NGO, NPO, NPC, PBO – What’s the difference and the tax requirements?
NGO, NPO, NPC, PBO – all these acronyms lead to confusion as to where charitable organisations and other similar entities fit into the equation.
NGO stands for a Non-governmental Organisation and is an international term used to describe a voluntary group or institution with a social mission, which operates independently from the government. Although these terms are not necessarily interchangeable, an organisation similar to an NGO may also be called non-profit, charity, non-profit organisation (NPO) or a voluntary organisation.
A Non-profit Organisation (NPO) is a trust, company or other association of persons established for a public purpose. The income and property of these organisations are not distributable to the members or office bearers except for reasonable compensation for services rendered to the organisation. NPOs are required to register with the Department of Social Development under the NPO Act and must register with SARS as taxpayers. NPOs may apply for approval as a tax exempt institution (see PBO underneath) if they meet the relevant requirements.
NPC is the acronym for a Non-profit Company and is defined as a company incorporated for a public benefit. Here again the income and property are not distributable to the incorporators, members, directors or any office bearers. NPCs are required to register with the Companies Intellectual Property Commission (CIPC) under the Companies Act, must register with SARS as taxpayers and may also apply for approval as tax exempt institutions (see PBO underneath) if they meet the relevant requirements.
A Public Benefit Organisation (PBO) is any entity (NPC, NPO, Trust or Association of persons) which has been approved by SARS as a tax exempt institution in terms of section 30 of the Income Tax Act.
NPO and PBO registrations are voluntary and an organisation does not need to be an NPO to be approved as a PBO. Organisations may, however, consider registering as a PBO as they are entitled to further tax benefits such as certain receipts being exempt from income tax and donors often prefer contributing to registered PBOs.
The following categories will be considered for exemption according to specific legislative requirements:
- Public benefit organisations
- Recreational clubs
- Membership associations
- Professional bodies
- Small Business Funding entities
- Home Owners Associations
- Public institutions
To qualify for registration as a PBO, organisations must have one or more of the following activities listed as their primary objective:
- Welfare and humanitarian
- Health care
- Land and housing
- Education and development
- Religion, belief or philosophy
- Cultural
- Conservation, environment and animal welfare
- Research and consumer rights
- Sport
- Providing of funds, assets or other resources
It is important to note that an NGO must register with SARS even if they are not going to register as a PBO and if you don’t register as a PBO your organisation will be liable for income tax. Further to this tax will be due on taxable income earned prior to registration as a PBO, the registration can’t be done retrospectively and will only be granted if the organisation is tax compliant at the time of registration. It is thus imperative to register as a PBO as soon as possible and before the entity trades to avoid having to pay taxes.
When applying to become a PBO it is also recommended to apply for S18A status which allows your organisation to issue S18 certificates. This allows donors to deduct their donations (subject to certain limitations) for tax purposes and in so doing encourages donors to be more generous.
It is clear that it is in the best interest of charitable organisations and associations not for gain to ensure that all the relevant applications and registrations are done as these entities can only benefit through tax breaks and donors being more willing to contribute to their causes.
Written by Mandy Roesstorff, Director, BVSA Port Alfred.
