Overview of the Legal and Tax incentives available for Public Benefits Organizations (PBOs) under the Public Benefits Organizations Act, 2013.

The Public Benefits Organizations Act (the PBOs Act), 2013 came into force on 14th May 2024. Notably is that the PBO Act was passed by Parliament in December 2012 and assented into law by the then President, His Excellence Mwai Kibaki in January 2013, however, the same remained inactive as the date of entry into force was yet to be gazetted.

The PBO Act has repealed the Non-Governmental Organizations Coordination Act of 1990 (the NGO Act) which provided for registration and coordination of NGOs and and creates a new legal, regulatory and institutional framework for non-profit making organisations engaging in public benefit activities. Under the PBO Act, a public benefit activity is defined as an activity that supports or promotes public benefit by enhancing or promoting the economic, environmental, social or cultural development or protecting the environment or lobbying or advocating issues of general public interest or the wellbeing of the general public or category of individuals or organisations.

Transition provisions

NGOs registered under the NGO Act shall be deemed to be registered as PBOs under the Act and shall have up to one year from 14th May 2024 to seek registration as a PBO while those that were exempted from registration under the NGO Act have three (3) months from 14th May 2024 to apply for registration. Failure of NGOs to register as PBOs under the Act within the specified periods will lead to loss of PBO status

For other charitable organisations to benefit as a PBO, they shall be required to register with the PBO Authority established under the PBO Act. On the other hand, international organisations (organisations registered outside Kenya) intending to operate in Kenya shall apply to the PBO Authority for a certificate to operate in Kenya. An international organisation registered under the PBO Act must ensure that at least one-third of its directors are Kenyan citizens residing in Kenya, as well as maintain an office in Kenya. However, there are circumstances under which the Authority may exempt an international organisation from registration and, instead, issue a permit to operate in Kenya, provided that the international organisation does not intend to (i) engage in direct implementation of any activity or program in Kenya or operate from Kenya to implement any activities or programs in another country; or (ii) raise any subscriptions or engage in any other form of raising of funds in Kenya.

Legal and tax incentives available for registered PBOs

The PBO Act provides various legal and tax incentives available for registered PBOs. These are:

a) Exemptions from income tax on income received from membership subscriptions and any donations and grants;

b) Exemption from income tax on income acquired from active conduct of income producing activities if the income is wholly used to support the public benefit purposes for which the organisation was established;

c) Exemption from tax on interest and dividends on investments and gains earned on assets or the sale of assets;

d) Exemption from stamp duty;

e)Exemption from court fees;

f) Preferential treatment under the VAT and Customs duties in relation to imported goods or services that are used to further their public benefit activities;

g) Incentives for donations by legal and natural persons;

h) Employment tax preferences;

i) Special tax incentives for donations to form endowments, prudent investment polices etc;

j) Provision of direct government financing for PBOs that partner with Government via budget subsidies, grants for specific purposes and contracts to perform certain work;

k) Preferential treatment in public procurement procedures and bidding for contracts;

l) Provision of information to enable PBOs to contribute effectively to the Policy process; and

m) Access to training courses that are relevant to PBOs by Government institutions.

Reporting requirements

Every registered PBO is required to not only utilise its financial and other resources for the attainment of its aims & objectives but to also implement internal accounting and administrative procedures necessary to ensure transparent and proper use of its financial and other resources.

Additionally, registered PBOs are required to keep proper books of accounts and other records and also prepare annually, a statement of accounts in the form which conforms to the standards of the generally accepted accounting principles.

Further, registered PBOs are also required to submit to the PBO Authority a statement of audited accounts, certified copies of its financial statements and a report dealing generally with the program of its activities of the PBO during that financial year.

Conclusion

The entry into force of the PBO Act represents a significant step forward for the regulation and support of non- profit making entities in Kenya as it introduces comprehensive polices and regulatory framework. Whilst the entry into law of the PBO Act may pose some administrative challenges, the overall impact of the PBO Act is expected to be profoundly positive fostering a more robust and vibrant environment for PBOs operations in Kenya.

(This Article serves the purpose of general knowledge only and is not intended to constitute Legal Advice. You should not act upon the information provided under this Article without obtaining specific Legal Advice)