WHAT NGOS, CHURCHES, FOUNDATIONS & DONORS MUST KNOW
QUICK SUMMARY
- Tax exemption for charities is governed by Section 13(2) of the Income Tax Act and the 2024 Exemption Rules.
- Donations are deductible only under Section 15(2)(w) when given to approved organizations.
- Poor governance, private benefit, or failure to comply can lead to revocation and tax exposure.
In 2024, the government operationalized the Income Tax (Charitable Organizations and Donations Exemption) Rules, 2024 made under the Income Tax Act (Cap 470).
These Rules now strictly regulate:
- How charitable organizations qualify for tax exemption.
- How long exemption lasts.
- When exemption can be withdrawn.
- How businesses can claim tax deductions on donations.
If you run a foundation, church project, NGO, welfare trust, or corporate social responsibility (CSR) arm — soma hapa kwa makini sana!
Let’s look at the breakdown of the rules
- TAX EXEMPTION IS NOT AUTOMATIC
Many organizations assume that once they are registered as:
- A Trust
- A Society
- An NGO
- A Religious Organization
They automatically qualify for tax exemption.
That is not correct.
Under Section 13(2) of the Income Tax Act, certain income may be exempt from tax — but only if the Commissioner is satisfied that the organization operates exclusively for charitable purposes.
The 2024 Rules now provide the detailed procedure for obtaining and maintaining that exemption.
In short:
Registration under NGO law or the Societies Act does NOT equal tax exemption.
You must apply to KRA separately.
- You Must Apply to the Commissioner for Exemption
Under the 2024 Rules (made pursuant to Section 130 of the Income Tax Act), an organization must formally apply to the Commissioner for exemption.
The application must include:
- Governing documents (constitution or trust deed)
- Registration certificate
- PIN certificate
- CR12 (for companies limited by guarantee)
- Names of officials/trustees
- Financial statements
- Bank statements
- Details of funding sources
- Description of activities
KRA evaluates whether:
- The organization operates exclusively for charitable purposes.
- No income benefits private individuals.
- Governance structures are sound.
- Proper books of accounts are kept.
If satisfied, the Commissioner issues an exemption certificate.
- WHAT QUALIFIES AS “CHARITABLE PURPOSE”?
The Rules align with the interpretation under Section 2 of the Income Tax Act, and generally cover:
- Relief of poverty
- Advancement of education
- Advancement of religion
- Promotion of health
- Environmental protection
- Other public benefit purposes
However, the organization must operate exclusively for those purposes.
If your organization mixes charity with profit-making for private benefit, you risk losing exemption.
- INCOME MUST BE USED FOR CHARITABLE PURPOSES ONLY
Under Section 13(2) of the Income Tax Act, exemption applies only if: The income is applied solely to charitable purposes in Kenya.
The 2024 Rules reinforce that:
✔ No profits should be distributed to members
✔ No unreasonable compensation to trustees
✔ No private benefit arrangements
✔ Assets must be used for charitable objectives
If trustees or founders benefit improperly, exemption may be withdrawn.
- EXEMPTION IS NOT PERMANENT
The Rules provide that:
- Exemption is subject to review.
- KRA may revoke exemption.
- Renewal may be required.
Revocation may occur if:
- The organization engages in non-charitable commercial activities.
- Funds are misused.
- Proper records are not kept.
- Annual returns are not filed.
Even if exempt, you are still required to:
- File annual income tax returns.
- Maintain financial records.
- Comply with tax administrative requirements.
(See obligations under the Tax Procedures Act, 2015)
- COMMERCIAL ACTIVITIES ARE RESTRICTED
Many charities run schools, hospitals, or income-generating projects.
The Rules clarify that:
- Commercial activities must be directly linked to charitable objectives.
- Income generated must support the charitable mission.
- The organization must not become profit-driven.
If commercial income becomes dominant or is unrelated, it may be taxable.
- DONATIONS – WHAT BUSINESSES MUST KNOW
For businesses claiming donation deductions:
The legal basis is found under Section 15(2)(w) of the Income Tax Act.
To claim a deduction:
✔ The donation must be made to a KRA-approved charitable organization.
✔ The organization must have a valid exemption certificate.
✔ Proper documentation must be maintained.
If you donate to an unapproved organization, you cannot deduct that expense for tax purposes.
This is where many businesses make mistakes.
Before claiming donation deductions:
- Confirm exemption status
- Obtain official receipt
- Retain proof of transfer
- GOVERNANCE & RECORD-KEEPING ARE CRITICAL
Under the 2024 Rules, organizations must:
- Maintain proper books of accounts.
- Prepare annual financial statements.
- Keep donor records.
- Maintain separate bank accounts.
- Avoid mixing personal and charity funds.
Failure to keep proper records may trigger:
- Revocation of exemption
- Tax assessment
- Penalties under the Tax Procedures Act
- WHAT HAPPENS IF EXEMPTION IS REVOKED?
If exemption is withdrawn:
- Income becomes taxable under normal corporate tax rules.
- KRA may assess back taxes.
- Penalties and interest may apply.
This can severely affect donor confidence and organizational reputation.
Disclaimer
This article is provided for general informational purposes only and reflects the law as at January 2026. It does not constitute legal or tax advice. For guidance specific to your situation, consult a qualified tax professional.