Can a non-profit organization(NPO) operating in Kenya apply for tax Exemption?

There are a number of exemptions available for NPOs for various tax obligations.

It is important for a NPO to to inquire with a certified Consultant such as GND Consult on which tax exemptions it qualifies for and the legal process required for those exemptions.

Some of these exemptions can include the following:

a) Income tax exemptions

Under the Income Tax Act, it is possible for an organization established solely for the purposes of the relief of the poverty or distress of the public or for the advancement of religion or education to apply for an income tax exemption from the Kenya Revenue Authority (KRA).

The certificate typically exempts NPOs from paying tax on bank interest and any other income which is catered for by the exemption during the validity period stated on the exemption certificate.

b) Value Added Tax (VAT) exemptions

The VAT Act 2013  provides for VAT exemption on the supply of social welfare services provided by charitable organisations.

A VAT exemption application needs to be lodged with the KRA and it only applies to  the following:

i)Organisations which are either registered under the NGO Coordination Act or the Societies Act (or exempted from registration under either Act).

ii)Organizations whose income is exempt from corporate income tax under the Income Tax Act and whose services are not carried out by way of business.

It should be noted that this is an exemption from charging VAT on services provided by an NPO.

NPO’s also face additional costs which arise from input tax charged by suppliers of various taxable goods and services. The VAT Act under its Second Schedule provides for zero rating of goods and services imported or supplied to donor agencies, international and regional organizations with diplomatic accreditation or bilateral or multi-lateral agreements with Kenya for their official use.

Thus, organizations that have diplomatic accreditation or multi-lateral agreements with Kenya are eligible to apply for the exemption hence such organizations can take advantage of this provision in order to minimize the tax costs.

The Non-governmental organizations co-ordination regulations, 1992 under its Section 29 provides for exemption from duty by stating that any Organization importing equipment or goods required for its activities in Kenya may, where there is sufficient proof that—

(a)  the foreign exchange for such goods is not raised in Kenya; or

(b)  the importation of such equipment will generate foreign currency for the country; or

(c)  the importing Organization has earned through income generating activities foreign exchange equivalent to the price of imported equipment; or

(d)  the cost of the imported equipment does not exceed thirty-five percentum of the total annual budget of the Organization; or

(e)  the price of similar goods in the local market exceeds the price of imported equipment by at least thirty percentum,

apply through the Board in writing to the Minister for the time being responsible for finance for exemption of such goods from duty.

Section 30 further provides that any Organization seeking exemption from tax may, where the exemption sought is in respect of—

(a)  value added tax on goods and services required to meet the Organization’s objectives or

(b)  value added tax on income generating activities; or

(c)  income tax for expatriate employees,

apply through the Board to the Minister for the time being responsible for finance for the grant of the exemption.

We at GND Consult are ready to assist in undertaking the applications for tax exemption in Kenya.