• Constitution of the Republic of South Africa, Act 108 of 1997 (as amended)
• Companies Act of 2008 and Companies Amendment Act of 2011
• Non-Profit Organisations Act 71 of 1997 (as amended) (“NPO Act”)
• Trust Property Control Act 57 of 1988 (“TPCA”)
• Income Tax Act 58 of 1962 (as amended)
• Value Added Tax Act 89 of 1991 (“VAT Act”)
• Financial Intelligence Centre Act 38 of 2001 (“FICA”) and Financial Intelligence Centre Amendment Act, 2017 (Act 1 of 2017)
• BEE Amendment Act 46 of 2013
• BEE Amended Code of Good Practice – May 2019
In this article, we discuss the basics of B-BBEE and Non-Profit Organisations with reference to Socio-Economic Development.
NPOs are covered as a measured entity in terms of the Codes of Good Practice and are regarded as specialised enterprises (i.e. they do not have ownership). Their B-BBEE compliance is measured in terms of statement 004. Specialised enterprises are classified in terms of annual turnover, allocated budget or gross receipts.
Based on the generic scorecard, an entity may obtain a maximum of 5 B-BBEE points towards socio-economic development for spending 1% of net profit (after tax) on SED contributions, where 75% of the value directly benefits black people.
The Codes of Practice of the BEE Act provide that:
NPO’s with an annual total revenue of R10 million or less qualify as exempted micro-enterprises (“EME”) and are deemed to have an automatic level 4 status and only an affidavit is required;
NPO’s with an annual turnover exceeding R10 million but less than R50 million, should use the Specialized Qualifying Small Enterprise (“QSE”) Scorecard, which measures all the elements on the scorecard other than ownership;
NPO’s with an annual turnover exceeding R50 million should use the Specialized Generic Scorecard, which measures all the elements on the scorecard other than ownership.
For NPO’s that are either EME’s or QSE’s, if 75% or more of its beneficiaries are black people, it is deemed to have an automatic level 1 status level and if at least 51% (but less than 75%) of its beneficiaries are black people, it is deemed to have an automatic level 2 status level.
Specialised QSEs have to be verified by an accredited verification agency (http://www.sanas.co.za) to obtain a B-BBEE certificate.
Socio-Economic Development Contributions
Socio-Economic Development (SED) is a means for companies to help black people gain sustainable access to the economy and become economically active.
For a donor to obtain socio-economic development (“SED”) points on its scorecard, it must make SED contributions to beneficiaries. SED contributions must be for the objective of facilitating income generating activities for targeted beneficiaries.
The definition section of the BEE Codes states that the objective of SED contributions must be the promotion of sustainable access for the beneficiaries to the economy and it lists programmes such as:
development programmes for women,
skills development, and programmes supporting arts and culture.
SED contributions can take the form of grants, payment of direct costs, guarantees or security for loans, preferential terms or prices for supply of goods or services or training and mentoring.
If the NPO that has more than 75% black beneficiaries, the full value of the SED contributions is counted for BEE purposes, while if the NPO that has less than 75% black beneficiaries, only the proportion which benefit black beneficiaries is counted for BEE purposes.
It is critical that each NPO establishes and obtains suitable evidence of its:
racial composition of its beneficiaries;
objective of its programmes and the actual use of its funds.
For more NPO information about legal and tax-related compliance, please refer to the article “Non-profit organisation-related law and benefits in South Africa” published on our partner website www.fincor.co.za
Author Craig Tonkin