Presented By CPA Erastus K Omolo Horwath Erastus

TAX MANAGEMENT FOR NOT FOR PROFIT ORGANIZATIONS (NPOs) Contents 1. Tax Exemption for NPOs (Criteria for Exemptions) 2. Basic Tax Compliance for NPOs Audit | Tax | Advisory © 2011 Crowe Horwath International 2

TAX EXEMPTION FOR NPOs (Criteria for Exemptions) The Non-Profit must be an institution, body of persons, or an irrevocable trust: - 1. Ø of a public character Ø established solely for the purposes of the relief of the poverty or distress of the public, Ø or for the advancement of religion or education 1. established in Kenya; or 2. whose regional headquarters is situated in Kenya. Audit | Tax | Advisory © 2011 Crowe Horwath International 3

TAX EXEMPTION FOR NPOs (Criteria for Exemptions) 4. 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: 5. 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) Audit | Tax | Advisory © 2011 Crowe Horwath International 4

TAX EXEMPTION FOR NPOs (Criteria for Exemptions) i. business - carried on in the course of the actual execution of those purposes; or ii. the work in connection with the business is mainly carried on by beneficiaries under those purposes; or iii. the gains or profits consist of rents received from the leasing or letting of land chattels leased or let therewith. Audit | Tax | Advisory © 2011 Crowe Horwath International 5

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. Audit | Tax | Advisory © 2011 Crowe Horwath International 6

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 Audit | Tax | Advisory © 2011 Crowe Horwath International 7

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; Audit | Tax | Advisory © 2011 Crowe Horwath International 8

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. Audit | Tax | Advisory © 2011 Crowe Horwath International 9

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; Audit | Tax | Advisory © 2011 Crowe Horwath International 10

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. Audit | Tax | Advisory © 2011 Crowe Horwath International 11

TAX EXEMPTION FOR NPOs (Criteria for Exemptions) What the PBOs Act, 2013 provides : - § NONE OF THE ABOVE BENEFITS ARE ENFORCEABLE FOR THE TIME BEING ØPBOs Act has not commenced ØProvisions have not been incorporated in the Finance Act BUT ARE A GOOD STEP IN THE RIGHT DIRECTION Audit | Tax | Advisory © 2011 Crowe Horwath International 12

TAX EXEMPTION FOR NPOs (Criteria for Exemptions) § Exemption Certificate A. Shall be valid for a period of FIVE YEARS but may be revoked by the commissioner for any just cause; and B. Shall, where an applicant has complied with all the requirements, be issued within sixty days of the lodging of the application. Audit | Tax | Advisory © 2011 Crowe Horwath International 13

BASIC TAX COMPLIANCE FOR NPOs Audit | Tax | Advisory © 2011 Crowe Horwath

VAT Act 2013 – Need for Compliance “Business” means - a) trade, commerce or manufacture, profession, vocation or occupation b) any other activity in the nature of trade, commerce or manufacture, profession, vocation or occupation c) 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 d) a supply of property by way of lease, license, or similar arrangement Audit | Tax | Advisory © 2011 Crowe Horwath International 15

Basic Tax Compliance for NPOs Exemptions – Where a Country Agreement Exists Audit |

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. Audit | Tax | Advisory © 2011 Crowe Horwath International 17

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 Audit | Tax | Advisory © 2011 Crowe Horwath International 18

Basic Tax Compliance for NPOs Exemptions – Where a Country Agreement Exists Privileges and Immunities for Staff ……. . 7. Exclusion from taxation privileges ð Kenyans who are employees of the NPO ð Persons who are ordinarily resident in Kenya ð Privileges and immunities not personal benefit of the individuals Audit | Tax | Advisory © 2011 Crowe Horwath International for 19

Basic Tax Compliance for NPOs WHT Requirements for NPOs are exactly the same as those for commercial entities : Examples – Cases subject to Withholding Tax : üManagement or Professional fees üContractual fees üDividends üInterest üRoyalty üRents payable to non-residents. Audit | Tax | Advisory © 2011 Crowe Horwath International 20

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 Audit | Tax | Advisory © 2011 Crowe Horwath International 21

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) Audit | Tax | Advisory © 2011 Crowe Horwath International 22

Basic Tax Compliance for NPOs § Those without Exemption Certificates can be taxed at the corporate of 30%on “GAINS” or “PROFITS” made ! ! ØMake annual tax returns and pay!! Audit | Tax | Advisory © 2011 Crowe Horwath International 23

Basic Tax Compliance for NPOs q. WHT deducted when an NPO holds a valid

Basic Tax Compliance for NPOs CORP. & OTHER TAXES – may arise : - § School fees payment for staff § Excess pension / NSSF Contributions § Investment Earnings Ø Interest Income Ø 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 Audit | Tax | Advisory © 2011 Crowe Horwath International 25

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