NPO - PBO

20 June 2024
Corporate Tax
Marita Jordaan

These articles are based on tax law for the year ending 28 February 2025.

1. The Problem / Facts

What are the compliance requirements for a Non-Profit Organisation (NPO) and Public Benefit Organisation (PBO)?

2. Answer

The concepts of NPO and PBO are not interchangeable. An NPO is regulated by the Department of Social Development (DSD), which requires a Constitution for an NPO. Registered NPOs must comply with sections 16-23 of the Non-Profit Organisations Act, which primarily involve submitting reports and informing the Directorate of any changes within the NPO. Here are the main requirements:

The Documentation of the NPO (section 16 & 17 Obligations)

The registered status and registration number of the NPO must be reflected on all its documents and the NPO must comply with the provisions of its founding document.

The Finances of the NPO (section 17 Obligations)

Every registered NPO must maintain accounting records for income, expenditure, assets, and liabilities according to GAAP standards, prepare financial statements within six months after the financial year ends, including a statement of income and expenditure and a balance sheet. Furthermore, an NPO must arrange for an accounting officer’s written report within two months of preparing the financial statements. This report must confirm whether the financial statements align with the accounting records, the accounting policies are appropriate and applied correctly, and whether the NPO complies with the Act and its constitution regarding financial matters. All financial records must be preserved for at least five years.

Required Information to be submitted to the NPO Directorate

An NPO must submit to the Directorate a narrative report, a copy of the signed annual financial statements (AFS) and the accounting officer’s report within nine months after the financial year ends. The NPO must also submit the names and addresses of office-bearers within one month of their appointment or election. It is important to provide a physical address in South Africa for receiving documents from the Directorate and to notify the Directorate of any address changes one month before the new address takes effect.

Changes to Founding Document (Section 19)

Notify the Directorate of any changes to the NPO’s constitution or name, including a resolution copy and a certificate confirming compliance with its constitution and laws. If the name changes, the original registration certificate must be submitted.

South African Revenue Service (SARS)

NPOs are also regulated by SARS. Once your NPO is registered, the entity can apply for Public Benefit Organisation (PBO) status with SARS. Therefore, an NPO is only a PBO when it has been registered with SARS as such. Organisations and companies with PBO status get the privilege of tax exemption.

Section 30 of the Income Tax Act, No 58 of 1962 prescribes the requirements for an organisation to be approved as a PBO, which include the carrying on of one or more public benefit activities. Public benefit activities are listed in Part I of the Ninth Schedule. Further requirements are that the PBO must be carried out with altruistic or philanthropic intent, may not promote the economic self-interest of any employee or person in a fiduciary position, and the activity must be for the benefit of, or widely accessible to the public at large.

If an NPO is not registered as a PBO with SARS, the entity must submit an ITR14 tax return annually as well as provisional tax returns (IRP6). If the NPO is registered as a PBO with SARS, the entity must submit an ITR14EI return annually and no provisional tax returns are required.

FAQs

1. What is the difference between an NPO and a PBO in South Africa?

A Non-Profit Organisation (NPO) is registered with the Department of Social Development to operate without a profit motive. A Public Benefit Organisation (PBO) is approved by SARS under Section 30 of the Income Tax Act to qualify for tax exemptions and donor deductibility. Not all NPOs are PBOs.

2. Do NPOs need to register with SARS?

Yes. Even if an NPO is registered with the Department of Social Development, it must register separately with SARS and apply for PBO status to access tax exemptions and benefits like Section 18A certificates for donors.

3. What are the tax benefits of being a registered PBO in South Africa?

Registered PBOs may qualify for:

Income tax exemption
Donations tax exemption
Capital gains tax exemption
Deductible donations under Section 18A

These benefits apply only if the PBO complies with SARS regulations and is approved under Section 30.

4. How can an NPO apply for PBO status?

To become a PBO, the NPO must submit a form EI 1 and supporting documents to SARS, outlining its public benefit activities. Approval is based on compliance with Section 30 of the Income Tax Act and proper governance structures.

5. What happens if a PBO is non-compliant with SARS regulations?

Non-compliance, such as using funds for non-public benefit activities or poor recordkeeping, can lead to revocation of PBO status, resulting in loss of tax exemptions and penalties. SARS monitors compliance closely.

6. Can an NPO issue Section 18A donation certificates?

Only if it is also approved as a PBO with Section 18A status by SARS. These certificates allow donors to claim tax deductions. Issuing certificates without this status is a serious offence and may result in penalties.

7. What are public benefit activities under Section 30?

Public benefit activities (PBAs) include work in areas like education, welfare, healthcare, environment, and culture. Only PBOs conducting these approved activities may qualify for tax exemptions under South African tax law.

8. Are PBOs required to submit tax returns to SARS?

Yes. Even if exempt from income tax, PBOs must submit IT12EI tax returns annually and ensure that all records and activities remain compliant with the conditions of their Section 30 approval.

9. Can a trust be a PBO in South Africa?

Yes. A trust can qualify as a PBO if it conducts public benefit activities, applies to SARS for Section 30 approval, and complies with all governance and reporting obligations set out in the Income Tax Act.

10. What are the risks of not registering as a PBO if you're running an NPO?

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