Author: Lawyer Zhang Jingxinyue | PRC Practising Lawyer | Singapore Registered Foreign Lawyer
Note: As wealth has grown across Asia, charitable initiatives and foundations have increasingly attracted the attention of successful individuals. More high-net-worth individuals are establishing foundations to bring family members together through charitable activities, exchange industry knowledge and experience, cultivate the next generation's sense of responsibility and participation, preserve family values, and give back to society. See How the Ma Family's Wealth Arrangements Illustrate Tax Planning: Why Establish a Charitable Foundation in Singapore | Zhongxin Legal News.
From a legal perspective, a foundation is a non-profit organisation that makes donations to organisations, institutions or individuals for charitable purposes such as science, education, culture and religion.
Based on their sources of funding, Singapore foundations can generally be divided into two types: private foundations and public foundations.
- A private foundation is funded by a family, individual or company. In Singapore, the largest private foundation is The Lee Foundation, established in 1952 by the prominent philanthropist Lee Kong Chian. It supports education, healthcare and medical causes, and disaster-relief efforts. The foundation is also a shareholder of OCBC Bank and Singapore Press Holdings.
- A public foundation receives funding from various sources, including private foundations, individuals and government agencies. The Community Chest is an example of a public foundation, and most community foundations are also public foundations.
This article explains how to establish a charitable foundation in Singapore.
01 Singapore's Comprehensive Charitable-Law Framework
Singapore's charitable-law framework has three levels: the Charities Act, the Charities Regulations and Charities Guidance. The Charities Act is the primary legislation governing charities. It was largely developed with reference to UK charity law and has been amended several times, with the latest major revision in 2007. It covers the regulatory framework, registration and conduct of charitable organisations, charitable activities and governance requirements for different types of organisations. The Charities Regulations provide supporting rules under the Charities Act. There are currently six sets of supporting regulations covering the registration and administration of charities, accounts and annual reports, fundraising activities, fees for accessing charity information, large charities and institutions eligible for tax-deductible donations. Charities Guidance is not legally binding, but it supplements areas where the legislation is less operationally detailed or does not provide a clear answer, and offers practical guidance for different types of charitable organisations.
02 How to Establish a Charitable Foundation in Singapore?
Establishing a charitable foundation in Singapore involves three steps.
(一) Step One: Choose an Appropriate Registration Structure
A foundation is a type of non-profit organisation (NPO). In Singapore, an NPO may generally be structured as a company limited by guarantee, a charitable trust or a society. The appropriate structure depends on factors including the organisation's scale and complexity, potential legal liabilities and its intended fundraising methods.
- Company Limited by Guarantee
A company limited by guarantee is a common registration structure for foundations. It is a separate legal entity and provides limited liability protection to its members. It has no share capital and no shareholders. Its members undertake to contribute a specified amount towards the company's liabilities if it is wound up. The guaranteed amount may be as low as SGD 1.
Because a company limited by guarantee is a separate legal entity, independent of the individuals involved, it may sue or be sued in its own name, enter into contracts and own property in its own name.
Corporate Income Tax
If a foundation registered as a company limited by guarantee derives more than 50% of its gross income from members, it is generally subject to income tax only on the surplus derived from non-members. To obtain full tax exemption, the company must apply for charitable status after registration.
Regulatory Requirements
- At least two directors, two members and one company secretary are required. At least one director and the company secretary must be ordinarily resident in Singapore, meaning a Singapore citizen or Singapore permanent resident. A foreign national serving as a company director must hold an Employment Pass or Dependant's Pass.
- A constitution must be drafted, setting out the organisation's objectives and governing rules.
- An annual general meeting must be held.
- The accounts must be audited annually and the annual return submitted to the Accounting and Corporate Regulatory Authority (ACRA).
Although a company limited by guarantee has separate legal personality and protects members from personal liability, it is subject to continuing public-disclosure and regulatory obligations. Its annual reporting requirements are more complex than those of an ordinary company, so professional assistance is often required and this structure may be less suitable for small groups.
2. Charitable Trust
A charitable trust is a public-benefit trust under which the settlor, usually the founder, transfers property to trustees for charitable purposes. The trustees manage the property in their own names and carry out charitable activities in accordance with the settlor's wishes. A common use of a charitable trust is to administer scholarships or educational grants. Its assets are usually relatively simple, such as bank deposits and financial investments. Because the trustees are responsible for implementing the trust deed and entering into contracts on behalf of the trust, this structure may be unsuitable where the trust's activities involve a series of contracts and substantial liability risks.
Corporate Income Tax
Once a charitable foundation registered in Singapore obtains charitable status, its surplus is fully tax exempt.
Regulatory Requirements
- A board of trustee-directors is required.
- A trust deed must be prepared as the constitution of the charitable trust, setting out the operating framework that the trustees must follow.
Control of a charitable trust rests with the trustees, who do not need to report to a wider membership. The trust generally does not need to publicly disclose financial information unless required by the trust deed, and it does not necessarily need an auditor or audited financial statements. However, a charitable trust has no separate legal personality, and establishing one can be costly and time-consuming, usually requiring professional assistance.
3. Society
A society is defined as a club, partnership or association consisting of 10 or more persons. This structure is more suitable for clubs or volunteer groups, particularly small groups with strong community ties. Few foundations adopt this structure.
Corporate Income Tax
If a society registered with the Registry of Societies (ROS) derives more than 50% of its gross income from members, it is generally subject to income tax only on the surplus derived from non-members. To obtain full tax exemption, the society must apply for charitable status after registration.
Regulatory Requirements
- At least 10 people are required to form a society.
- The three principal office-bearers—the president, secretary and treasurer—must be Singapore citizens or Singapore permanent residents.
- A constitution governing the society must be drafted.
- The accounts must be audited annually and an annual return submitted to the Registry of Societies.
Establishing a society is relatively quick, simple and inexpensive, but it does not have separate legal personality, which may expose members to liability concerns. Donors may also prefer a more formal corporate structure, such as a company limited by guarantee, so societies are usually smaller in scale.
(二) Step Two: Apply for Charitable Status
After a foundation is registered in Singapore, it must apply for charitable status if it wishes to obtain full tax exemption. When reviewing an application, the Commissioner of Charities will assess whether the organisation's objectives fall within the scope of charitable purposes.
Charitable purposes can be divided into four broad categories:
- The relief of poverty;
- The advancement of education;
- The advancement of religion; and
- Other purposes beneficial to the community that are expressly recognised as charitable purposes, including:
- The advancement of health;
- The advancement of patriotism and community development;
- The advancement of the arts, heritage or science;
- The protection or improvement of the environment;
- The relief of the elderly, young, sick or disabled; and
- The advancement of animal welfare.
Charitable status concerns an organisation's eligibility, not its legal structure. It brings several benefits, including:
- To develop Singapore as a charitable hub, all charities registered in Singapore enjoy automatic tax exemption.
- It gives the organisation greater status and credibility.
- Charitable status facilitates fundraising. Many grant-making trusts and foundations can provide funding only to organisations with charitable status.
Regulatory Requirements
Once charitable status is obtained, every charity must:
- Keep proper accounting and donation records;
- Submit an annual report;
- Hold an annual general meeting;
- Disclose fundraising information online; and
- Submit financial statements and an annual report detailing its activities and proposed future plans.
(三) Step Three: Apply for Institutions of a Public Character (IPC) Status
If a foundation falls within one of the following categories, it may proceed to apply for IPC status:
- A hospital operated on a non-profit basis;
- A public charity operated on a non-profit basis;
- A non-profit research institution conducting research into the causes, prevention or treatment of human disease;
- A university or a public fund established to establish, maintain or improve a university;
- A non-profit educational institution, or a public fund established to establish, maintain, expand or improve such an institution;
- A public or private fund established to provide, establish or donate scholarships, exhibitions or prizes at a university or non-profit educational institution;
- A public fund established to relieve human suffering;
- A charity or trust established solely for charitable purposes; or
- A non-profit institution promoting culture, the arts or sport.
An IPC is a non-profit organisation with charitable status whose activities must benefit the Singapore community as a whole, rather than serving the interests of a particular racial, belief-based or religious group. Donors—including individuals, companies, social organisations and funds—may receive a tax deduction equal to 2.5 times the amount donated when they donate to an IPC.
The following types of donations will generally qualify the donor for a tax deduction:
- Cash donations;
- Share donations;
- Computer donations;
- Donations of artefacts;
- Donations under the Public Art Tax Incentive Scheme; and
- Donations of land and buildings.
Regulatory Requirements
Every IPC must:
- Issue a tax-deduction receipt to the donor after receiving a tax-deductible donation;
- Maintain donation records and submit an annual donation return;
- Submit an annual report detailing how donated funds were used and the proposed future plans;
- Submit audited financial statements; and
- Publish financial and non-financial information online.
In summary:
- A company limited by guarantee is registered with the Accounting and Corporate Regulatory Authority (ACRA) and governed by the Singapore Companies Act;
- A society is registered with the Registry of Societies (ROS) and governed by the Societies Act;
- A trust is licensed by the Monetary Authority of Singapore (MAS) and governed by Singapore's trust-company legislation; and
- A foundation that is a charity or IPC is also subject to the oversight of the Commissioner of Charities.
Sources: NewArkSG and Love and Dreams.
Editor: Xun Guanjia
For advice on establishing a foundation in Singapore, applying for charitable or IPC status, and maintaining operational compliance, please contact a professional adviser at Zhongxin Legal News.
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This article is for information only and does not constitute formal legal advice.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.