C.

Companies Ordinance 1984

A nonprofit company is registered under Section 42 of the Companies Ordinance,
1984 as a public company with limited liability provided it meets the following criteria:

It directs, or it intends to direct its profits, if any, or any other form of income
from the business carried out, in advancing its objectives.
It disallows the payment of any return to its members.

Registration is done through the SECP.

5. Approval of a Non-Profit Organisation

This section examines the income tax benefits of setting up a non-profit organisation. The
references to the Ordinance and the Rules in this section shall mean the Income Tax
Ordinance 2001 and the Income Tax Rules 2002 respectively.

The definition of non-profit organization is contained in Clause 36 of Section 2 of the
Ordinance:

2(36) non profit organization means any person

a) established for religious, charitable or educational purposes or for the
promotion of amateur sport;
b) which is registered under any law as a nonprofit organization and in respect of
which the Commissioner has issued a ruling certifying that the person is a
nonprofit organization for the purposes of this Ordinance; and
c) none of the income or assets of the person confers, or may confer a private
benefit on any other person.

A. Tax Benefits

Charities approved by the Commissioner of Income Tax are exempt from the levy of minimum
tax of 0.50% of their turnover.

Charitable donations, both in cash or in kind, entitle the donor to a tax credit (tax rebate) against
its tax liability (subject to certain conditions).

The following heads of income are exempt from tax for any trust or charitable organisation
established under any legal obligation (e.g. Muslim Waqf, Societies Registration Act 1860,
Charitable Endowments Act 1890, the Social Welfare Agencies (Registration and Control)
Ordinance 1961 or the Companies Ordinance 1984). The exemptions are applicable to the extent
the monies are actually applied or set apart for application to the religious or charitable purposes
of such organisation in Pakistan:

(a) Voluntary contributions including donations and subscriptions.

(b) Grants received from Federal, Provincial or District Governments.

(c) Foreign grants.

(d) Income from property.

(e) Profits on investments in the securities of the Federal Government.

(f) Profit on debt from scheduled banks.

B. Registration as a Non-Profit Organisation

In order to get approval from the Commissioner of Income Tax pursuant to the
Ordinance an application must be made in the prescribed form (detailed in Rule 211)
and the application form must be signed by the President or Secretary of the
organisation.

The documents required to be submitted along with the application form are as follows:

(a) a duly attested copy of the constitution, memorandum and articles of
association, rules and regulations or bye-laws;

(b) a certified copy of the registered trust deed, in case of a Trust;

(c) a certified copy of certificate of registration of welfare organisation;

(d) duly attested copies of the balance sheet and of revenue accounts of the
organisation as audited by a qualified accountant for the year immediately
preceding the year in which the application is made;

(e) the names and addresses of the promoters, directors, trustees, president,
secretary, treasurer, manager and other office bearers, as the case may be, of
the organisation, and indicating clearly their family relationships, if any, with
each other;

(f) an evaluated and certified report with regard to the performance of the
organisation for achieving its aims and objects during the preceding financial
year preceding the date on which application is made. This can be done by the
Philanthropy Centre of Pakistan or the concerned Commissioner of Income Tax.

In addition, the constitution, memorandum and articles of association, trust deed, rules
and regulations or bye-laws, as the case may be, must conform(s) to the provisions of
sub-rule (1) of rule 213. This requires the following:

(a) for the audit of the annual accounts of the organisation every year by a
qualified accountant;

(b) for welfare organisations other than Trusts for the quorum of a meeting of the
members of the body to be not less than four or one-third of the total number of
the members of such body, whichever is greater;

(c) where the organisation is a Trust as defined in the Trust Act, 1882, for the
quorum of a meeting of the members to be not less than three or one-third of
the total number of the members of such a body, whichever is greater;

(d) for the transfer of its assets, in the event of its dissolution, after meeting all
liabilities, if any, to another organisation which is an approved non-profit
organisation, within three months of the dissolution under intimation to the
Commissioner;

(e) for the utilisation of its money, property or income or any part thereof solely
for promoting its objects;

(f) for prohibiting any portion of its money, property or income being paid or
transferred directly by way of dividend, bonus or profit to any of its members or
the relative or relatives of a member or members;

(g) for the maintenance of accounts of the organisation being kept in a scheduled
bank or in a post office or national savings organisation, National Bank of
Pakistan or nationalised commercial banks;

(h) for prohibiting the making of any changes in the constitution, memorandum
and articles of association, trust deed, rules and regulations or bye-laws, as the
case may be, without the prior approval of the Commissioner; and

(i) for restricting the surpluses or monies validly set apart, excluding restricted
funds, upto twenty-five per cent of the total income of the year:

Provided that such surpluses or monies set apart are invested in Government
securities, NIT units, a collective investment scheme authorized or registered
under the Non-Banking Finance Companies (Establishment and Regulation)
Rules, 2003, mutual fund, a real estate investment trust approved and
authorized under the Real Estate Investment Trust Rules, 2006, or scheduled
banks:

Explanation: For the purposes of the Rules, restricted funds mean any fund
received by the organization but could not be spent and treated as revenue
during year due to any obligation placed by the donor.

On receipt of the application, the Commissioner may make such inquiries or call for
such further information as the Commissioner may deem necessary and after
completion of formalities may approve the organization for the purpose of clause (36)
of section 2 of the Ordinance.

The Commissioner may refuse to approve the organisation if the Commissioner is
satisfied that the organisation -

(a) has been or is being used for personal gain of any particular person or a group
of persons;

(b) has been propagating the view of a particular political party or a religious sect;

(c) has been or is being managed in a manner calculated to personally benefit its
members or their families; or

(d) has not been or will not be able to achieve its declared aims and objects in view
of its set up, administration or otherwise as evaluated and certified by an
independent certification agency.

The Commissioner of Income Tax will finalise applications within two months of receipt
of the application.

C. On-going obligations of Non-Profit Organisations

(a) To file a Return of Income with specified attachments;

(b) To collect, deduct, withhold tax at source;

(c) After every three years to provide an evaluation and certified report on its
performance and achieving its aims and objects during the three preceding
financial years;