Public Benefit Organisations (PBOs) and Non-Profit Organisations (NPOs) are often used interchangeably and is a common source of confusion, especially when dealing with their respective tax obligations and regulatory frameworks in South Africa. Understanding the distinction is essential, particularly for compliance, structuring, and tax efficiency.
What it is a PBO?
A PBO is defined in section 30 of the Income Tax Act, No. 58 of 1962 (ITA) and can be summarised as any organisation that is either a non-profit company (NPC) registered with the Companies and Intellectual Property Commission (CIPC), or a trust registered with the Master of the High Court, or an association incorporated/established through a relevant founding document.
It is critical that the organisation's sole or principal object must be to carry out one or more public benefit activities (PBA). All such activities must be performed in a non-profit manner and with altruistic or philanthropic intent. Activities must not be conducted to directly or indirectly economically benefit any person holding a fiduciary role or employee of the organisation. Each activity performed by the organisation should be accessible to or for the benefit of the general public at large.
Public Benefit Activity
PBA is defined in the ITA as any activity specified in the schedules, and any other activity identified by the Minister. Some of the popular PBA may include, but is not limited to activities involving for example, welfare and Humanitarian, health care, education and development, religion or sports. These are the activities that PBOs must do to qualify for tax benefits in South Africa.
What is an NPO?
An NPO is defined in the Nonprofit Organisation Act, No.71 of 1997 (NPOA) as either a trust, company or other association of persons that are established for a public purpose and its income/property is not allocable to its members/office bearers unless it is reasonable remuneration for services performed.
The main objects of the NPOA are to assist NPO's by creating an administrative and regulatory framework within which registered NPO's may operate while maintaining sufficient standards of governance, transparency and accountability.
How to Register
An application for approval as a PBO can be made simultaneously with an application under section 18A of the ITA with SARS. If the application has been approved, SARS will issue a letter confirming this, along with conditions of exemption and a unique exemption reference number. An Approved PBO must comply with the ITA throughout it's existence. This involves, for example, filing yearly income tax returns.
A prospective NPO may apply to the Directorate for Nonprofit Organisations, which is part of the Department of Social Development (DSD). If the Directorate is satisfied that the prospective NPO meets all the requirements for registration, it will issue a certificate of registration in the applicant's name. NPOs must submit annual reports and financial statements to maintain good standing.
What are the Benefits?
If a PBO is approved by SARS it will qualify for an exemption from income tax to the extent that the receipt and accruals are derived from the carrying on of; its PBA, permissible trading activities and trading activities other than permissible trading activities not exceeding the basic exemption. The exemption may be granted on the basis of an absolute exemption or on the basis of partial taxation.
An approved PBO may issue a section 18A receipt for bona fide donations received whilst a donor taxpayer may be entitled to a deduction in their taxable income for amounts donated to an approved PBO. It may also be exempt from other taxes such as donations tax, estate duty, capital gains tax on qualifying assets.
Beyond the fiscal advantages, PBO status also unlocks a powerful social dividend: it signals to donors, corporate partners and governmental bodies that the organisation is credible, transparent and mission-driven. This credibility attracts larger, more sustained streams of funding and volunteer support, enabling projects that deliver measurable upliftment – whether that is expanding early-childhood education in under-resourced areas, improving primary healthcare clinics, or rolling out skills-development programmes that create employment pathways. By funnelling resources into these public-benefit activities, an approved PBO catalyses inclusive economic growth, strengthens social cohesion and helps communities move from subsistence to self-sufficiency.
Can an Organisation be Both a PBO and an NPO?
An organisation can be both an NPO and PBO. In fact, this is often the most effective model. An NPC, trust, or association can register with the DSD as an NPO and apply to SARS for PBO and 18A status. This dual recognition meets both governance and tax compliance expectations, enhances and increases fundraising potential.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
