When you think of Non-Governmental Organizations (NGOs) in Africa, the terms “Nonprofit Payroll” and “Tax compliance” are not likely to come to mind. Instead, like most NGOs, you may think of efforts to secure funding, to reach out to locals, and to overcome cultural differences in the pursuit of a single goal… And yet, payroll and tax compliance are equally important to an NGO’s success in an African country. After all, good management of finances is key to public trust in charitable institutions and this very much includes payroll and compliance.
In Nigeria, the law has various conditions set for NGOs regarding payroll and tax compliance, not all of which are straightforward or easily implemented.
Read on to find out more about the many intricacies of payroll and tax compliance for NGOs in Nigeria.
It is commonly – and incorrectly – thought that NGOs do not pay taxes in Nigeria. This misunderstanding likely stems from laws stating that NGOs and Nonprofit Organizations (NPOs) are not required to pay income taxes if and when their income is obtained from their registered primary activities. These primary activities include donations, membership fees, subscriptions as well as local and international grants.
The operative term here is “Primary activities”. If a local NGO derives income from activities other than their primary ones, they are liable to pay income tax for these earnings according to Nigerian law.
Additionally, local NGOs are required to pay income tax on the following:
Foreign NGOs are, however, not required to pay income tax in Nigeria thanks to double-taxation treaties. International organizations may also benefit from other exemptions through these agreements. But foreign NGOs should not rejoice too quickly, as Nigeria has Double Tax agreements with no more than 15 countries , in a list which does not include the United States and other global superpowers. In comparison, Malaysia has such agreements with over 60 countries.
Concretely, what this means is that a number of NGOs will have to pay income taxes when they expand to Nigeria.
NGOs, whether local or foreign, are required to pay other taxes, besides those on income. While local and international NGOs both do not pay Value Added Tax (VAT) on items and services directly related to their primary humanitarian activities, they are liable to pay VAT at the standard rate on items and services not directly related to their primary activities. For example, this could include the purchase of office supplies.
When making payments to a company, person, or unincorporated entity, NGOs need to ensure that the correct taxes are withheld from these payments. This includes payments for: rent, royalties, service charges, consulting services fees, technical processing fees, administration costs, supplies, contracts and more. These taxes then need to be submitted to the relevant tax authorities.
Every year, local and foreign NGOs in Nigeria are required to submit tax returns, which must include audited financial statements, tax and capital allowance computations, and a written statement listing the total surplus from all sources for the applicable tax years.
Prior to 2020, the law about taxation and NGOs was a rather unclear one, where basic terms such as “public character” and “activities of a public character” did not have a proper definition, leading to a number of gray areas for NGOs. Compliance with the law is often a complex task, rife with uncertainties. Besides, it also requires keeping up to date with the law, a task which is as crucial as it is time-consuming.
The bottom line is that all NGOs operating in Nigeria will have to pay some form of tax at some point. While the task may sound simple, it really is much more complex. Firstly, there is a real difficulty in knowing which taxes to pay and at what time. Afterwards, it is a matter of actually withholding and paying tax to the relevant local authorities in time, for fear of legal sanctions and blows to their reputation. All in all, it is risky for NGOs to take on the responsibilities of paying taxes and compliance all by themselves. Besides, it also takes away from time that could be spent working towards the organization’s main mission.
For NGOs and NPOs that normally rely on external funding, keeping taxation issues at bay is crucial. If any issues with tax and compliance crop up, this could betray a lack of proper management, and even more crucially, of goodwill – the very foundation upon which most NGOs and NPOs are built, the very value that motivates people and companies to make donations to the cause championed by the charitable organization.
With over 12 years serving NGOs in Nigeria and across 45 other African countries, Africa HR Solutions is an organization that your NGO or NPO can trust. We work with knowledgeable local partners in Nigeria to lift the stress of payroll and compliance from your shoulders through our payroll and Professional Employer Organization (PEO) solutions.
Get in touch with our team now to find out how we can help your NGO thrive in Nigeria.
Grant Geraghty is the longest-serving member of the Africa HR team. This resident subject matter expert and client champion is responsible for gaining a deep understanding of our clients’ unique HR needs in Africa and providing tailored solutions that align with their business objectives. Grant collaborates closely with our clients to ensure that their requirements are properly implemented, providing ongoing support and guidance throughout the process.
Grant brings a wealth of experience to his role, having served as Africa HR’s longest-serving employee. He holds a Bachelor of Commerce degree, with a major in Economics and Business Finance, from the University of Natal in South Africa. Additionally, he has completed a certification program in Payroll and Tax Administration from the University of Cape Town, further enhancing his expertise in HR operations and compliance.
His commitment to delivering exceptional service and his extensive knowledge of HR in Africa make him an invaluable member of the Africa HR team.
Kevina Takoordyal has a BA Hons Business Management from the University of Glamorgan, UK, with MBA in leadership and Innovation, MBA General, PMP Certified, and Agile Scrum Master. She currently works as the Head of Operations at Africa HR Solutions Ltd with more than 20 years of proven leadership capabilities in Operations, Business Development, People Management, Process Optimization, and Project Management in the Financial Services, BPO, Banking Industry, and Heath Care Industry. In Senior leadership roles with an international footprint across Europe working and extensive Pan- African experience from a compliance, finance, and operations angle, Kevina comes across with a panoply of cross-functional skills. Kevina also serves on a few Boards, Non-Independent Executive at MioD and for NGOs on a voluntary basis, a coach and mentor to aspiring female leaders across Africa and Mauritius.
Kevina is a firm believer in Servant Leadership with a strong focus and commitment to uplifting others, with the ability to deliver through a highly engaged – diverse team, and works towards consistently synergistic value creation. While being a focused and adaptive thinker and Kevina is actively participating in panel discussions on Innovation, CX, Digital transformation.
Kevina serves as Project Assessor for the National Youth upskilling program. She has been recognized as Global Talent in a few companies, Ceridian, and International SOS Ltd whereby she has been awarded a few scholarships and had the opportunity to be mentored by Senior Vice President in the US. Award Winner in various fields and at a national level and recognized including Super Achiever Leader Award in Africa in 2016, Awarded Africa Women Leader 2018.
Viloshna is an experienced finance professional with 18 years of expertise in strategic financial planning, financial analysis, cash flow management, systems and controls implementation, financial reporting, and continuous process improvements. She currently serves as Head of Finance & Business Support, where she has successfully automated and leveraged the financial reporting system capabilities to ensure efficient company operations.
Viloshna’s background includes senior roles in a multinational pharmaceutical company and a large listed Mauritian conglomerate. Her meticulous attention to detail and strategic thinking have streamlined financial processes, making her a valuable addition to any finance team. Viloshna is a qualified finance professional with an FCCA qualification and an MBA, bringing valuable expertise to any organization.
In her current role, Viloshna leads the company’s Treasury and Payments function, including the fulfillment of the company’s cross-border payments into Africa. With her strong educational background and extensive experience, Viloshna consistently demonstrates her ability to optimize financial operations, minimize risks, and improve profitability. Her expertise in financial reporting and process improvements make her a valuable asset to any organization.
A qualified lawyer who joined Africa HR Solutions in July 2020, Mark Du Preez has experience working in private practice for a reputable law firm in South Africa. He also played commercially focused roles at a leading private bank, wealth management company, and outsourcing firm in South Africa and Mauritius.
Mark has played a pivotal role in Africa HR Solution’s risk mitigation strategy, which positively impacted P&L performance over the years.
He currently leads the Partnerships function of the company including relationships and oversight with in-country partners (ICPs) across Africa.
Alex has more than 15 years of experience in the global, strategic development of both enterprise and consumer brands in categories including technology, transport, enterprise software, entertainment, and travel.
With experience in roles on both agency and corporate side, he has worked across international brands and has led the development and execution of multi-discipline campaigns across EMEA, NORAM and Asia Pacific.
His focus is on driving meaningful business impact through brand differentiation and building high-functioning, digitally oriented, and analytically driven capabilities. He is motivated by working with, and developing dynamic people, teams, and organizations.
He leads, manages, develops and mentors the Key Account Management department, including line management responsibility for the team of Key Account Managers and Key Account Administrator who represent the Company as the primary communication link between all relevant stakeholders, including clients, third party in-country partners and internal functions.
Originally from Mauritius, he holds bachelor’s degrees in International Business, Finance and Management from the University of Nevada, Reno.