Setting Up a Foundation in South Africa: A Comprehensive Guide

South Africa offers a structured framework for establishing foundations dedicated to social, educational, or environmental causes.

Setting up a foundation in South Africa requires careful planning and adherence to specific legal requirements. This is regardless of whether you’re planning to support underprivileged communities, fund educational initiatives, or tackle environmental challenges.

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This post provides a thorough guide on how to start a foundation in South Africa, outlining the essential steps, legal considerations, and financial implications.

Understanding Foundations in South Africa

In South Africa, foundations typically operate as non-profit organizations (NPOs) that serve public interest purposes.

They provide a formal structure for philanthropic work, allowing individuals and organizations to make a meaningful impact in their chosen areas.

Nonprofit Organisations Act 71 of 1997 remains the principal statute governing NPO registration, with voluntary registration under the NPO Directorate.​

A foundation must have a clear mission, defined governance structure, and operate for public benefit rather than private gain.

Sections 2(b) & 2(c) were updated by Act 22 of 2022, effective 31 Dec 2022, strengthening governance and transparency requirements.

What Is the Difference Between a Trust and a Foundation in South Africa?

In South Africa, the term “foundation” isn’t specifically defined in law but typically refers to an organization established for charitable, educational, or social purposes.

Foundations are usually structured as one of three entities: trusts, non-profit companies (NPCs), or voluntary associations.

Trusts are governed by the Trust Property Control Act 57 of 1988 and can be classified in several ways:

• Ownership Trust
• Bewind Trust
• Inter Vivos Trust
• Testamentary Trust
• Vesting Trust
• Discretionary Trust
• Hybrid Trust
• Specific Application Trust
• Special Trusts (a) & (b)

While trusts offer flexibility and are commonly used for foundations, non-profit companies provide more formal corporate governance structures with a separate legal personality.

Voluntary associations, on the other hand, are simpler but may have limitations for large-scale operations.

The key distinction lies in legal structure and governance: a trust is governed by trustees according to a trust deed, while a foundation structured as an NPC is governed by a board of directors under a memorandum of incorporation.

How Do I Register a Foundation in South Africa?

Registering a foundation in South Africa involves several key steps that ensure legal compliance and proper establishment.

The process typically follows this pathway:

Step 1: Define Your Foundation’s Purpose

Before beginning the registration process, clearly articulate your foundation’s mission and objectives:

• Craft a concise mission statement outlining the purpose and goals of your foundation
• Identify the specific causes or communities your foundation will support
• Determine measurable impact goals and how you’ll track success

This foundational work is essential as it will guide your organization’s activities and form the basis of your founding documents.

Step 2: Create a Business Plan

Developing a comprehensive business plan serves as a roadmap for your foundation:

• Conduct market research to analyze the needs and challenges in your focus area
• Identify potential funding sources, including grants, donations, and sponsorships
• Outline specific programs and services your foundation will provide
• Develop a detailed budget covering operational and program expenses

A well-crafted business plan demonstrates to stakeholders and potential funders that your foundation has a viable strategy for achieving its mission.

Step 3: Establish a Governance Structure

Set up a robust governance structure to oversee the foundation’s activities:

• Appoint a board of directors or trustees to provide strategic guidance and oversight
• Define clear roles and responsibilities for key personnel
• Develop policies for decision-making, financial management, and compliance

Proper governance ensures accountability and transparent operations, which are crucial for maintaining public trust.

Step 4: Prepare Founding Documents

Depending on your chosen legal structure, prepare the necessary founding documents:

• For a Trust: Deeds of trust and a letter of authorization from the courts
• For a Non-profit Company (Section 21 Company): Certificate of incorporation and memorandum and articles of association
• For a Voluntary Association: Constitution

These documents must clearly articulate your foundation’s purpose, governance structure, and operational procedures.

Step 5: Register as a Non-Profit Organisation (NPO)

To register as an NPO, follow these steps:

1. Complete the prescribed NPO application form
2. Submit the application form along with two copies of your founding documents via the Department of Social Development’s NPO online portal or your provincial office.
3. Wait for processing, which typically takes about two months
4. Receive your registration certificate if your application meets the requirements of the Nonprofit Organisations Act, 1997

NPO registration enhances your foundation’s credibility and is often a requirement for funding opportunities.

Step 6: Open a Bank Account

Once registered:

• Open a bank account in the name of your foundation
• Deposit any initial funding
• Establish proper financial controls and signatories

A dedicated bank account is essential for maintaining clear financial records and separating the foundation’s finances from personal funds.

How Much Does It Cost to Build a Foundation in South Africa?

The costs associated with setting up a foundation in South Africa vary based on several factors, including the chosen legal structure, size, and scope of operations.

Initial Registration Costs

1. NPO Registration: The registration of an NPO with the Department of Social Development is free of charge.
2. Trust Registration: If you choose to register a trust, there are fees payable to the Master of the High Court, which may vary.
3. Non-profit Company Registration: Registration with the Companies and Intellectual Property Commission (CIPC) involves certain fees.

Operational Setup Costs

1. Legal and Professional Fees: You may need to hire attorneys or consultants to help with drafting founding documents and navigating the registration process.
2. Banking Costs: Opening and maintaining a bank account includes various fees and minimum balance requirements.
3. Office Space and Equipment: Depending on the size of your operation, you’ll need to budget for physical space and necessary equipment.
4. Staff and Administrative Costs: Consider salaries, benefits, and other expenses related to hiring staff.
5. Website and Marketing Materials: Creating a professional online presence and marketing materials requires investment.

Ongoing Operational Costs

1. Compliance Costs: Annual reporting to the Department of Social Development and other regulatory bodies.
2. Accounting and Auditing: Professional services for financial management and required audits.
3. Insurance: Various types of insurance to protect the foundation and its directors/trustees.
4. Program Implementation: The actual cost of running your foundation’s programs and services.

Establishing a basic foundation can be done with minimal costs, especially for voluntary associations.

However, creating a sustainable organization with significant impact typically requires substantial initial investment and ongoing financial support.

Do Foundations Pay Taxes in South Africa?

Foundations in South Africa can receive significant tax benefits, but these are not automatic and require specific applications and compliance.

Tax Exemption Status

Foundations can apply for tax exemption as Public Benefit Organisations (PBOs) under s 30 of the Income Tax Act 58 of 1962 via SARS.

Approved PBOs receive income-tax, donations-tax, and certain capital-gains exemptions, and can apply for Section 18A donor-receipt status.

To qualify, the foundation must:

1. Be constituted as one of the following:
   • A Non-Profit Company incorporated in South Africa
   • A trust established in South Africa
   • An association of persons formed or established in South Africa
   • A branch of a foreign tax-exempt organization
2. Conduct activities that fall within the list of approved public benefit activities as defined by SARS.

Application Process for Tax Exemption

To apply for tax exemption, South Africa foundations must:

1. Submit an application to the South African Revenue Service (SARS)
2. Provide supporting documentation, including:
   • Founding documents – constitution, trust deed, or memorandum of incorporation
   • Proof of NPO registration (if applicable)
   • Detailed description of activities
   • Financial statements and budgets
   • Information about office bearers or directors

Tax Benefits for Approved PBOs

1. Income Tax Exemption: Income derived from non-business activities is exempt from income tax.
2. Donations Tax Exemption: Donations to approved PBOs are exempt from donations tax.
3. Capital Gains Tax Exemption: Certain capital gains and losses may be disregarded.
4. Transfer Duty Exemption: Acquisition of property may be exempt from transfer duty under certain conditions.

Section 18A Status for Donor Tax Benefits

Foundations can also apply for approval under Section 18A of the Income Tax Act, which allows donors to claim tax deductions for their donations.

This status requires that the foundation conducts specific types of public benefit activities and maintains proper records of all donations received.

Compliance Requirements:

To maintain tax-exempt status, foundations must:

1. Submit annual returns to SARS
2. Keep proper accounting records
3. Use funds solely for the objectives for which the foundation was established
4. Not pay excessive remuneration to employees or office bearers
5. Comply with reporting requirements of the NPO Directorate (if registered as an NPO)

Conclusion

Setting up a foundation in South Africa is a structured process that requires careful planning, clear documentation, and compliance with various regulatory requirements.

Remember that the success of your foundation ultimately depends on good governance, transparency, and a genuine commitment to your stated mission.

By maintaining high standards in these areas, your foundation can make a meaningful contribution to South African society and build a lasting legacy of positive change.

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