Non-Profit Organisations and Tax

Non-profit organisations play a significant role in society as they assist with the social and development needs of the country.  Preferential tax treatment is designed to assist Not for profit organisations by augmenting their financial resources. The preferential tax treatment for Non-Profit organisations is not automatic and organisations that meet the requirements set out in the Income Tax Act must apply for this exemption.  NOTE: An organisation that has registered as a Non-Profit Organisation (NPO) (with DSD – NPO Directorate) or as a Non-Profit Company (NPC) (with CIPC) does not automatically qualify for preferential tax treatment and needs to apply for exemption with SARS.

What is the difference between an NPO (definition), an NPC (definition) and a PBO (definition)? 

Non-Profit Organisations (NPOs) 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. NPOs register with the Directorate of Non-profit Organisations at the Department of Social Development under the NPO Act (Department of Social Development – Home (dsd.gov.za)). All NPOs must register with SARS as taxpayers and may apply for approval as a Tax Exempt Institution (e.g. PBO) if they meet the relevant requirements. Non-Profit Companies (NPCs) means a company incorporated for a public benefit; the income and property of which are not distributable to its incorporators, members, directors, officers or persons related to any of them. NPCs register with the Companies and Intellectual Property Commission under the Companies Act. (Register a non-profit company | South African Government (www.gov.za)). All NPCs must register with SARS as taxpayers and may apply for approval as a Tax Exempt Institution (e.g. PBO) if they meet the relevant requirements Public Benefit Organisations (PBOs) means and entity (NPC, NPO, Trust, Association of Persons, or Branch of a Foreign Exempt Entity) which has been approved by SARS in terms of section 30 of the Income Tax Act.  (Tax Exempt Organisations | South African Revenue Service (sars.gov.za)). NOTE: An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a Tax Exempt Institution by SARS. If the application has been approved by SARS, the organisation will be registered with SARS as a Tax Exempt Institution, issued with an approval letter that confirms the type of exemption status, and allocated a unique exemption reference number in addition to their tax reference number.

How many reference numbers can an Exempt Institution have?

Tax Reference Number – For income tax purposes, all taxpayers are allocated income tax reference numbers and this includes all not-for-profit organisations approved as tax exempt institutions. This the main reference number used for interactions with SARS in relation to income tax (e.g. registration on e-filing, submission of returns, any interactions on the e-bookings and SOQS platforms, etc.). Unique Exemption Reference Number – An approved tax exempt institution is allocated a unique exemption reference number in addition a tax reference number and, where applicable, the exemption reference is linked to that institution’s approved section 18A status and must be used on all tax deductible receipts issued. Other Taxes –  Tax exempt institutions may also be allocated other reference numbers depending on their registration for other tax products, which include:
  • VAT
  • PAYE
  • UIF
  • SDL
  • Customs and Excise
These reference numbers must be for interactions with SARS in relation to those tax products. Other Registrations –  A tax exempt institution may have other reference numbers that reflect their registration with other Regulators and reflects their entity type
  • NPO Reference Number
  • CIPC Company number
  • Trust number

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