Nonprofit Operational Manual

Home Acknowledgements

Regulatory Requirements For Nonprofit Tax

The Federal Inland Revenue Service defines a nonprofit (NGO) as “an association of persons registration under Section 590 of Companies and Allied Matters Act (CAMA) 1990 for the advancement of any religious, matters Act (CAMA) 1990 for the advancement of any religious, educational, literary, scientific, social/cultural development, sporting and charitable causes”.

It went on to say “NGOs by their charter are not of a government and are not conventional profit making entities. However, where an NGO engages in activities for profits derived there from will be subjected to income tax as provided for in Companies’ Income Tax (CITA) LFN 2004 as amended”.
The following are the tax obligations of a nonprofit as described by FIRS
TAX OBLIGATIONS OF NGOs NGOs must meet the following obligations in order to comply with Nigerian Tax Laws:

Registration with FIRS

NGOs operating in the country are required to require to register and obtain Taxpayer Identification Number (TIN) free of charge from the medium Tax Office (MTO), Abuja or the nearest Tax office to their registered address, as soon as they are registered by the corporate Affairs commission (CAC). Registration with FIRS requires the following.

How to achieve this

Filing of Tax Returns

An NGO is under obligation to file tax returns once annually. This is to enable the FIRS confirm if the activities of the NGO were in line with its notfor-profit status during the period or if it engages in taxable activities and to determine the taxes due where applicable. The obligation is in accordance with Section 55 of CITA as amended. NGO tax returns shall contain:

Personal income Tax Returns (PIT)
Promoters of NGOs are expected to file PIT returns according to Due Dates for filling Tax Returns stated below.
PAY-AS-You-Earn (PAYE) Returns:
NGOs are to do the following:
Deduct Personal income Tax under Pay-As-You-earn (PAYE) scheme from employees’ salaries and remit same monthly to the appropriate tax authority with accompanying schedule.
Maintain accurate record of employees and file annual returns required employers. The contents of the annual returns are:

Value Added Tax (VAT) Returns:
NGOs are required to do the following:

Pay Value Added Tax (VAT) on goods and services consumed, but are entitled to refund on items purchased exclusively for their humanitarian donorfunded projects or activities. Serve as taxable persons under the VAT Act by charging 5% VAT on their transaction and remitting same to FIRS using VAT Returns from 002 where they engage in economic activities for profit. VAT Returns form 002 is available at the nearest Tax office. Withholding TAX (WHT) Returns NGOs are required to do the following: Deduct Withholding Tax (WHT) at the rate shown below, from payments made to its contractors/ suppliers/ provider of service and remit same to the appropriate Tax Authority. In case where the contractor is an individual, the WHT should be remitted to the State Board of internal Revenue (SBIR) of the State where the contractor resides and to FIRS in the case of incorporated companies, individual and enterprises resident in Federal Capital Territory (FCT), non-resident in Federal capital Territory (FCT), NON residents Individuals and companies.

Remittance of WHT is to be accompanied with schedule of deduction indicating the following details:

Applicable Rates of WHT
Transaction Companies% Individuals%
Royalties 10 5
Contract of supplies 5 5
Contact of construction 5 5
Divided 10 10
Technical Service 10 5
Processional service 10 5
Constancy 10 5
Management Service 10 5
Commission 10 5
Rent 10 10
Interest 10 10
Hire, Charter, lease 10 10
Directors fees 10 10

Due dates for filling tax returns
The term due date refers to the period given by law to a taxpayer to file specific tax returns and pay the related tax.

Record Keeping

A business record is a written evidence summarizing transactions carried out by a person or an entity at a given time or over a given period. Business records are normally kept in books in an organized form. Business records can also be maintained in manual and/or electronic formats.

All taxpayers, including NGOs are required to keep business records which provide all information about transactions undertaken at any given time including financial information in the currencies in which the transactions were carried out by the NGO. All documents should also be properly and safely kept.

Other statutory obligations of NGOs
In addition to the Obligations stated above, NGOS are statutorily required to
Demand for sight and verify Tax clearance Certificate (TCC) from potential contractors/ Vendors before awarding contracts.

Currently, FIRS administers tax matters of NGOs centrally at the medium Taxpayer office, Abuja at the following address:
Medium Taxpayer office (MTO)
Federal Inland Revenue Service (FIRS)
12 Port Harcourt Crescent
Off Gimbiya Street, Off Ahmadu Bello Way
Area 11, Garki Abuja
All applications for income Tax Exemption which must be in writing on the organisations letterhead, with valid e-mail address and telephone number should be submitted to the same office.

Consequences of Non-compliance with tax laws
An NGO that fails to comply with the provisions of the tax laws commits an offence for which it shall be liable to various sanctions such as fine, penalties, interest, etc.
Offences include among others:

Nigeria Tax laws do not absolutely exempt NGOs from paying taxes; rather they recognize NGOs as basically not-for-profit entities, which are therefore exempted from paying Income Tax. However, where an NGO engages in activities from which it derives profits, it will be required to pay income Tax on such profits like any other profit-making entity.

It is also worthy of note that NGOs are not exempted from payment of VAT, (and where an NGO pays VAT on goods purchased for use in humanitarian donor funded projects, it is expected that claim for refund is submitted to appropriate office of the FIRS with Documentary evidence) Remittance of PAYE deducted from staff salaries, remittance of WHT on their contracts ,payment of stamp Duties on their documents, instruments and payment of capital Gains Tax on gains arising from disposal of chargeable assets acquired in connection with business they operate