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It seems there’s a need for further clarity, particularly regarding Donations Tax, Exempt Institutions and PBOs (Public Benefit Organisations).

You will have read in another article that certain non-profit entities may register at SARS both as an Exempt Institution (EI) and as a PBO. So what is the difference and how does that affect taxes?

Exempt Institutions do not pay Income Tax. They may still have to pay Donations Tax as well as PAYE, VAT etc., depending upon their nature.

Public Benefit Organisations are exempt from Donations Tax. Also a donor to a PBO does not pay Donations Tax and can deduct the donation from their taxable income.

A donations is defined as  any gratuitous (free or at no charge) disposal of property including any gratuitous waiver or renunciation of a right.

If the person (donee) receiving the donation gives anything in return, it is not a donation.

The above makes sense, when you think about it. If either an EI or a PBO could donate to their directors instead of paying salaries, nobody would pay tax.


  1. PBO is defined in the Income Tax Act (section 30) and section 10(1)(cN) exempts PBO’s from Income Tax. The term “Exempt Institution” (EI) does not appear anywhere in the Income Tax Act. It is not defined, and is not actually used as a term anywhere.

    The Tax Exemption Unit is responsible to look after all exempt institutions, which comprise all the bodies that might be exempt from tax, for example bodies corporate under section 10(1)(e), clubs and societies under 10(1)(cO) as well as PBOs (and some others). Check the EI1 application form page 6 for the full list.

    Donations by or to PBOs are exempt from donations tax i.t.o. section 56(h). Only donations to the sub-set of PBOs registered under Part 2 of the Ninth Schedule (so-called 18A PBOs) qualify as tax-deductible.

    So a donation by an NPC registered as a PBO to its director would indeed be exempt from donations tax. However, I would suggest that it would be unlikely that such a payment would ever qualify to be seen as a bona fide donation if the recipient is working for no remuneration.

    1. Hi Carl,
      A very detailed and well referenced response. Thank you.
      I think your last sentence says it all.
      This is SARS’ definition of a donation s55
      A donation is any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.
      They then add in their explanation under Donations Tax: If the person (donee) receiving the donation gives anything in return, it is not a donation.

  2. Thinking you’re confusing a Public Benefit Organisation (which is the same as an Exempt Institution I guess, though the latter has no definition anyway) and a Non Profit Company.

    1. Hi Carl,
      No, I think it is you who is confused. An EI is not a PBO, although they will usually be the same entity. There is a definition of an EI and it is registered as such separately at SARS. An NPC is neither a PBO nor an EI, but can apply to SARS to be registered as such, but will not necessarily qualify.

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