For many Non-Governmental Organisations (NGOs) and other not-for-profit organisations operating in Ghana, tax compliance can be a significant administrative responsibility. However, qualifying organisations may obtain approval from the Ghana Revenue Authority (GRA) as charitable organisations, allowing income that meets the relevant requirements to be exempt from income tax.
Importantly, being registered as an NGO or non-profit organisation does not automatically mean that the organisation is exempt from income tax. The organisation must satisfy the requirements of the Income Tax Act, 2015 (Act 896) and obtain the necessary approval from the Commissioner-General of the GRA.
What does tax exemption mean for an NGO?
Under Section 97 of the Income Tax Act, 2015 (Act 896), the Commissioner-General may approve an entity as a charitable organisation for tax purposes.
Once approved, income accruing to or derived by the charitable organisation is exempt from income tax. However, the exemption does not extend to business income earned by the organisation.
Therefore, an NGO should not assume that all of its income is automatically tax-free simply because it is established for charitable purposes.
Which organisations can qualify?
The law provides that an organisation seeking approval must be established to operate as:
- A charitable institution of a public nature;
- A religious institution of a public nature; or
- A body of persons formed to promote social or sporting activities.
The organisation must also have a written constitution containing appropriate restrictions. In particular, the constitution must prohibit the organisation from engaging in party political activities, performing functions outside its approved purposes, and conferring private benefits except where such benefits are in pursuit of its approved functions.
This means that an NGO's governing documents are an important part of the tax-exemption process.
Key steps to obtain tax exemption
1. Ensure the organisation is properly incorporated. The organisation should first register as a company limited by guarantee at the Office of the Registrar of Companies (ORC) and have documentation supporting its legal status and objectives. Its governing documents should clearly demonstrate its non-profit and public-benefit purpose.
2. Obtain an NPO licence from the NPO Secretariat. Following incorporation, the organisation must apply for a licence from the Non-Profit Organisation Secretariat (NPOS) under the Ministry of Gender, Children and Social Protection. The Secretariat licenses and regulates NPOs operating in Ghana, and its current requirements include the organisation's ORC documents, constitution, application letter, information on key officials and other supporting documentation. An organisation cannot operate as an NPO in Ghana without this licence.
3. Review the constitution. Before applying to the GRA, the NGO should ensure its constitution contains the restrictions required under Section 97. For example, the constitution should clearly establish that the organisation:
- Does not operate for the private benefit of its members;
- Does not engage in party politics;
- Operates only within its stated charitable, religious, social or sporting objectives; and
- Applies its resources towards achieving its approved objectives.
Failure to address these requirements can create difficulties in obtaining approval.
4. Apply to the Ghana Revenue Authority. The Commissioner-General approves an organisation as a charitable organisation for income tax purposes, and the GRA's Practice Note sets out the application process and requirements. The NGO should submit the required application and supporting documentation demonstrating its legal status, objectives, governance arrangements and activities.
5. Obtain formal approval. An NGO should maintain evidence of the GRA's approval as a charitable organisation. NGO registration and tax-exempt status are separate matters: registration as a non-profit organisation does not, by itself, constitute approval under Section 97. The Commissioner-General can also revoke an approval where there is good cause or where the organisation contravenes the relevant requirements.
What about business activities?
This is one of the most important issues for NGOs. Section 97 provides that income accruing to or derived by an approved charitable organisation is exempt from tax, but the exemption does not apply to business income. If an NGO operates a commercial activity that generates business income, that income may be subject to tax even though the organisation itself has charitable status. NGOs should therefore maintain accounting records that clearly distinguish income related to charitable activities from income arising from taxable business activities.
Tax exemption does not mean “no tax compliance”
Obtaining charitable status does not mean an NGO can stop complying with its tax obligations. An organisation may still have responsibilities relating to PAYE, withholding taxes, VAT where applicable, and other statutory obligations, depending on the nature of its activities and transactions. The GRA also requires registered taxpayers to comply with applicable filing obligations. NGOs should maintain proper accounting records, file required returns and ensure that taxes arising from taxable activities are correctly accounted for.
Benefits beyond the NGO
Tax-exempt status can also benefit donors. Under Section 100 of the Income Tax Act, contributions and donations to qualifying worthwhile causes, including charitable organisations meeting the requirements of Section 97, may qualify for a deduction by the donor, subject to the applicable requirements. This can make properly approved charitable organisations more attractive to corporate and individual donors.
Final thoughts
For NGOs operating in Ghana, obtaining charitable tax-exempt status should be treated as an important part of establishing a sound governance and tax-compliance framework. The process essentially requires the organisation to demonstrate that it genuinely operates for an eligible public-benefit purpose, has appropriate constitutional restrictions, applies its resources in accordance with its objectives and obtains formal approval from the GRA.
“Tax exemption is not the same as tax non-compliance. Even an approved charitable organisation must continue to meet its tax and reporting obligations, particularly where it has employees, taxable transactions or business activities.”
For organisations considering an application, a review of the constitution, activities, accounting records and existing tax registrations before approaching the GRA can significantly reduce the risk of delays or compliance issues.
This article is for general information purposes and should not be regarded as legal or tax advice. NGOs should obtain professional advice based on their specific circumstances and the latest applicable tax legislation and GRA requirements.