Taxation of Not-for Profit Organisations

BLOG 26/10/2020

Not-for-Profit Organisations (NPOs) are organisations that do not operate for profit or personal gain.

NPOs are mostly established for purposes of charitable activities or research in the areas such as health, relief, agriculture, education, and the provision of social amenities and services. They must be registered with the relevant body for them to operate in Kenya.

Do NPOs pay tax? NPOs rely on donations to fund their activities. Donations received by NPOs do to qualify as income subject to tax, however where an NPO engages in an income generating activity, such incomes are subject tax unless the they have applied from income tax exemption and have been granted an exemption certificate. All NPOs are required to apply for a Personal Identification Number (PIN) for purposes of filing applicable tax returns and remit taxes to the Commissioner as appropriate.

Employees of NPOs are not exempt from Income Tax. Any employee who earns Kshs 24,000 and above is liable to pay tax. The NPO is required to deduct tax monthly at the prevailing individual income tax rates, and remit to the Commissioner on or before 9th of the following month.   

There are no exemptions associated with Withholding Tax. NPOs are obligated to deduct withholding tax on payments made for specified services that are subject to withholding tax. These payments include management or professional fees, agency fees, training fees, commissions and consultancy fees. Withholding tax rates vary depending on the nature of transaction and residency status of the person receiving the payment.

NPOs are not exempted from VAT unless the exemption is granted for a specific transaction/supply upon application. VAT on all the invoices from suppliers should therefore be paid.

To get an exemption on Customs Duty, NPOs must apply to the Cabinet Secretary for National Treasury through the NGO Board.

All NPOs should ensure that they are tax compliant. If the organisation is engaged in profit making activities, then the income will be subjected to all the applicable taxes. It is important to note that NPOs are not expressly exempted from payment of taxes, therefore, they should be aware of their tax obligations and ensure that they file applicable returns and pay taxes on time.

 

By Rhoda Wambui

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