The South African Constitution, aimed at ensuring the quality of life and potential of all citizens, enshrines the rights to a healthy and protected environment and access to education, land, housing, healthcare, food, water and social security. The non-profit sector plays a crucial role in assisting government to deliver the full spectrum of social support services needed to help realise these rights.
There are various types of non-profit structures, including non-profit companies, trusts, voluntary associations as well as community-based and non-governmental organisations, which serve communities across South Africa. To be recognised as legal entities, these must be registered.
Non-profit companies are required to register with the Companies and Intellectual Property Commission in terms of the Companies Act 71 of 2008. Non-profit trusts are governed by the Trust Property Control Act 57 of 1988. Other organisations may choose to register as non-profit organisations (NPO) in terms of the Non-Profit Organisations Act 71 of 1997 (‘the NPO Act’) with the Department of Social Development (DSD).
The NPO Act, which regulates standards of accountability, transparency and governance for NPOs, defines a NPO as a trust, company or other association of persons that is established for a public purpose and does not operate at a profit (i.e. its income and property are not distributable to its members or office bearers, except as reasonable compensation for services rendered).
While voluntary, NPO registration enhances credibility and creates a separate legal personality for an organisation, enabling it, for example, to open a bank account. Registration is also often a prerequisite for accessing various forms of funding. Once registered, in order to retain their status, NPOs are required to comply with the mission and objectives set out in their registered constitutional documents and to submit annual reports to the NPO Directorate.
The South African Revenue Service’s (SARS) Income Tax Act provides for tax exemption for NPOs. However, this does not take effect automatically: a registered NPO must apply separately to SARS for tax exemption. If the application is granted, the NPO will be registered by SARS as a Public Benefit Organisation (PBO), with or without Section 18A approval. Registering as a PBO is a more rigorous process than registering as an NPO and, once registered, PBOs must operate strictly within the limits of the approval granted by SARS. There are currently more than 15 200 registered Section 18A PBOs in South Africa.
The national NPO database
In 2015, the DSD released its Report on the State of South African Registered Non-profit Organisations – a report from the national NPO database which provided a comprehensive overview of the non-profit landscape in South Africa. The report found that:
- The national NPO database almost doubled in 2014/15, from 65 633 to 136 453 registered organisations. Ninety-three percent of all NPOs in South Africa were registered as voluntary associations, 6% as non-profit companies and 1% as non-profit trusts. Since the release of this report, the DSD NPO Register grew to more than 165 000 registered NPOs.
- Gauteng was home to the most registered organisations in the country (32.3%), followed by KwaZulu-Natal (19.2%), Limpopo (10.4%) and the Western Cape (10.2%).
- The largest NPO sectors in South Africa were social services (with 54 392 registered NPOs), development and housing (with 28 534 registered NPOs), religion (with 16 703 registered NPOs) and health (with 11 966 registered NPOs).
Trialogue’s annual research provides insight into corporate social investment, as well as how NPOs are accessing and using corporate funding. In 2016, NPOs reported receiving 15% of their income from South African companies, 13% from foreign independent donors, and 12% from the South African Government. Fifty nine percent of NPOs indicated that their income had increased from the previous year, while 27% experienced decreased income.
Over half of NPOs experienced an increase in self-generated income. Over 45% also experienced increases in foreign independent donations, investments, trusts/foundations and private individual donations. The largest decreases in income were from intermediary NPOs, the South African National Lottery and companies.
Broad-based Black Economic Empowerment
BBBEE status is an important factor for NPOs, particularly when engaging government or applying for public and/or private sector funding. Companies can earn BBBEE points by contributing to causes that promote enterprise and supplier development, skills development and socio-economic development (SED). If a company contributes to these through an NPO, the company will only earn BBBEE points if the NPO complies with the requirements set out in the Codes.
NPOs are subject to the same BBBEE regulations and Codes as other entities in South Africa. As they have no beneficial ownership, they are considered ‘specialised enterprises’ and the ownership element of their BBBEE Scorecard is adjusted to measure management control only.
Under the revised BBBEE Codes, which came into effect in 2015, entities with an annual turnover of less than R10 million are Exempted Micro-Enterprises (EMEs) and are deemed to have a Level 4 status. Most NPOs in South Africa fall into this category. An entity with a turnover of between R10 million and R50 million is a Qualifying Small Enterprise (QSE), which is also deemed a Level 4, provided it meets certain measurement criteria set out in the Specialised Qualifying Small Enterprises Scorecard.
If an EME or QSE has at least 75% black beneficiaries, it is elevated to Level 1 status, and to Level 2 if it has at least 51% black beneficiaries. A turnover or income of over R50 million excludes any exemptions and all targets set out in the Specialised Generic Scorecard must be met.
Trialogue’s research conducted in 2016 found that NPOs most commonly source corporate funding from the SED element of the BBBEE Scorecard, with 79% of NPO respondents accessing SED funds. The proportion of NPOs accessing skills development (24%) and enterprise and supplier development (13%) funds appears to have fallen since 2015.