while delivering value added benefits for the NPO sector.

- Hoosen Agjee is director at Turning Point Consultants. This article first appeared in the Downes Murray International’s Fundraising Forum electronic newsletter. He can be contacted on 083 282 8786 or 031 208 2458 or e-mailed to reza@tpcsa.co.za.