NPOs, PBOs & NPCs in South Africa

This blog explores the differences between NPOs, PBOs, and NPCs in South Africa. It covers what each entity means, how to set them up, pros and cons, tax considerations, filings that are often overlooked, and whether an annual audit is required.

1. What Each Term Actually Means

NPO – Nonprofit Organisation (NPO Directorate)

An NPO in South Africa refers to an organisation established for a purpose other than generating profit for its members. It is registered with the Department of Social Development (DSD) under the Nonprofit Organisations Act. Registration is voluntary but provides legitimacy, credibility, and access to certain funding opportunities. Once registered, NPOs must submit annual reports containing both narrative and financial information.

NPC – Non-Profit Company (CIPC)

An NPC is a legal company incorporated under the Companies Act (2008) and registered with the Companies and Intellectual Property Commission (CIPC). NPCs are suited for organisations that want limited liability and a formal governance structure. They must comply with company law, file annual returns, and, depending on their size, may be subject to independent reviews or audits.

PBO – Public Benefit Organisation (SARS)

A PBO is not a legal form, but a tax status granted by SARS under the Income Tax Act. Organisations such as NPCs, trusts, or NPOs can apply for PBO approval if they conduct qualifying public-benefit activities. PBOs may be exempt from income tax and enjoy other tax benefits. A further approval under Section 18A allows PBOs to issue tax-deductible receipts to donors.

2. Core Differences Between NPOs, NPCs, and PBOs

The key distinction lies in legal structure versus tax status. An NPC is a legal entity incorporated under company law. An NPO is a registration status with the DSD, while a PBO is a tax designation granted by SARS. An organisation can be all three at once; for example, an NPC that is also registered as an NPO and approved as a PBO.

3. How to Open Each One

A. Registering an NPO

1. Draft a constitution covering objectives, governance, financial controls, and dissolution rules.
2. Complete the NPO registration form on gov.za and submit required documents to the DSD.
3. Await your registration certificate and NPO number.
4. File annual narrative and financial reports within nine months of year-end.

B. Incorporating an NPC

1. Draft a Memorandum of Incorporation (MOI) stating the non-profit objectives.
2. Reserve a name or use a generic one and submit incorporation documents to CIPC.
3. Pay the filing fee and obtain registration documents.
4. File annual returns and comply with audit/review requirements if applicable.

C. Applying for PBO and Section 18A Approval

1. Decide whether you need PBO only or PBO with Section 18A.
2. Gather founding documents, governance details, financials, and activity descriptions.
3. Submit an application to SARS’ Tax Exempt Institutions (TEI) unit.
4. Comply with ongoing SARS obligations and correctly issue receipts if Section 18A approved.

4. Pros and Cons

NPOs

• Pros: Quick registration, credibility with funders, lower compliance burden.
• Cons: Does not automatically provide tax exemption or limited liability.

NPCs

• Pros: Limited liability, structured governance, trusted by funders.
• Cons: Higher compliance costs, annual return obligations, possible audit requirements.

PBOs

• Pros: Tax exemption, donors can claim deductions if Section 18A approved.
• Cons: Strict SARS compliance, risk of approval withdrawal for non-compliance.

5. How Tax Works

PBOs are generally exempt from income tax on qualifying activities. Section 18A approval allows donors to claim deductions for certain donations. Receipts must follow SARS’ prescribed format. Other taxes such as donations tax and capital gains tax may also be reduced or exempted in some cases.

6. Filings and Obligations People Often Miss

• NPO annual report to DSD within nine months.
• CIPC annual returns for NPCs, with AFS submission if required.
• Ongoing SARS PBO compliance, including donor records.
• Independent review or audit if required by MOI or thresholds.

7. Do They Need an Audit?

• NPCs: Subject to Public Interest Score (PIS) thresholds and MOI clauses. Some must be audited, others reviewed.
• NPOs: Audit not automatic; depends on constitution, funders, or agreements.
• PBOs: SARS may request audits; NPC audit rules still apply.

8. Compliance Checklist

• Clear constitution or MOI.
• Bookkeeping and donor ledgers.
• Policies on governance and conflicts of interest.
• Annual calendar of filing deadlines.
• Bank account in the organization’s name.
• Section 18A donor records.

9. Common Scenarios

Small volunteer groups may prefer simple NPO registration. Larger charities often incorporate as NPCs and also apply for PBO/18A approval. Trusts are still used for property or asset-holding structures, but governance differs.

10. Practical Tips and Red Flags

• Draft MOI with future audits in mind, maintain restricted fund ledgers.
• Do not mix personal and organisational funds,
• Do not issue invalid 18A receipts.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writer nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.