2024 – NGOs in Burkina Faso being slammed by the new tax regulation
From a while ago, Associations and Non-Governmental Organizations (or “NGOs”) have been very much present in the social economic fabric of Burkina Faso. Their characteristic of being a non-profit organization of their activities allowed them to be exempt from any tax constraints.
However, the government of Burkina Faso considered NGOs as a considerable financial player in the field. Therefore, right off the bat, with the introduction on January 1, 2024, relating to the 2024 Tax Code, NGOs will from now on be taxed regarding their activities in Burkina Faso.
Tax requirements that all NGOs must comply with are listed by the following:
• 20% withholding tax on all sums received by them;
• Obligation to withhold tax on services paid by them;
• Registration with the tax authorities (Identifiant Financier Unique or IFU); and
• Obligation to issue standardized invoices (stickers, etc.).
Relating to the 20% withholding tax, according to the 2024 Tax Code of Burkina Faso (the “2024 Tax Code”), in article 220, “all sums received” by NGOs on whatever transaction, are subject to a withholding tax obligation. Since this new tax application was set for January 1, 2024, all NGO resources shall be effectively cut by 20%. What is a bit unclear though, is the fact that the 2024 Tax Code does not seem to give precisions on what are taxable transactions made by an NGO. This lack of clarity has raised concerns to multiple NGOs in Burkina Faso since said NGOs receive funds from various transactions such as subsidies, donations, contributions, funding for their activities, and others.
Although, the 2024 Tax Code specifies that the 20% withholding tax would only apply to commercial and industrial operations, and/or in any case to operations that are not in line with non-profit NGOs but did not specify whether it would apply to the above-mentioned transactions performed by NGOs.
In anyhow, an official guidance note will be published very soon to the general public regarding all relevant clarifications on this issue in order to remove economic and legal uncertainty in which not only these structures find themselves but also all those who contribute on subsidies, donations, funding, etc.
Besides that, NGOs will also have the obligation to perform withholding taxes on services paid. Which means that sums paid as a form of remuneration for the provision of services will also be subject to compulsory withholding taxes (whether or not the service provider is a resident in Burkina Faso for tax purposes).
To that end, NGOs will no longer be exempt from the obligation to withhold tax on services, and it will also be in their obligations to pay it to the tax authorities. By doing so, NGOs will then be required to be registered with the tax authorities using an Identifiant Financier Unique or IFU, as users of the financial administrations (tax, customs) and as bodies through which funds are transacted.
Another obligation for NGOs is the fact that they will be required to issue and receive standardized invoices which is a bit contradictory to regular activities of an NGO, which is well known to perform a “not-for-profit” activity. Which leads to think that they may not provide profitable services such as training, giving advice, various forms of support on an ancillary basis for which they are paid.
However, NGOs may proceed to transfer some of their assets such as motorbikes, vehicles, office furniture, and other assets. In that case, they will need to issue an invoice to their customers and will be subject to the obligation of issuing standardized invoices as stated in a circular from the Minister of Economy and Finance dated 6 September 2022.
Consequently, if considered that NGOs receive various assets from their suppliers, likely, the suppliers will also be required to issue a standardized invoice as stated above.
For completeness, standardized invoices are recognized when a security sticker is inserted, these stickers can be purchased from the tax authorities. Standardized invoices must also include all the compulsory information required by tax regulations.
With all that is said in the above, NGOs or non-profit organizations will be forced to apply to the Système Comptable des Entités à But Non-Lucratif or SYSCEBNL which came into force on 1 January 2024.
It is worth noting that the above requirements are not exclusive to the traditional tax obligations of associations and NGOs. What should be essential is the fact that NGOs understand that all income of their “not-for-profit” structures, including subscriptions, transfer of assets, fundings and subsidies received, is de facto taxed at 20% under the current stricto sensu tax regulations.
Subject to the regulatory clarification announced by the tax authorities, this taxation of income at 20% would lead to an unexpected reduction in budgets and would call into question the financial equilibrium of the structures concerned.
With that said, without any clarification of the facts, this taxation, which has not been precisely defined, could turn out to be higher than that on company profits, which is at the rate of 27.5% of profits after the deduction of expenses. When applied under these conditions, the status of associations, which since 2023 allowed a tax exemption in principle, could become more unfavourable than any other and may lead to the restructuring of NGOs or non-profit organizations.
Tax authorities should ensure to propose better solutions to soften these requirements for the near future in order for NGOs to keep performing their activities with ease.
Article co-written with Pierre ABADIE
Pierre ABADIE, a chartered accountant in Burkina Faso, is a distinguished legal expert and author of numerous legal texts on taxation, social law, and mining law. He has been present in Burkina Faso since 1998, providing advisory services to international companies operating or seeking to establish themselves in the country. Notably, he is a Knight of the Order of Merit of Burkina Faso and has authored 27 essential legal works, making significant contributions to the legal field.
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