Thread by @firsNigeria

TAXATION OF NON PROFIT ORGANIZATIONS IN NIGERIA
What are Non-Profit Organizations (NPOs) or Not-for-Profit Organization, or Non-Governmental Organizations (NGOs)? Are they to be taxed since they are engaged in humanitarian services? What are their tax obligations? Issa

An NPO or NGO is an association of persons registered under Section 590 of the Companies &Allied Matters Act (CAMA) 1990 for the development of any religious, educational, literary, scientific, social development, cultural, sporting &charitable purpose.

They are non-profit making organizations.

NPOs/NGOs includes organizations, institutions and companies engaged in ecclesiastical, charitable, benevolent or educational activities of a public character. Many countries including Nigeria have recognized the significant role being played by these organizations in building a

strong, caring and well-functioning society as well as in contributing to its welfare and economic growth

Section 23 of Companies Income Tax Act (CITA) Cap C21 LFN 2004 (as amended), stipulates that any organization registered under any law within Nigeria as a Co-Operative Society shall also be treated as a Non-governmental organization.

After registering either as an NPO, NGO or Co-Operative Society, Upon registration of the association, the association may contract in the same form and manner as an individual in accordance with Section 605 of CAMA 1990.

Government world over identifies the importance of the role being played by NPOs/NGOs hence, tax incentives are often times granted to such organizations.

However, the authority puts in place guidelines to ensure that the NPOs/NGOs appropriately enjoy the tax incentives while fulfilling the obligations with it as well and do not abuse the it.

Tax incentives available to NPOs/NGOs in Nigeria include; exemption of their profits (other than those derived from trade or business carried out by them) from income tax and zero rate of Value Added Tax (VAT) for goods purchased for use in their humanitarian/donor funded project

Here are the legislative provisions guiding the taxation of NPOs/NGOs

Exemption from Income Tax
1. Section 23(1) (c) of the Companies Income Tax Act (CITA) Cap C21 LFN 2004 (as amended) provides that the profit of any statutory, charitable, ecclesiastical, educational or other similar associations are exempted from companies income tax obligation

provided such profits are not derived from any trade or business carried on by such an organization or association.

2. By virtue of Section 23(1)(c) of CITA and Section 19, Paragraph 13 of the Third Schedule to PITA, profits of any company/institution engaged in ecclesiastical, charitable, benevolent or educational activities of a public character are exempt from income tax provided

such profits are not derived from a trade or business carried on by the company.

3. Where NPO/NGO engages in any trade or business, the profit derived therefrom will be subjected to income tax as provided for in the Act. Also, where the NGO invests its assets in any institution, the income derived from such investment shall be subjected to tax

(i. e. Withholding tax). It should also be noted that Capital Gains Tax (CGT) shall arise where an NGO/NPO makes a gain on disposal of assets.

Tax Deductible Donation
In addition to the income tax exemption granted to NPO/NGOs as noted above, Section 25 of CITA provides that any company making donations to such an organization listed under the 5th schedule to CITA shall enjoy tax deductible donation not

exceeding 10% of the total profits of that company for that year as ascertained before any deduction of such donations is made and must not be of capital nature (these restrictions will not be applicable where the donation falls under the provision of Section 25 (a) of CITA).

Zero-Rate VAT
Goods purchased for use in humanitarian donor funded projects are zero rated under the Value Added Tax Act Cap V1 LFN 2004 (as amended). It is important to note that only goods purchased by the NGO are zero rated, and services procured shall be charged VAT.

Zero rated goods or services are VATable but charged at a VAT rate of 0% and the VAT charged on input relating to these goods or services can be reclaimed as input tax.

NPOs/NGOs are also required to carry out some statutory obligations even as the enjoy the tax incentives put in place.

Registration
All NPO/NGOs are expected to register and obtain a TIN from the FIRS. They are required to provide the following documents when seeking registration:

i)A copy of registration certificate issued by Corporate Affairs Commission (CAC) in Nigeria or other instruments of incorporation issued to foreign NPO/NGOs;
ii)Certified copy of Memorandum or Constitution, Rules and Regulations governing the NPO/NGO;

iii) List and Profiles of the Trustees/Board Members nominated;
iii)Copy of the current Tax Clearance Certificate (TCC) of each of the
Trustees; and
v) Financial statements from inception of operation.

Filing of Returns
In line with section 55 of CITA, it is mandatory for every NPO/NGO to file its tax return every year and such return shall contain:

i)The audited accounts, tax and capital allowances computations and a true and
correct statement in writing containing the amounts of its profits from each and every source computed in accordance with the provisions of CITA;

ii)Such particulars as may by such form or return be required for the purpose of the Act and any rules made with respect to such profits, allowances, reliefs, deductions or otherwise as may be material by virtue of the CITA; and

iii)A declaration to be signed by a director or secretary of the organization that the information contained in the return is true and correct.

In addition to its obligation to file tax returns to the appropriate tax office, NGOs are statutorily required to:

i) Maintain accurate record of employees;
ii) Maintain proper books of accounts;
iii) Deduct Pay-As-You-Earn (PAYE) from employees' salary and remit same to the appropriate tax authority;

iv) Pay Value Added Tax (VAT) on goods and services consumed except those purchased exclusively for its humanitarian donor funded projects or activities;

v) Deduct withholding tax (WHT), on, payments, made to its contractors/suppliers and, remit same to appropriate tax authority in accordance with the laws; such remittance is to be accompanied with schedule of deduction; and
vi) Pay tax as at when due on non-exempt activities.

Even though NPOs/NGOs are exempted from payment of income tax, they are duty bound to carry out their OBLIGATIONS to file returns as and when due, and profits derived from business, trading or investment activities are liable to tax.

Failure to comply with the above requirements will attract appropriate penalty under the law. #ItPaysToPayYourTaxes