Tax Management for Nonprofit Organizations (NPOs)

1. Presented By CPA Erastus K. Omolo Horwath Erastus & Co., Certified Public Accountants

2. TAX MANAGEMENT FOR NOT FOR PROFIT ORGANIZATIONS (NPOs) Contents • Tax Exemption for NPOs (Criteria for Exemptions) • Basic Tax Compliance for NPOs

3. TAX EXEMPTION FOR NPOs (Criteria for Exemptions) • The Non-Profit must be an institution, body of persons, or an irrevocable trust:- • of a public character • established solely for the purposes of the relief of the poverty or distress of the public, • or for the advancement of religion or education • established in Kenya; or • whose regional headquarters is situated in Kenya.

4. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) • The Commissioner must be satisfied that the income is to be expended either in Kenya or in circumstances which result in the benefit of the residents of Kenya: • Gains or profits from a business shall not be exempt from tax unless those gains or profits are applied solely to the purposes (relief of poverty or public distress, advancement of religion or education)

5. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) • business - carried on in the course of the actual execution of those purposes; or • the work in connection with the business is mainly carried on by beneficiaries under those purposes; or • the gains or profits consist of rents received from the leasing or letting of land and chattels leased or let therewith.

6. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) PUBLIC BENEFIT ORGANIZATONS ACT No. 18 OF 2013 What the PBOs Act, 2013 provides :- • “Public Benefit activity” means an activity that supports or promotes public benefit by enhancing or promoting the economic, environmental, social or cultural development or protecting the environment or lobbying or advocating ion issues of general public interest or the interest or well-being of the general public or a category of individuals or organizations.

7. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) What the PBOs Act, 2013 provides :- • “Public Benefit Organization” means a voluntary membership or non-membership grouping of individuals, which is autonomous, non-partisan, non-profit making and which is :- • a) organized and operated locally, nationally or internationally; • b) engages in public benefit activities in any of the areas set out in the Sixth Schedule; and • c) is registered as such by the PBOs Authority

8. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) What the PBOs Act, 2013 provides :- • Indirect Government support in the form of :- • (a) exemptions from • (i) Income tax on income received from membership subscriptions and any donations or grants; • (ii) Income tax on income acquired from the active conduct of income producing activities if the income is wholly used to support the public benefit purposes for which the organization was established;

9. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) What the PBOs Act, 2013 provides :- • Indirect Government support in the form of :- • (a) exemptions from • (iii) Tax on interest and dividends on investments and gains earned on assets or the sale of assets; • (iv) Stamp duty; and • (v) Court fees.

10. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) What the PBOs Act, 2013 provides :- • Indirect Government support in the form of :- • (b) Preferential treatment under value added tax (VAT), and customs duties in relation to imported goods or services that are used to further their public benefit purposes; • (c) incentives for donations by legal and natural persons;

11. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) What the PBOs Act, 2013 provides :- • Indirect Government support in the form of :- • (d) Employment tax preferences and; • (e)special tax incentives for donations to form endowments, prudent investment policies, etc.

12. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) What the PBOs Act, 2013 provides :- • NONE OF THE ABOVE BENEFITS ARE ENFORCEABLE FOR THE TIME BEING • PBOs Act has not commenced • Provisions have not been incorporated in the Finance Act BUT ARE A GOOD STEP IN THE RIGHT DIRECTION

13. TAX EXEMPTION FOR NPOs(Criteria for Exemptions) • Exemption Certificate • Shall be valid for a period of FIVE YEARS but may be revoked by the commissioner for any just cause; and • Shall, where an applicant has complied with all the requirements, be issued within sixty days of the lodging of the application.

14. BASIC TAX COMPLIANCE FOR NPOs

15. VAT Act 2013 – Need for Compliance “Business” means - • trade, commerce or manufacture, profession, vocation or occupation • any other activity in the nature of trade, commerce or manufacture, profession, vocation or occupation • any activity carried on by a person continuously or regularly, whether or not for gain or profit and which involves, in part or in whole, the supply of goods or services for consideration; or • a supply of property by way of lease, license, or similar arrangement

16. Basic Tax Compliance for NPOs Exemptions – Where a Country Agreement Exists 1. The income of the NPO that originates from Kenya – Taxable in Kenya unless specifically exempted. • The assets of the NPO and other property exempted from all direct taxes including stamp duties. • Levies / charges raised for public utility services or for business and investment income – not exempted from tax.

17. Basic Tax Compliance for NPOs Exemptions – Where a Country Agreement Exists 4. The NPO exempted from Customs Duties and VAT – includes exemption on equipment, motor vehicles, materials and other items / services – imported or purchased for official use of the NPO. 5. Where goods are subsequently sold – the NPO is liable for VAT and related Customs Duty.

18. Basic Tax Compliance for NPOs Exemptions – Where a Country Agreement Exists Privileges and Immunities for Staff 6. The Head and professional staff of the NPO in Kenya exempted from social security contributions and taxes on salaries, bonuses and remuneration paid to them by the NPO

19. Basic Tax Compliance for NPOs Exemptions – Where a Country Agreement Exists Privileges and Immunities for Staff …….. 7. Exclusion from taxation privileges • Kenyans who are employees of the NPO • Persons who are ordinarily resident in Kenya • Privileges and immunities not for personal benefit of the individuals

20. Basic Tax Compliance for NPOs WHT Requirements for NPOs are exactly the same as those for commercial entities : - Examples – Cases subject to Withholding Tax : • Management or Professional fees • Contractual fees • Dividends • Interest • Royalty • Rents payable to non-residents.

21. Basic Tax Compliance for NPOs Failure (Also applies to NPOs) :- • to make deduction or fails to deduct the whole amount of tax • to remit amount of tax deducted within the due date

22. Basic Tax Compliance for NPOs Failure (Also applies to NPOs) :- Upon Conviction :- • Fine - max Kshs. 100,000/= or • Imprisonment - max six (6) months (CEO) • Both (i) + (ii)

23. Basic Tax Compliance for NPOs • Those without Exemption Certificates can be taxed at the corporate rate of 30%on “GAINS” or “PROFITS” made ! ! • Make annual tax returns and pay!!

24. Basic Tax Compliance for NPOs • WHT deducted when an NPO holds a valid tax exemption certificate is claimable from KRA

25. Basic Tax Compliance for NPOs CORP. & OTHER TAXES – may arise :- • School fees payment for staff • Excess pension / NSSF Contributions • Investment Earnings • Interest Income • Rental from letting of premises • Payments to Head Office (WHT) • Staff salaries paid overseas (PAYE) • Management or professional fees – paid overseas and charged back to the local NPO Office

26. END Thank You ! • Questions / Comments ? Horwath Erastus & Co.,Certified Public Accountants www.erastuscpa.com THANK YOU FOR SUPPORTING OUR INSTITUTE