An NGO is an association of persons registered under Section 590 of CAMA 2020 for the advancement of religious, educational, literary, scientific, social development, cultural, sporting, and charitable purposes, they are also referred to as non-profit organizations.
In light of the significant role played by NGOs, the Government sees the need and reason to grant certain tax incentives to NGOs for their humanitarian services.
According to Section 23 (1) of the Companies Income Tax Act, “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.”
The implication of the above is that Non- Non-governmental organizations are excluded from paying Income tax which is derivable from profits made, and where such profits are derived from business or trading activities, there will be tax liability. There are however cases where an NGO is required to provide a tax exemption letter from the authorities as proof of their exemption status.
In this article, we will examine whether or not an NGO can apply for a tax exemption letter from the tax authorities in Nigeria.
CAN I GET A TAX EXEMPTION LETTER FOR MY NGO?
The answer is No. At the time of publishing this article, the FIRS does not issue tax exemption letters to NGOs upon request. With reference to a Circular on “Guidelines on the Tax Exemption Status of NGOs” issued by the Federal Inland Revenue Service (FIRS) Board, all NGOs requiring a tax-exemption certificate, having registered and fulfilled all obligations should apply for a tax clearance certificate in place of tax exemption letter at any of the designated FIRS offices.
WHAT ARE THE TAX OBLIGATIONS OF NGOs IN NIGERIA?
In order to enjoy the tax incentives and reliefs provided, NGOs after being registered with the Corporate Affairs Commission (CAC) are mandated to do the following:
1. Register with the FIRS:
It is a mandatory requirement that all NGOs operating in Nigeria be registered with the Federal Internal Revenue Service (FIRS) and obtain a Tax Identification Number (TIN). The NGO is required to apply with the following supporting documents:
i. A copy of the certificate of registration
ii. Constitution of the NGO;
iii. Status report or incorporated trustee details;
iv. NGO proof of address;
v. Evidence of PAYEE/Tax Clearance Certificate by one of the Trustees
2. Filling of Tax Returns:
All registered NGOs with the CAC and FIRS are required to file annual returns annually from the date of commencement of operations. Filing of tax returns is not similar to paying or remitting taxes. While the former has to do with completing tax forms, the latter entails paying an assessed amount of money as tax.
This assists the Federal Inland Revenue Service in verifying whether or not the activity of the organization is in accordance with the status of a Non-Governmental Organisation during the period stated in the report.
It also serves as a veritable tool in ascertaining taxable income and other taxes such as PAYE (Pay As You Earn) and VAT (Value Added Tax) from goods and services consumed except those purchased exclusively for humanitarian donor-funded projects or activities. etc.
3. Apply for a Tax Clearance Certificate where applicable:
The Tax Clearance Certificate is a document that indicates that an organization has satisfied its tax obligations for the year. Although NGOs are as a general rule exempted from paying income taxes, such NGOs can apply for a Tax Clearance Certificate at the office where it was registered and file its tax returns. Afterwards, the tax office will process the application and if the NGO is found qualified or unqualified will be notified in writing stating the given reasons.
It is currently not feasible to apply for a tax exemption letter as an NGO in Nigeria as the relevant tax authority does not issue it. Where, however, there is a need for a letter from the authorities expressly stating that such an NGO is exempt from paying taxes, the latter may apply for a tax clearance certificate instead.
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