Registration of an NGO in Nigeria: For Foreigners and Nigerians

Introduction

Charity organizations popularly known as Non-governmental organizations (NGOs) play a vital role in addressing various social, economic, and environmental issues. When establishing an NGO in Nigeria, founders have two primary options for its legal structure i.e. an Incorporated Trustee (IT) or a Company Limited by Guarantee (CLG). While both structures offer distinct benefits, understanding the differences between them is crucial for effective management and sustainability. 
For Nigerian owned NGOs both Incorporated Trustee (IT) and Company Limited by Guarantee (CLG) structures are available for their NGOs. However, in practice, foreign owned NGO’s are only permitted to be registered as a Company Limited by Guarantee.

A Company Limited by Guarantee

This is the legal structure available for both local and foreign owned NGO’s. This type of company is suitable for non-profit making purposes, ranging all the way from some of the major charities to the local golf club. When you incorporate your company as a company limited by guarantee, you and other members of the company would only be liable to such amount you undertake to contribute to the assets of the company in the event of its being wound up. See Section 21 (1) Companies and Allied Matters Act 2020.You and other members of the company, unlike a company limited by shares, are not expected to contribute to the asset of the company, unless and until the company goes into liquidation. The liability of members to contribute to the asset of the company in the event of its being wound up shall not be less than N100,000.00 at any time see Section 26 (12) of CAMA

A company limited by guarantee can be registered for the purpose of promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar activities, but never for the purpose of making profits for distribution to members. See section 26 (1) & (3) of CAMA 2020. The income and property of the company are to be applied solely towards the promotion of its activities. The law does not permit any portion of the income and property of the company to be paid or transferred directly or indirectly to the members of the company see Section 26 (1) & (3) of CAMA 2020.

Companies limited by guarantee are usually funded with membership subscriptions and application fees, since such companies do not have share capital. The remaining assets of the company, after discharging its debts and liabilities, are to be distributed to some other company limited by guarantee having similar objects with the company or applied to some charitable object, upon winding-up see Section 26 (15) of CAMA

Benefits of Registering a Company Limited by Guarantee.

1. Legal Recognition and Credibility: Registered CLGs gain legal recognition, enhancing their credibility and legitimacy in the eyes of donors, partners, and the communities they serve.
2. Access to Funding and profits: Many international and local donors support registered CLGs and they also have the benefit venturing into business or profit making agenda, making it easier for these organizations to access funding for their projects and initiatives. Distribution of profits not allowed.
3. Tax Exemptions: Registered CLGs may be eligible for income tax, providing financial relief that can be redirected towards their mission and programs.

Incorporated Trustee Registration in Nigeria

Non-Governmental Organisations (“NGOs”), churches, mosques, clubs, among other similar associations, carry on their activities through the incorporated trustees. Incorporated trustees are suitable for any community of persons bound together by custom, religion, kinship, or nationality or by anybody or association of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting, or charitable purpose. This is contained in section 823 (1) of the Companies and Allied Matters Act 2020.
Such associations are required to appoint two or more trustees for incorporation see section 823 (1) of CAMA 2020.

The trustees become a corporate body upon registration see section 823 (2) of CAMA 2020. Incorporated trustees, as a result of registration, enjoy perpetual succession. They can have a common seal if they so wish. They have the power to sue or be sued in their corporate names as such trustees. They also, among others, have the power to acquire properties see section 830 of CAMA 2020.

Benefits of Incorporated Trustee Registration

1. Legal Recognition and Credibility: Registered Incorporated Trustee enhance recognition, credibility and legitimacy in the eyes of donors, partners, and the communities they serve.
2. Access to Funding: Many international and local donors prefer to support registered IT making it easier for these organizations to access funding for their projects and initiatives.
3. Tax Exemptions: Registered NGOs may be eligible for tax exemptions, providing financial relief that can be redirected towards their mission and programs.
4. Structured Governance: The registration process requires IT to establish clear governance structures, promoting transparency and accountability within the organization.
5. Collaboration Opportunities: Registered IT often have increased opportunities for collaboration with government agencies, other IT, and international organizations, fostering a more comprehensive and effective approach to addressing societal issues.

Taxes that are applicable to Incorporated Trustee and Company Limited by Guarantee
The Federal Inland Revenue Service (“FIRS”) recently issued information circular no: 2021/01 (“the Circular”) for the purpose of clarifying the tax treatment of Non-Governmental Organisations (NGOs). The Circular provides for the following:

1. The income earned by individual promoters and all employees of the NGO including but not limited to trustees, directors and guarantors shall be liable to PIT. Taxable income in this regard includes but is not limited to emoluments from all sources – including the NGO, fees, salaries, benefits – in- kind.
   
   The NGOs are required, in line with its PAYE obligation to deduct tax at source from salaries and other emoluments of employees, directors, officers, etc. and remit same to the relevant tax authorities in the currency of payment of the emoluments. Section 19(1) and Paragraph 13 of the Third Schedule to the PITA.
2. The Circular states that the following income or profits of the NGOs shall be liable to Companies Income Tax:
   • Profits derived from trade or business carried on by the organisation/institution such as proceeds from sale of goods or merchandise, provision of consultancy, professional or other services for a fee;
   • Investment Income such as interest, rent, royalty, dividend or similar income. With respect to filing of CIT returns, by virtue of Section 55 of CITA,
3. It is mandatory for all NGOs to file tax returns every year and such returns shall include audited financial statements, tax and capital allowances computations and a formal statement containing the amounts of surplus from every source for the relevant tax years. Section 55 of Companies Income Tax Act
4. All NGOs are obligated to deduct Withholding tax on contracts awarded to suppliers and contractors, as well as other qualifying payments, and remit same to the relevant tax authorities in the currency of transaction.
5. With respect to the treatment of Value Added Tax, the Circular makes the following clarifications for NGOs:
   • Goods purchased by NGOs for use in humanitarian donor-funded projects are zero rated under the VAT Act, however where the organisation procures contracts or purchases goods that are not directly used in humanitarian donor-funded projects, VAT shall apply at the prevailing rate of 7.5%;
   • Any service procured or consumed by NGO is liable to VAT
   • Upon procuring goods or services from persons not liable to charge VAT or from non-resident suppliers, NGOs are required to self-account for the VAT and remit same to the FIRS;
   • NGOs shall charge VAT on all taxable goods and services supplied and remit same to the FIRS as and when due.
     In compliance with Section 15 of the VAT Act, NGOs are required to file VAT returns with the FIRS on or before the 21st day of the month following that in which the purchase or supply was made.
6. Gains from the disposal of chargeable assets of NGOs are exempt from tax in line with Section 26 of the Capital Gains Tax, provided that such gains are not derived from the disposal of any assets acquired in connection with any trade or business carried on by the organisation. Also, the gains must be purely applied for the purpose of the approved activities of the organisation.

Additionally, the Circular provides that NGOs shall be required to maintain accurate records of its employees and proper books of accounts and a failure to comply with the aforementioned requirements shall attract penalties.

Tax Break

NGOs surplus income from sources like grants, subscriptions, donations, gifts, and endowments is exempt from corporate tax. According to Section 23 (1) of the Companies Income Tax Act (CITA), all NGOs are generally exempt from taxes as long as they do not earn profits from trade or business activities. Similarly, Section 23 (c) of CITA and Section 19, Para 13, Third Schedule of the Personal Income Tax Act (PITA) state that the income of any company or institution involved in ecclesiastical, charitable, benevolent, or educational activities of a public nature is exempt from income tax, provided such income is not derived from trade or business activities.

Foreign NGOs operating in Nigeria are exempt from income tax and can qualify for other tax exemptions under double-taxation treaties.
Double taxation treaties (DTAs) are bilateral agreements between countries to prevent the same income from being taxed twice. The objectives of these treaties include:

• Preventing double taxation
• Combating tax evasion and double non-taxation
• Assigning primary taxing rights to one country
• Facilitating reciprocal assistance in the administration and enforcement of tax laws between countries.

Countries that have double taxation treaties with Nigeria, include Italy, the United Kingdom, China, South Africa, Belgium, Pakistan, the Czech Republic, Slovakia, France, the Netherlands, Romania, Canada, Sweden, Spain, and Singapore among others.