Greater Good South Africa

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.

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.