As of 18th June 2024, the Income Tax (Charitable Organisations and Donations Exemption) Rules, 2024 are officially in place! Here’s what this means for your charity:
1. What Does it Mean to Be Tax-Exempt?
To qualify for tax exemption, your charity must meet two key tests:
Organizational Test: Your organization must exist exclusively for charitable purposes (e.g., poverty relief, education, healthcare, etc.). Operational Test: Your activities should be focused primarily on charitable work, not unrelated business ventures.
2. How to Apply for Tax Exemption
Charities wishing to benefit from tax exemptions must submit their application to Kenya Revenue Authority (KRA). Here’s what you need:
Governing Documents: Include your constitution or trust deed, outlining your charity’s mission. Financial Statements: Provide recent audited financials. Proof of Charitable Activities: Submit project reports, activity photos, or lists of beneficiaries.
3. Donations Are Now Tax-Deductible!
Donors who give to approved charities can now deduct up to 50% of their donations from their taxable income! Don’t forget to provide them with receipts, as this is required for the tax deduction.
4. Surplus Funds – Use It or Lose It!
Your charity can save funds, but you must use at least 85% of them within three years. You can’t keep more than 15% without using it for charitable purposes.
5. Keep Unrelated Business Income Separate
If your charity earns income from activities not related to its charitable purpose (e.g., selling products or services), that income will be taxed separately. You’ll need a separate tax PIN for these business activities.