Nonprofit Law in South Africa

Current as of May 2024

This section describes the legal framework governing of nonprofit

organizations (also known as non-governmental organizations or NGOs)
in South Africa, and includes translations of legislative provisions
relevant for a foundation or advisor undertaking an equivalency
determination of a foreign grantee under IRS Revenue Procedure 92-94.

These reports have been prepared by the International Center for Not-
for-Profit Law (ICNL). Please direct corrections and comments to Lily
Liu.

We include hyperlinks to the following information, to the extent

available:

• Longer country reports analyzing various aspects of local

legislation; and
• Texts of local laws that affect the decision whether or not to
qualify a grantee (generally in translation, although ICNL and the
Council cannot warrant the accuracy of any translation; in addition,
legislative excerpts were selected by in-country contacts, and ICNL
and the Council cannot warrant that all relevant provisions have
been translated).

Table of Contents

I. Summary
A. Types of Organisations
B. Tax Laws
II. Applicable Laws
III. Relevant Legal Forms
IV. Public Benefit Status
V. Specific Questions Regarding Local Law

A. Inurement
B. Proprietary Interest
C. Dissolution
D. Activities
E. Political Activities
F. Racial Discrimination
G. Control of Organisation
VI. Tax Laws

A. Tax Exemptions
B. Deductibility of Donations
C. Value Added Tax
D. Double Taxation Treaty
E. Foreign Entities
F. Tax Benefits Specific to the COVID-19 Pandemic

I. Summary

A. Types of Organisations

The legal framework for not-for-profit, non-governmental organisations

("NPOs") in South Africa consists of four primary tiers.

The first tier (establishment) allows for the establishment under

statutory and common law of the following three forms of NPOs:

• Voluntary associations, established under common law;

• Non-profit trusts, registered under statutory law; and
• Non-profit companies incorporated for a public benefit objective or
an objective relating to one or more cultural or social activities, or
communal or group interests, established under statutory law. [1]

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The second tier of legislation (compulsory registration for some
organizations) allows any of these organisational forms to apply for the
status of a “registered non-profit organisation.” Among other
requirements, registered non-profit organisations cannot distribute
profits, and must meet certain governance criteria.

The third legislative tier (partial tax exemption) enables an NPO to apply
for a partial tax exemption, most frequently by applying for the status of
“public benefit organisation” (PBO). Among other requirements, the
organisation’s sole purpose must be to undertake one or more public
benefit activities, carried out in a not-for-profit manner and with an
altruistic or philanthropic intent. PBOs may not use their resources to
directly or indirectly support, advance, or oppose any political party, but
are not restricted from lobbying. They are entitled to a broad range of
fiscal benefits, including a partial income tax exemption, an exemption
on donations tax, and, for some, an exemption on transfer duty on
immovable property. [2]

Finally, the fourth legislative tier (donor deductibility status) allows

eligible public benefit organisations to apply for the right to receive tax-
deductible donations.

Other not-for-profit legal forms, which are outside the scope of this
Note due to their limited interaction with U.S. grantmakers, include
trade unions, employers' organisations, political parties, and friendly
societies established for the benefit of their members.

B. Tax Laws

The Income Tax Act provides two major benefits to non-profit

organisations operating for the public benefit, namely: partial tax
exemption for organisations that qualify as PBOs, and donor
deductibility for contributions to those PBOs that carry out certain
specified public benefit activities (“Public Benefit Organisations with

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Donor-Deductible Status”). PBOs may also access benefits related to
donations tax, estate duty, transfer duty, and the skills development
levy. Finally, certain organisations are eligible for Value Added Tax
preferences.

South Africa and the United States have entered into a double taxation
treaty.

II. Applicable Laws

• Constitution of the Republic of South Africa, Act 108 of 1997 (as

amended)
• Companies Act of 2008 and Companies Amendment Act of 2011
• Non-Profit Organisations Act 71 of 1997 (as amended) ("NPO Act")
• Trust Property Control Act 57 of 1988 (as amended) ("TPCA")
• Income Tax Act 58 of 1962 (as amended)
• Value Added Tax Act 89 of 1991 ("VAT Act")
• Financial Intelligence Centre Act 38 of 2001 (as amended) ("FICA")
and Financial Intelligence Centre Amendment Act, 2017 (Act 1 of
2017)
• The General Laws (Anti-Money Laundering and Combating
Terrorism Financing) Amendment Act 22 of 2022 (“2022
Amendment Act”)

Other Materials Consulted

• Tax Exemption Guide for Public Benefit Organisations in South

Africa

III. Relevant Legal Forms

Voluntary Associations

The voluntary association is the most common legal form of NPO in

South Africa. No office of registry exists for voluntary associations.

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Forming a voluntary association requires only that three or more people
agree to achieve a common objective that is primarily not-for-profit. The
agreement may be oral or written, although it is customary for the
agreement to take the form of a written constitution. Voluntary
associations are a product of the common law and are not regulated by
statute. This can be confusing because the common law is not easily
accessible. Voluntary associations may be classified as follows:

1. Corporate bodies under the common law, known as "universitas";

or
2. Bodies that remain unincorporated at common law, known as
"non-corporate associations."

When deciding how to classify a voluntary association, a court will

consider the organisation's constitution as well as its nature, objectives,
and activities. An organisation generally must meet three requirements
to qualify as a universitas:

1. It must be structured to continue as an entity notwithstanding a

change in membership;
2. It must be able to hold property distinct from its members; and
3. No member can have any rights, based on membership, to the
property of the association.

If all of these requirements are met, a court will recognize an

organisation to be a universitas with legal personality.

Non-profit Trusts

Trusts in South Africa are governed under the Trust Property Control
Act and common law. A trust can be established for private benefit or
for a charitable purpose. To determine whether a trust qualifies as a
charitable trust under South African law, a grantmaker must look to the
trust deed.

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A trust is created when property is transferred by a trust deed. The trust
then manages the property for the benefit of others or for the
achievement of a particular goal. The property can be transferred by
written agreement, testamentary writing, or court order. The person
who administers the trust property is called a trustee (TPCA Section 1).
A court official, called a Master of the High Court, has jurisdiction over a
trust if the majority of the trust property is situated in his or her
jurisdiction (TPCA Section 3). The Master holds the trust instruments,
oversees the appointment of trustees, and polices the trustees'
performance with respect to the trust property (TPCA Sections 4, 6-7,
16-20).

A trust does not have separate legal personality, but trustees still enjoy
limited liability. All rights and responsibilities vest collectively in the
trustees in their capacity as trustees.

Non-profit Companies

The South African Companies Act of 2008 provides for the incorporation
of a non-profit company, which is recognized as a separate category of
company. The non-profit company can be established with or without
members, but it must have at least three directors (Companies Act
Section 3(1)). The non-profit company is incorporated with the
Companies Commission; it can be incorporated for a public benefit
objective, or an objective relating to one or more cultural or social
activities or communal or group interests (Companies Act Schedule 1
para 1). The non-profit company is subject to the non-distribution
constraint requirement. Non-profit companies have legal personality
and therefore offer limited liability to their members and directors. They
can enter into contracts and sue and be sued in their own name.

The Companies Act of 2008 does not provide for the registration of
branches of foreign not-for-profits as separate legal entities. A foreign
company carrying on not-for-profit activities in South Africa, as

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specified, for six months or more must register as an “external non-
profit company” with the Companies Commission (Companies Act
Section 23). A separate legal entity is not incorporated when a foreign
company registers as an external company. The external non-profit
company must maintain at least one office in South Africa (Companies
Act Section 23). Registration as an external non-profit company is
required for the foreign company to enter into employment contracts.

IV. Public Benefit Status

Registered Non-profit Organisation

Prior to 2023, registration under the NPO Act was completely voluntary,
but was often required to access funding from government
departments and some corporate donors. As of 2023, an organisation
must register as an NPO if it (1) makes donations to individuals or
organisations outside of South Africa or (2) provides humanitarian,
charitable, religious, educational or cultural services outside South
Africa (General Laws (Anti-Money Laundering and Combating Terrorism
Financing) Amendment Act, 2022 (the 2022 Amendment Act).

To be eligible to register as an NPO, an organisation must meet all the

following criteria:

1. It is a trust, company, or other association of persons established

for a “public purpose” (a term that is not further defined) (NPO Act
Section 1(1)(x)(a));
2. It does not distribute income or property to members or officers
except for "reasonable compensation for services rendered" (NPO
Act Section 1(1)(x)(b));
3. It is not "an organ of state" (NPO Act Section 12(1)); and
4. It includes certain internal governance provisions in its founding
document (NPO Act Section 12(2)).

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An organisation seeking registered non-profit organisation status under
the NPO Act must apply to the Directorate for Non-Profit Organisations,
which falls under the auspices of the Department of Social
Development. If the organisation qualifies, the Directorate issues a
certificate and registration number. To retain this status, the
organisation must submit narrative and financial reports to the
Directorate annually.

As of May 2024, according to the website of the Directorate for Non-

Profit Organisations, there are 289,184 registered organisations. [3]

Approved Public Benefit Organisation

To qualify as a public benefit organisation (PBO), an organisation must

comply with all of the following requirements of Section 30 of the
Income Tax Act:

1. It must be a non-profit company formed and incorporated under

the Companies Act, a trust established in South Africa and
registered with the Master of the High Court whose founding
document is a trust deed, a voluntary association, or “any agency
or branch within the Republic of any company, association, or trust
incorporated, formed, or established in terms of the laws of any
country other than the Republic that is exempt from tax on income
in that other country” (i.e., the definition of PBO under Income Tax
Act Section 30(1)).
2. Its sole or principal objective must be to carry out one or more
public benefit activities as listed in the Ninth Schedule of the Act; it
cannot pursue any other principal objectives.
3. The activities must be carried out in a non-profit manner and with
altruistic or philanthropic intent. No activity can promote the
economic self-interest of any fiduciary or employee, other than
reasonable remuneration to employees or officers.

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 4. Each of the organisation's activities must be for the benefit of, or
widely accessible to, the general public at large, including any
sector thereof (other than small and exclusive groups).

Public benefit organisations without donor-deductible status may carry

out public benefit activities beyond the borders of South Africa. PBOs
with donor deductible status must ensure that donor-deductible
contributions are only used for the public benefit activities carried on in
South Africa. The qualifying public benefit activities for partial tax
exemption appear in Part I of the Ninth Schedule to the Income Tax Act,
and those for donor deductible status appear in Part II. The Minister of
Finance may, however, determine additional activities from time to
time. At present, more than 60 activities are listed under Part I and
about 40 listed under Part II (Income Tax Act Schedule Nine Sections 1-
11). They fall under the following categories:

• 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; and
• General.

The South African Revenue Service has approved 59,567 organizations

as public benefit organizations (PBOs).

V. Specific Questions Regarding Local Law

A. Inurement

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Voluntary Associations

Specific prohibitions against private inurement would be included in a

voluntary association's founding documents. In general, governing
board members of voluntary associations are bound by the common
law fiduciary duty to act in good faith and avoid conflicts of interest in
their dealings with the organisation.

Trusts

A trustee’s remuneration may be regulated by the instrument

establishing the trust. If the instrument is silent on the issue, the Trust
Property Control Act allows for trustees to receive reasonable
remuneration when executing their official duties (TPCA Section 22). In
the event of a dispute, the Master (a court official appointed under
Section 2 of the Administration of Estates Act) will set the amount. An
auditor or accounting officer of the trust's accounts must report any
apparent material irregularities in the accounts to the trustee (TPCA
Section 15). The Trust Property Control Act requires trustees to “act
with the care, diligence and skill which can reasonably be expected of a
person who manages the affairs of another” (TPCA Section 9(1)). A
trustee's improper accounting in administering the trust violates this
fiduciary duty and constitutes grounds for removal (TPCA Section
20(2)(e)).

Non-Profit Companies

Paragraph 3 of Schedule 1 to the Companies Act prohibits a non-profit

company from directly or indirectly paying any portion of its income or
transferring any of its assets, regardless of how the income or asset was
derived, to any incorporator, director or member of the company. This
prohibition has the following exceptions: reasonable remuneration for
goods delivered or services rendered; reimbursement for expenses
incurred to advance the company’s objectives; payment payable in

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terms of a bona fide agreement; payment in respect of any rights of that
person to advance a stated objective of the company; and payment in
respect of any legal obligation binding the company. [4]

Registered Non-Profit Organisations

In order to register under the NPO Act, a non-profit organisation must

state in its founding document (or the legislation under which it has
been established must specify) that its income and property are not
distributable to its members, officers, or trustees, except as reasonable
compensation for services rendered (NPO Act/1997 Section 12(2)(c)).

Approved Public Benefit Organisations

To obtain approval from the Commissioner of the South African

Revenue Service as a PBO under Section 30 of the Income Tax Act, an
organisation cannot conduct any activity intended directly or indirectly
to promote the economic self-interest of any fiduciary or employee of
the organisation, other than through reasonable remuneration. In
addition, the organisation must not distribute any of its funds to any
person, other than in the course of undertaking a public benefit activity;
and it must use its funds solely for the objective for which it has been
established (Income Tax Act Section (30)(3)(b)(ii)).

B. Proprietary Interest

Voluntary Associations

If a voluntary association prohibits its members, governing board

members, or employees from having a proprietary interest in the
organisation's assets, the prohibition will appear in the organisation's
founding documents.

Trusts

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The Trust Property Control Act provides that trust property may not
form part of the personal estate of a trustee, unless the trustee is also a
beneficiary entitled to the property under the trust instrument (TPCA
Section 12). The trust documents identify the beneficiaries of the trust.

Non-Profit Companies

A non-profit company must apply all of its assets and income to

advance its stated objectives as set forth in its Memorandum of
Incorporation (Companies Act Schedule 1 para 2). A non-profit company
must, upon winding-up or dissolution, distribute the entire net value of
the company to one or more non-profit companies, “registered external
non-profit companies” carrying on activities in South Africa, non-profit
trusts, or voluntary associations having objectives similar to its main
objective. No past or present member or director is entitled to any part
of the net value of the company after its obligations and liabilities have
been satisfied (Companies Act Schedule 1 para 4).

Registered Non-Profit Organisations

The founding document of a non-profit organisation registered under

the NPO Act must provide that the members or office-bearers have no
rights to the assets of the organisation solely by virtue of being
members or office-bearers (NPO Act/1997 Section 12(2)(f)).

Approved Public Benefit Organisations

To qualify as a PBO under Section 30 of the Income Tax Act, an

organisation cannot accept any donation that is revocable at the donor’s
request. Moreover, the donor may not impose conditions that could
enable the donor or any person related to the donor to benefit, directly
or indirectly, from the application of such donation (Income Tax Act
Section (30)(3)(b)(v)). In addition, the organisation must apply its funds

12
solely to the objectives for which it was formed (Income Tax Act Section
(30)(3)(b)(ii)).

C. Dissolution

Voluntary Associations

A universitas or an informal voluntary association may include

provisions governing the transfer of assets upon dissolution in its
founding documents.

Trusts

In limited situations, the trustee, or a person the court finds to have a

sufficient interest in the trust property, can petition the court to alter
trust provisions or to terminate the trust altogether. These situations
include: where the terms of the trust hamper the achievement of the
founder’s objective, prejudice the interests of trust beneficiaries, or are
against the public interest (TPCA Section 13). No provision in the Trust
Property Control Act explicitly addresses the treatment of assets upon
termination of a trust. The trust deed, however, must address the issue
if the trust is a registered non-profit organisation or an approved PBO.

Non-Profit Companies

As stated earlier, a non-profit company must, upon winding-up or

dissolution, distribute the entire net value of the company to one or
more non-profit companies, “external non-profit companies” carrying on
activities in South Africa, non-profit trusts, or voluntary associations
having objectives similar to its main objective. The transferee(s) can be
identified in the non-profit company’s Memorandum of Incorporation,
by its members, if any, its directors, or a court of law if the members or
directors fail to make such a determination. No past or present member
or director is entitled to any part of the net value of the company after

13
its obligations and liabilities have been satisfied (Companies Act
Schedule 1 para 4).

Registered Non-Profit Organisations

To register under the NPO Act, the organisation must stipulate in its
founding document that any assets remaining upon dissolution or
winding up will be transferred to another non-profit organisation with
similar objectives (NPO Act/1997 Section 12(2)(o)). Failure to transfer
the assets to such an organisation may result in a fine, imprisonment, or
both for the person responsible (NPO Act/1997 Section 30).

Approved Public Benefit Organisations

In order to obtain approval from the Commissioner as a PBO under the

Income Tax Act, Section 30, an organisation must provide in its
founding document that any assets remaining upon dissolution or
winding up must be transferred to: (1) a similar public benefit
organisation approved under Section 30; (2) an institution, board, or
body which is exempt from tax under the provisions of Section
10(1)(cA)(i) of the Income Tax Act which has as its principal objective
any public benefit activity; or (3) a department of the state (Income Tax
Act Section (30)(3)(b)(iii)). If these and other conditions are not
contained in the organisation’s founding document, three fiduciaries of
the organisation must sign a written undertaking confirming that the
organisation will comply with the relevant provisions of Section 30 of
the Income Tax Act (Income Tax Act Section (30)(4)). As a matter of
practice, approved PBOs are required to amend their founding
documents to include the required conditions.

D. Activities

1. General

Voluntary Associations

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A voluntary association can engage in any lawful activities in pursuit of a
legitimate objective, if those activities are not for gain and are in line
with its founding document.

Trusts

Trustees can engage in any lawful activities if they remain within the
bounds of their fiduciary duty to the trust beneficiaries and within the
confines of the trust deed.

Non-Profit Companies

Non-profit companies can carry on activities aimed at promoting the

public benefit or relating to one or more cultural or social activities, or
communal or group interests (Companies Act Schedule 1 para 1).

Registered Non-Profit Organisations

The NPO Act does not address permissible activities. Because a

registered non-profit organisation will ordinarily be a trust or a non-
profit company, the laws governing those legal forms and the Tax Laws
provide guidance on permissible activities. A voluntary association's
founding documents will specify its activities.

Approved Public Benefit Organisations

The Tax Act defines public benefit activity by listing over 60 permissible
activities (see Section IV on Public Benefit Status for further discussion).

2. Economic Activities

Voluntary Associations

An association can conduct subsidiary activities to make some profits,

as long as its main objective is not the acquisition of gain.

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Trusts

Trusts are generally flexible structures that can be used for a variety of
purposes. The Trust Property Control Act allows for the trust
instrument to designate the objective or beneficiaries, but it does not
specify limitations to such objectives or beneficiaries (TPCA Section 1).
If a trust has a charitable primary purpose, the fact that it has a non-
charitable subsidiary purpose will not invalidate it.

Non-Profit Companies

Non-profit companies may carry on any business, trade, or undertaking

consistent with or ancillary to its stated objectives, i.e., the promotion
of the public benefit or one or more cultural or social activities, or
communal or group interests (Companies Act Schedule 1 para 2(a)).

Approved Public Benefit Organisations

The law explicitly limits the extent to which the economic activities of
organisations approved as a PBO under Section 10(1)(cN) of the Income
Tax Act will be tax exempt. The receipts and accruals from such
undertakings or activities shall be exempt from normal tax only if one of
the following criteria applies:

A) The undertaking or activity meets all of the following requirements:

• It is integral and directly related to the sole objective of the public

benefit organisation;
• Substantially the whole of its revenues are directed toward the
recovery of its costs; and
• It does not result in unfair competition in relation to taxable
entities.

B) The undertaking or activity is of an occasional nature and

substantially performed by uncompensated volunteers.

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C) The undertaking or activity is approved by the Minister of Finance by
notice in the Gazette, taking into account the following factors:

• The scope and benevolent nature of the undertaking or activity;

• The direct connection between the undertaking or activity and the
sole purpose of the public benefit organisation;
• The profitability of the undertaking or activity; and
• The economic distortion that may result from allowing a tax-
exempt organisation to carry out the undertaking or activity.

D) The undertaking or activity does not qualify under any of the above
criteria, and the revenues it generates do not exceed the greater of the
following:

• 5 percent of the public benefit organisation's total receipts and

accruals during the relevant year of assessment; or
• 200,000 South African Rand (Income Tax Act §10(1)(cN), as
amended).

PBOs are allowed to invest their funds, subject only to restrictions that
may exist in the common law.

E. Political Activities

The Income Tax Act restricts PBOs from using their resources to directly
or indirectly support, advance, or oppose any political party (Income Tax
Act Section 30(3)(h)). South African law does not restrict the political
activities of organisations that are not approved as PBOs, however.
Moreover, the law does not clearly restrict lobbying by any
organisations.

F. Racial Discrimination

The Constitution of the Republic of South Africa (1997) provides that

neither the State nor any person may unfairly discriminate against

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anyone on the basis of race (among other grounds) (Constitution
Sections 9(3) and (4)). Section 29 of the Constitution establishes an
individual’s right to receive a basic education and to further his/her
education (Constitution Section 29(1)). The right to receive a public
education in the language of one’s choice, where reasonably
practicable, is also guaranteed (Constitution Section 29(2)). The
Constitution further provides that everyone has the right to establish
and maintain independent educational institutions, so long as those
institutions do not discriminate on the basis of race (Constitution
Section 29(3)(a)).

The Promotion of Equality and Prevention of Unfair Discrimination, Act

No. 4 of 2000 provides that no person may unfairly discriminate against
any person on the ground of race, including a number of activities
defined thereunder, such as the engagement in any activity which is
intended to promote, or has the effect of promoting exclusivity based
upon race. The Act also provides an illustrative list of unfair practices in
certain sectors. With reference to clubs, sports, and associations, it
provides that refusing to consider a person’s application for
membership of the association or club on any of the prohibited grounds,
including race, constitutes an unfair practice.

G. Control of Organisation

South African law does not restrict individuals or legal entities from
serving as members, promoters, or trustees of NPOs. Foreign
individuals can also serve as directors of local companies, but legal
persons cannot serve as directors of a non-profit company. It is, subject
to this limitation, possible for a South African NPO to be controlled by
an American grantor charity. It has, however, become increasingly
difficult for new NPOs with foreign trustees, directors, or governing
board members to open a bank account in South Africa, due to the
requirements implemented pursuant to the Financial Intelligence Centre
Act. [5]

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VI. Tax Laws

A. TAX EXEMPTIONS

To be eligible for exemption from income tax and certain other taxes, an
organisation operating for the public benefit first must qualify as a
Public Benefit Organisation under Section 30 of the Income Tax Act, as
summarized in Section IV. Eligibility for tax exemption further requires
the PBO to satisfy additional conditions on its governance and
operations. For example, the organisation’s founding document must
provide that at least three unrelated persons have fiduciary
responsibility for the organisation, and that no single person can directly
or indirectly control the decisions relating to the organisation (Income
Tax Act Section 30(3)(b)(i)). In addition, the law limits the extent to
which the business activities of the organisation are tax exempt (see
Section V(D)(2) on Economic Activities) (Income Tax Act Section
10(1)(cN)). Upon the organisation’s termination, its assets must be
transferred to a) a similar, approved PBO; b) an entity exempt from tax
under Section 10(1)(cA)(i), which has as its sole or principal objective the
carrying on of any public benefit activity; or c) the state (Income Tax Act
Section 30(3)(b)(iii))). [6]

A PBO approved for exemption from income tax may also be exempted
from other taxes, including: capital gains tax, donations tax, estate duty,
transfer duty, and – in certain cases – the skills development levy if the
property will be devoted to public benefit activities (Tax Exemption
Guide for Public Benefit Organisations in South Africa, pages 35-46).

Other not-for-profit organisations (that are not approved PBOs or are

not exempted from paying tax elsewhere under Section 10 of the
Income Tax Act) are liable for income tax and other taxes and duties on
the same basis as ordinary taxpayers.

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A dividend tax was introduced by the Revenue Laws Amendment Act,
No. 60 of 2008; it entered into force on April 1, 2012. According to the
Act, approved PBOs are exempt from paying dividends tax when
dividends (that do not consist of a dividend in specie) from for-profit
companies are paid to PBOs.

B. Deductibility of Donations

An individual or company is entitled to deduct from taxable income a

donation (in cash or in kind) to a PBO carrying out specified public
benefit activities. These organisations are sometimes referred to as
“Public Benefit Organisations with Donor-Deductible Status.” The
donation must be supported by a receipt issued by the PBO and the
donation cannot, for any given fiscal year, exceed 10 percent of the
taxable income of the taxpayer in order to qualify for this deduction.

The public benefit activities approved by the Minister of Finance for

purposes of Section 18A are set out in Part II of the Ninth Schedule of
the Income Tax Act. A variety of activities are approved, and they fall
under the following categories:

• Welfare and Humanitarian

• Health Care
• Education and Development
• Conservation, Environment and Animal Welfare
• Land and Housing (Income Tax Act Schedule Nine Sections 2(1)-
2(5))

C. Value Added Tax

The Value Added Tax Act imposes a 15 percent tax on the value of
goods or services supplied by a vendor, imported goods, or services
provided by a resident supplier or one carrying out business outside of

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South Africa to a resident of South Africa who uses the services in South
Africa (VAT Act Section 7(1)).

The VAT Act confers certain benefits on organisations that qualify as

"associations not for gain," "welfare organisations," or both (VAT Act
Section 1). Qualifying organisations can claim the VAT they incur as
input tax and generally speaking must pay output tax only when they
charge for goods or services.

An "association not for gain" is defined as a religious institution or other

society, association, or organisation (including an educational
institution of a public character), which is not established for profit and
which is required to use any property or income solely to further its
aims and objectives. An association not for gain is treated much like any
other business if it makes taxable supplies, but the following special
provisions apply:

• No output tax is payable on any "unconditional gifts" received,

such as a club member's donation of money to cover the costs of
new equipment for the club's soccer team.
• A VAT exemption applies to the sale of any donated goods or
services, and to the sale of manufactured goods where donated
goods and services constitute at least 80 percent of the value
thereof.
• Certain subsidies and grants received from National or Provincial
Governments (public authority) are zero-rated, meaning that the
recipient can claim a credit from the South African Revenue Service
for the VAT levied on those grants.

Some associations not for gain also qualify as "welfare organisations,"

which entitles them to the benefits listed above plus additional ones. To
qualify as a "welfare organisation," an organisation must:

1. Be an association not for gain;

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 2. Be exempt from tax in terms of Section 10(1)(cN) of the Income
Tax Act; and
3. Carry on activities in the following categories:
1. Welfare and humanitarian;
2. Health care;
3. Land and housing;
4. Education and development; or
5. Conservation, environment, and animal welfare.

Along with the benefits listed above for associations not for gain, a
welfare organisation is eligible for the following additional benefits:

• Even where no charge is made for supplies, the organisation can

register for VAT and obtain input tax relief on its purchases.
• A subsidy or grant received from the Government (or local
authorities) related to welfare activities will be zero-rated, meaning
that the recipient can claim a credit from the South African
Revenue Service for the VAT raised on those grants. [9]

D. Double Taxation Treaty

South Africa has entered into double taxation treaties with a number of
countries, including the United States.

E. Foreign Entities

As of 2006, a tax exemption is granted to branches of foreign legal

entities operating in South Africa, on the condition that they qualify for
tax exemption in the country in which they are established (Revenue
Laws Amendment Act Section 24). Upon termination of operations in
South Africa, they must transfer the assets of the South Africa branch to
a local PBO, organ of state, or designated institution if more than 15
percent of the branch's receipts and accruals (earned during the three

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years preceding the termination) were derived from a source within the
Republic (Income Tax Act Section 30(3)(b)(iiiA)).

Providing funding to foreign not-for-profit entities that are exempt in

their countries of origin constitutes a public benefit activity.

The Revenue Laws Amendment Act, No. 60 of 2008 amended Section

18A of the Income Tax Act to allow donations made to certain
specialized agencies operating in South Africa to be deductible. Such
agencies include the International Labour Organisation, the World
Health Organisation, the Food and Agriculture Organisation of the
United Nations, and the International Monetary Fund.

The Taxation Laws Amendment Act, 2017 introduced additional

changes pertaining to certain specialized agencies, as defined in the
Diplomatic Immunities and Privileges Act of 2001, that qualify for tax
deductible donations. The specialized agencies must comply with the
conditions contained in the Income Tax Act to access such benefits.
New specialized agencies that were included are the United Nations
Educational, Scientific and Cultural Organization; the International Civil
Aviation Organization; the International Bank for Reconstruction and
Development; the United Nations Development Programme; the United
Nations Children’s Emergency Fund; the United Nations High
Commissioner for Refugees; the United Nations Population Fund; the
United Nations Office on Drugs and Crime; and the United Nations
Environmental Programme.

Footnotes

[1] The Companies Act (No. 71 of 2008) changed the way in which non-
profit companies are incorporated and regulated. The Companies Act
establishes two categories of companies: 1) non-profit companies, and

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2) profit companies. The Act lays out fundamental principles applicable
to non-profit companies, and also clearly notes where its provisions do
not apply to non-profit companies. Pre-existing non-profit companies
incorporated under the old Companies Act of 1973 (known as Section 21
companies), are governed by the new Companies Act.

[2] For more details, see the Davis Tax Committee (DTC)’s Report on
the Public Benefit Organisation and the Tax System from April 2018.

[3] In 2013, the Directorate for Non-Profit Organisations introduced an

online registration and reporting facility. This has significantly reduced
the processing times of applications to register in terms of the Non-
Profit Organisations Act.

[4] Sections 66(8) and (9) of the Companies Act, dealing with the
payment of remuneration to directors for their service as directors, do
not apply to non-profit companies (Companies Act Section 10(2)(c)).

[5] The Financial Intelligence Centre Amendment Act, No. 1 of 2017

introduced a risk-based method to verify the identities and addresses of
customers. The law came into effect on October 1, 2017. The
Amendment Act is a law of general application, but requires board
members of non-profit organisations to be verified with accounting
institutions, especially banks. Failure to do so may result in bank
accounts of non-profit organisations becoming inaccessible. The 2022
Amendment Act introduced amendments to the Financial Intelligence
Centre Act, which requires accounting institutions such as banks to
undertake additional verification measures.

[6] Sections 30 and 18A of the Income Tax Act were amended in 2012 to
allow for the criminal prosecution of board members of any approved
PBO who intentionally fail to comply with any provision of those
sections or the organisation’s founding document. The 2022
Amendment Act resulted in further changes to the Income Tax Act that

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prohibits a disqualified person, as provided for under the Trust Property
Control Act, the Nonprofit Organisations Act, and the Companies Act,
from being appointed in a fiduciary capacity of an approved PBO.

[7] Certain activities carried out by a welfare organization may still be

taxed at the standard VAT rate. On 25 April 2018, in Marshall vs.
Commission for the South Africa Revenue Service, the South
African Constitutional Court upheld a decision of the Supreme Court of
Appeal determining whether the business activities of a non-profit
public benefit trust constituted a “deemed supply” of services and thus
qualified to be zero rated under section 8(5) and 11(2) of the VAT Act.
The trust in question was a registered VAT vendor that provided aero-
medical services to provincial health departments in South Africa. The
trust concluded a contract with the provincial Government to provide,
amongst other specialized intensive care, air ambulance services and
training and support to health workers. Payment for the services were
made in terms of an agreed rate. The Constitutional Court found that
the trust rendered “actual” rather than “deemed” services, and therefore
that such services were subject to the standard rate of value added tax.

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