Non-profit

Every registered nonprofit organisation is obligated in terms of section 17 of the Nonprofit Organisations Act, 71 of 1997 (see below), to maintain its financial transaction records accordingly to the standards of generally acceptable accounting practices.

Office Bearers (governing body members) are obligated to ensure that the organisation keeps proper books, records and that annual accounts are prepared as financial statements to be submitted to the Directorate of Nonprofit Organisations, nine months after the financial year ends of the organisation.

This checklist enlists basic elements for an organisation to work towards building good management practices. Financial management in organisations involves the management and recording of the flow of money. This includes all money coming into the organisation (income) and all money flowing out (expenditure).

Finances of the NPO (Section 17 Obligations)

Every registered NPO must:

• Keep accounting records of its income, expenditure, assets and liabilities accordingly to the standards of generally accepted accounting practice (GAAP).
• Draw up financial statements, within six months after the end of its financial year, which must include as least:
• • a statement of income and expenditure for that financial year; and
• • a balance sheet showing its assets, liabilities and financial position as at the end of that financial year.
• Within two months after drawing up its financial statements, the organisation must arrange for a written report to be compiled by an accounting officer. The Accounting Officer report must state whether or not:
• • the financial statements of the organisation are consistent with its accounting records;
• • the accounting policies of the organisation are appropriate and have been appropriately applied in the preparation of the financial statements; and
• • the organisation has complied with the provisions of this Act and of its constitution which relate to financial matters.
• Preserve each of its books of account, supporting vouchers, records of subscriptions or levies paid by its members, income and expenditure statements, balance sheets and accounting officer’s reports, in an original or reproduced form, for at least five years.

Required Information to be submitted to the NPO Directorate Every registered Nonprofit Organisations must, in writing, provide the Directorate with:

• Within nine (9) months after its financial year, a narrative report of its activities in the prescribed form together with its financial statements and the accounting officer’s report accordingly to its obligation of keep records.
• the names and physical, business and residential addresses of its office-bearers within one month after any appointment or election of its office-bearers even if their appointment or election did not result in any changes to its office-bearers;
• a physical address in the Republic of South Africa for the service of documents to be received from the Directorate.
• notice of any change of address within one month before a new address for service of documents will take effect; and
• such other information as may be prescribed.

Changes to the Founding Document (section 19) When the NPO changes its constitution or name, it must send the NPO Directorate with:

• A copy of the resolution and a certificate signed by a duly authorised office-bearer confirming that the resolution complies with its constitutions and all relevant laws;
• Where the NPO has resolved to change its name, the original of its current certificate of registration.

Winding-up or Dissolution of the NPO (section 23) When the organisation resolves to wind-up or dissolve it must, within one month after completing of the dissolution process, send to the Directorate a written notice that the organisation dissolved with:

• Certified copies of all relevant documents confirming the winding up or dissolution; andA copy of the narrative report, financial statements and the accounting officer’s report for the period from its previous financial year end of the written notice.

Not for Profit Organisations and Tax: Tax Exemption

Not for profit organisations play a significant role in society as they take a shared responsibility with Government for the social and development needs of the country. Preferential tax treatment is designed to assist non-profit organisations by augmenting their financial resources.

The preferential tax treatment for not for profit organisations is however not automatic and organisations that meet the requirements set out in the Income Tax Act, 1962, must apply for this exemption. If the exemption application has been approved by SARS, the organisation is registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number.

It is important to note that an organisation that has a non-profit motive or is registered as a non-profit organisation (NPO) or Non Profit Company (NPC) does not automatically qualify for preferential tax treatment. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a Public Benefit Organisation (PBO) by the Tax Exemption Unit (TEU).

What is a Public Benefit Organisation (PBO)

The conditions and requirements for an organisation to be approved as a PBO are contained in section 30 while the rules governing the preferential tax treatment of PBOs are contained in section 10(1)(cN). Section 10(1)(cN) provides for the exemption from normal tax of certain receipts and accruals of approved PBOs. Certain receipts and accruals from trading or business activities will nevertheless be taxable.

Approved PBOs have the privilege and responsibility of spending public funds, which they derive from donations or grants, in the public interest on a tax-free basis. The donations or grants may be received from the general public or directly or indirectly from the State. It is therefore important to ensure that exempt organisations use their funds responsibly and solely for their stated objectives, without any personal gain being enjoyed by any person including the founders and the fiduciaries.

Approved PBO’s must continue to comply with the Act and related legislation throughout their existence. This includes the submission of annual income tax returns on an IT12EI form. The income tax return enables the Commissioner to assess whether the approved PBO is operating within the prescribed limits of the relevant approval granted and to determine whether the partial taxation principles must be applied to receipts and accruals derived from a trading activity or business undertaking which does not qualify for exemption.

An organisation which provides scholarships, bursaries and awards for study, research or teaching must comply with the conditions prescribed in Regulation R.302 (published in Government Gazette No. 24941 on 28 February 2003).

Tax deductible donations (Section 18A receipts)

The South African Government has recognised that certain organisations are dependent upon the generosity of the public and to encourage that generosity has provided a tax deduction for certain donations made by taxpayers.

The eligibility to issue tax deductible receipts is dependent on section 18A approval granted by the TEU, and is restricted to specific approved organisations which use the donations to fund specific approved Public Benefit Activities.

A taxpayer making a bona fide donation in cash or of property in kind to a section 18A-approved organisation, is entitled to a deduction from taxable income if the donation is supported by the necessary section 18A receipt issued by the organisation or, in certain circumstances, by an employees’ tax certificate reflecting the donations made by the employee. The amount of donations which may qualify for a tax deduction is limited.

Submission of IT12EI (Income Tax Return)

Exempt organisations must annually submit an IT12EI income tax return that can be obtained in the following manner:

• Through eFiling if you are a registered eFiler;
• By phoning the SARS Contact Centre on 0800 00 7277;
• By visiting your local SARS Branch; or
• By calling or visiting the Tax Exemption Unit (TEU) office

Note: Forms that are requested from SARS for manual completion, will be posted to the taxpayer with the minimal information populated together with the tracking barcode. The return for companies must be completed and submitted within 12 months of the financial year end of the exempt organisation, but the returns for trusts or other entities must be completed and submitted annually by the due dates announced by SARS. The IT12EI income tax return can be sent via one of the following ways:

• Through eFiling if you are a registered eFiler.
• Depositing in the drop boxes at the SARS branches; or
• By Post

To help with the completion of the IT12EI return, you can refer to How to Register on eFiling and Complete the IT12EI Return for Exempt Organisations external guide.

For Profit

Foreign business owners

If you are a foreign resident with a business based in South Africa, you will be liable to pay corporate tax in South Africa on its worldwide income. If you have a non-resident company – a company that has a branch or establishment in South Africa but is based elsewhere for tax purposes – then you will only pay company tax in South Africa on income earned inside the country. This tax will be paid at the standard rate of 28 percent (unless you register as an SBC or for turnover tax).

If you are an expat who qualifies as a tax resident in South Africa, your home country may have a tax treaty with South Africa. If not, then you may be able to claim foreign tax credits on taxes paid on foreign income.

CORPORATE INCOME TAX

What’s New?

7 March 2018 - Grace period for the submission of the new IT10B schedule for Controlled Foreign Companies (CFC) On 26 February 2018, the old IT10B Adobe PDF schedule was replaced with a simplified MS Excel IT10B schedule. The new schedule enables taxpayers to declare all CFC information for years of assessment 2012 onwards in one consolidated schedule that does not exceed the file upload limitation on the SARS eFiling.

In order to accommodate taxpayers who have already prepared their CFC information in the old schedule, SARS will grant all taxpayers a grace period in which the old schedule will be accepted as a valid supporting document for all income tax return submissions prior to 1 June 2018. The limitation of uploading only the first 10 schedules as supporting documents to the income tax return, in cases where there are more than 10 CFCs, will remain applicable in respect of the old schedule. SARS, however, urges taxpayers who have not yet started preparing their CFC information to make use of the simplified MS Excel IT10B schedule.

From 1 June 2018 all taxpayers who, together with any connected person, held at least 10% participation rights in any CFC must complete the CFC information in the new IT10B schedule. The new IT10B schedule must be uploaded as a supporting document in respect of CFCs for all income tax returns submitted from 1 June 2018 onwards.

26 February 2018 - Enhancements to the Income Tax Return for Companies (ITR14) SARS implemented several changes to the Income Tax Return for Companies on 26 February 2018. Read more here.

What is Corporate Income Tax?

Corporate Income Tax (CIT) is a tax imposed on companies resident in the Republic of South Africa (i.e. incorporated under the laws of, or which are effectively managed in, the Republic, and which derive income from within or outside the Republic. Non-resident companies which operate through a branch or which have a permanent establishment within the Republic are subject to tax on all income from a source within the Republic.

Who is it for?

CIT is applicable (but not limited) to the following companies which are liable under the Income Tax Act, 1962 for the payment of tax on all income received by or accrued to them within a financial year:

• Listed public companies
• Unlisted public companies
• Private Companies
• Close Corporations
• Co-operatives
• Collective Investment Schemes
• Small Business Corporation (s12E)
• Body Corporates
• Share Block Companies
• Dormant Companies
• Public Benefit Companies.

What steps must I take?

• Register as taxpayer
• • Every business liable to taxation, under the Income Tax Act, 1962, is required to register with SARS as a taxpayer. You can register once for all different tax types using the client information system.
• • (Top Tip: You must make sure your business details are up to date before you submit your ITR14. So visit our keeping my business details up to date to find out how to do this.
• Submit annual tax return)
• • Every registered taxpayer is required to submit a return of income twelve months after the end of the financial year, of such taxpayer, in the prescribed form. Returns can be submitted electronically via e-filing or manually at a SARS branch where the taxpayer is registered.
• Submit provisional tax returns
• • In addition to annual returns, every company is required to submit provisional tax returns. The first of these returns is required to be submitted six months from the start of the year, and the second at year end, and must contain an estimate of the total taxable income earned or to be earned for that period. Payment of the tax must accompany the return. A third “top-up” payment may be made six months after year-end.
• • Top Tip: When submitting your return you will need to give the SIC code for your business. To find out your relevant code please click here.

When should CIT be paid?

Provisional Tax

• First payment – within six months from the beginning of the year of assessment
• Second payment – on or before the last day of the year of assessment
• Third payment – seven months after the year of assessment for taxpayers with February year-end and six months after year of assessment for all other cases.

Tax on Assessment Payment of tax upon an assessment notice issued by SARS must be done within the period specified in such notice.

Corporate Income Tax is payable at a rate of 28%.

How should CIT be paid?

Payments can be made using the following options:

• Online Banking
• Electronic funds transfer
• Bank payments
• eFiling
• Swift payment method (applicable only to foreign payments).

Note: Please refer to the guide on SARS Payment Rules for more information on the above methods of payment.

Sources

• South African Revenue Service (SARS) Tax Exempt Organizations
• South African Revenue Service (SARS) Corporate Income Tax