Date: August 28, 2025
Author: Ali Hassan (Partner)
Registering an NPO as a Section 42 company in Pakistan provides a credible legal structure, tax benefits, and enhanced opportunities for fundraising. This guide answers key questions about the process, requirements, and advantages of establishing an NPO under the Companies Act 2017.
What is a Non-Profit Organization (NPO) in Pakistan?
A Non-Profit Organization (NPO) is an entity established for charitable, educational, religious, or welfare purposes. In Pakistan, a common legal structure for an NPO is a Section 42 company, registered under the Companies Act, 2017. This legal framework provides the organization with a separate legal identity, allowing it to function as a distinct body from its founders.
What are the Requirements for Registering an NPO?
To register a Section 42 company with the Securities Exchange Commission of Pakistan (SECP), you must meet the following criteria:
• Founders: A minimum of three individuals are required to establish the NPO.
• Education: All founding members must hold at least a bachelor's degree.
• CEO's Experience: The designated Chief Executive Officer (CEO) must have relevant experience in the field related to the NPO's objectives.
• Documentation: The application requires detailed documents, including resumes, affidavits, and undertaking forms.
How much does it cost to register an NPO?
The total legal cost for registering a Section 42 company with the SECP is transparent and fixed. The fees are as follows:
• Name Availability: Approximately Rs. 1025.
• License Fee: A non-refundable challan fee of Rs. 150,000 must be paid to the SECP.
• Incorporation Fee: A final fee of Rs. 30,000 is required for the legal incorporation of the NPO.
What are the Tax Benefits for an NPO and its Donors?
Registering a Section 42 company unlocks crucial tax benefits under the Income Tax Ordinance, 2001.
• Tax Exemption for the NPO: An NPO can receive a 100% tax credit on its income under Section 100C if it is approved by the Federal Board of Revenue (FBR) under Section 2(36). This applies to income from donations, contributions, and subscriptions, provided the funds are used exclusively for the organization's charitable objectives and do not benefit any private individuals.
• Tax Credit for Donors: Donors can claim a tax credit on their donations under Section 61. The tax credit is calculated at the average tax rate on the lower of the actual donation amount or a certain percentage of their taxable income (30% for individuals, 20% for companies).
Why is Pakistan Center for Philanthropy (PCP) Certification Important?
While separate from the SECP registration, PCP certification is a crucial step for an NPO's credibility and financial benefits. This certification is a mark of trustworthiness and reliability that is often a prerequisite for an NPO to become eligible for the tax exemptions under Section 2(36) and for its donors to claim their tax credits under Section 61. To apply for this certification, an NPO must have been registered for at least one year.
What are the other benefits of a registered NPO?
Beyond tax advantages, a registered Section 42 NPO benefits from:
• Limited Liability: It provides legal protection for founders and directors by separating their personal assets from the organization's financial liabilities.
• Formal Governance: An NPO is managed by a Board of Directors, a more democratic and regulated structure compared to other forms of non-profits.
• Enhanced Credibility: The formal legal structure significantly enhances the organization's credibility, making it more appealing to donors and grant-making bodies.
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