Bookmark :
Skip to : [Content] [Navigation]
  • Big enough to count, small enough to care

    Big enough to count, small enough to care
  • Integrity forms the backbone of our business

    Integrity forms the backbone of our business


Back to News

Contributing to charities does not constitute Enterprise Development

30 Mar 2015

Jaco OdendaalA common misconception regarding Broad-based Black Economic Empowerment (B-BBEE) is that both Enterprise and Socio-economic Development points can be ‘purchased’ by simply contributing the required percentage of a measured entity’s net profit to a charity.

A charity, by definition, cannot be an enterprise therefore contributions to charities will not be of any value from a BEE score-point of view. To be considered for points towards the Enterprise Development (ED) element, a beneficiary must be a black-owned enterprise, as defined in the Amended Codes of Good Practice. (A black-owned enterprise is an enterprise of which 51% or more of the interest is held by Black people, as defined.)

This is in contrast with the 2007 Codes of Good Practice. While contributions to enterprises that were not black-owned could, under certain circumstances, count towards ED points previously, this is no longer possible.

In addition, a contribution towards ED now counts for only 5 points (as opposed to 15 points before). The amended Codes provide for the additional sub-element of Supplier Development. In laymen’s terms it means that measured entities should now contribute 2% of net profit after tax (NPAT) towards die development of black-owned enterprises which are suppliers to the measured entity.

Making contributions towards Supplier Development, Enterprise Development or Socio-economic Development may have income tax implications, as the contributions may be regarded as donations. Donations will be taxed at a rate of 20% in the hands of the donor, subject to certain exemptions.

Donors should therefore consider to what extent their contributions constitute donations, as contemplated by section 55(1) of the Act. The courts have determined that a donation is “motivated by pure liberality or disinterested benevolence”. The question therefore is whether a contribution for the sake of B-BBEE points is motivated by pure liberality and/or disinterested benevolence. Perhaps not...

Many recipients of Enterprise Development and/or Socio-economic Development contributions are tax-exempt Public Benefit Organisations who may issue so-called Section 18A receipts. Making a contribution to such a recipient could potentially have both B-BBEE and tax benefits. However, donors have to ensure that circumstances allow the recipient to issue a Section 18A receipt. Section 18A receipts may only be issued under certain circumstances.

Donors should also evaluate the risk of past receipts that may be invalid. Should this be the case, the relevant donor may face a situation where previous deductions are overturned.

Another potential pitfall concerns the definition of NPAT. The general definition corresponds with general accounting practice. However, when a measured entity realizes a loss, or when NPAT as a percentage of turnover is less than 25% of the industry norm as published, a rather complex calculation is required to determine the indicative NPAT. Failing to perform the calculation in these circumstances may lead to insufficient contributions, with little or no chance to rectify the situation before a verification is done.

For more information, please contact Jaco Odendaal on tel 021 882 8140 or e-mail

    View Archives


    Tel: +27 (0) 87 985 0935

    London, UK

    Tel: +44 (0) 1784 439 955

    Somerset West

    Tel: +27 (0) 21 852 0382/4

    Cape Town

    Tel: +27 (0) 21 915 6666


    Tel: +27 (0) 21 872 7118