For foreign-funded NPOs, compliance is even more critical. Increased regulatory scrutiny from both the Department of Social Development (DSD) and the South African Revenue Service (SARS) means that failure to meet reporting obligations could lead to deregistration, loss of tax-exempt status, donor mistrust, and financial penalties.
The High Cost of Non-Compliance
Deregistration or tax non-compliance can have severe consequences, particularly for foreign-funded NPOs:
- Loss of tax exemption – If your NPO is deregistered or non-compliant, you may lose Public Benefit Organisation (PBO) status, making foreign grants and donations taxable.
- Ineligibility for funding – Many international donors require full regulatory compliance before funding an organization.
- Foreign exchange complications – SARS and the South African Reserve Bank (SARB) monitor inward foreign transactions for compliance with tax and exchange control regulations.
- Reputational damage – Non-compliance can trigger audits, delay funding, and impact donor confidence.
While the DSD focuses on annual reports, SARS compliance is just as crucial for foreign-funded NPOs and Public Benefit Organisations (PBOs).
The Taxman Cometh: SARS Compliance is Non-Negotiable
Foreign-funded NPOs are particularly at risk of tax penalties if they fail to meet SARS obligations:
- Donations may be taxed – If funds are misapplied or not properly recorded, SARS may classify donations as taxable income.
- Loss of Section 18A status – non-compliant organisations can lose their ability to issue tax-deductible receipts to local donors.
- Penalties for international donors – Donors who claim deductions on invalid Section 18A receipts could face tax penalties in their home countries.
- Exchange control issues – Foreign-funded NPOs must comply with SARB’s exchange control rules when receiving and utilizing international funds.
Key Areas of SARS & Exchange Control Compliance
To remain compliant, all NPOs—especially those receiving foreign funding—must:
- Submit annual returns (IT12EI) – Tax-exempt institutions with Section 18A approval must file comprehensive financial statements detailing local and international funding.
- Comply with IT3(d) reporting – Section 18A-approved institutions must report all 18A receipts at regular intervals via SARS eFiling, HTTPS, or Connect Direct.
- Issue valid 18A receipts – Ensure receipts meet all SARS requirements, protecting donor tax deductions.
- Maintain record-keeping – Keep detailed records of all foreign and local transactions to comply with SARS and SARB regulations.
- Adhere to exchange control requirements – Foreign funds must be properly declared in line with SARB regulations.
Why You Need a Tax & Compliance Expert
Foreign-funded NPOs face additional complexities due to cross-border transactions. A qualified tax and compliance expert can help by:
- Ensuring accurate SARS and SARB submissions – Avoid penalties, errors, and funding delays.
- Maintaining tax-exempt status – Stay compliant with PBO and Section 18A regulations.
- Advising on Exchange Control Regulations – Ensure compliance when receiving foreign grants.
- Providing representation – Handle SARS audits and disputes effectively.
- Optimising tax benefits – Identify available exemptions and deductions to minimize tax liabilities.
Don’t Wait Until It’s Too Late!
The Department of Social Development and SARS are increasing compliance enforcement. If your organization receives foreign funding and is struggling with compliance, now is the time to act.
Failure to comply could lead to deregistration, blocked foreign transfers, financial penalties, and loss of donor confidence.
