Non-Profit Entities in Singapore
A non-profit organisation, the most common form of which in Singapore is a Volunteer Welfare Organisation (VWO), is an organisation whose main purpose is to engage in social interest activities and one where commercial profit is not its main priority. In Singapore, there is no legal definition of a VWO, but non-profit organisations are typically registered as a society under the Societies Act, a company limited by guarantee under the Companies Act, or as a Trust (under a trust deed or under the Trustees Act).
When the VWO or non-profit organisation’s activities generate a profit in excess of its expenses (called a “surplus”), these monies are retained by the entity for its future activities— unlike a profit making organisation, a non-profit organisation /VWO does not distribute its earnings amongst its members.
In setting up and registering a VWO, you will have to take the following matters into consideration.
1. Characteristics of Volunteer Welfare Organisations
In Singapore, VWOs:
- Are governed by the Board of Trustees, the Managing Committee or Governing Council, generally comprising individuals who have specific experience and serve the organisation in a fiduciary capacity;
- Generate benefits for certain sectors of the society, outside the membership of the organisation
- Are prohibited from distributing any monetary surpluses or profit to their own members eg. the directors, shareholders; and
- May receive tax emptions IF successfully accorded a “Charity” status ? VWOs that are set up exclusively for charitable purposes and carry out activities to achieve these purposes may apply to be registered as “charities”. Under the Charities Act, it is mandatory for the VWO to apply for charity registration within three months of its establishment. You may refer to the Charity Portal maintained by the Commissioner of Charities (COC)’s office or the Charities Unit for more information on charity status and the application procedures. As a Charity, the organisation can then register as an Institution of Public Character (IPC).
2. Registration of a non-profit organization eg. VWOs
One of the main benefits of registering a VWO is that it is generally easier to engage in sustainable public-interest activities as a registered entity. Another benefit is that, because only legal entities can enter into contractual agreements (e.g. leases, purchasing contracts) that are binding upon and benefit the organisation directly as a whole, a VWO that is registered is able to derive benefits from such arrangements. If an organisation is not a registered entity, the individual persons concerned may have to accept contractual obligations/liabilities in their personal capacities. Further, your fundraising capabilities as a VWO are limited because without being a registered entity, it would be almost impossible for you to raise funds from non-members and members of the public. If your VWO is not a registered entity, you won’t be able to claim tax exemptions.
Finally, because registering your VWO means working with an established set of legally binding rules that provide clarity, it is viewed more favourably not only within the organisation but also to third parties and the public. Most potential donors and philanthropists, for instance, require the organisation that is championing a cause to be registered before these donors would contribute any money to the cause. A registered organisation is publicly accountable once it is registered, therefore inspires greater confidence in the public.
In view of how advantageous it is to register your VWO, in structuring and considering the registration of your VWO it is important to note there are 3 forms of registered organisations that your VWO can take— thus the eventual choice of what to register your VWO as depends on factors including the size and complexity of the organisation, how funding is planned to be obtained etc.
Your options as a VWO
- Register as a Society
Registration can be done at the Registry of Societies (ROS) website.
- Incorporate as a Company Limited by Guarantee
You would have to first apply for a new Company Name with ACRA, as well as apply to incorporate a Company Limited by Guarantee.The approval of the company name may take up to 14 days (or longer, depending on the circumstances), whereas the incorporation may take as little as 15 minutes after the payment of all fees (pending the requisite approvals by the authorities).
- Form a Trust (/ a Charitable Trust)
Under the Trustees Act, you may set up a trust for purposes of the VWO’s activities. We can engage legal help for you in preparing the necessary administrative papers.
3. Registering your VWO as a Public Company Limited by Guarantee
What is a Company Limited by Guarantee?
A public company limited by guarantee carries out non-profit-making activities tied to national or public interests, such as for promoting art, charitable causes etc. Such a company has no share capital, and has members rather than shareholders— the members of the company guarantee/undertake to contribute a predetermined sum to the liabilities of the company in the event of the company being wound up. The sum set aside as guarantee may be as low as S$1.
A Singapore company set up as a public company limited by guarantee must include the suffix “Limited” in its name. If you wish to remove the “Limited” in your organisation’s name after incorporation, one condition is that the company does not distribute profits.
By law, a company limited by guarantee is a legal entity existing in its own right, separate and distinct from the individuals who are involved with it. It may sue, or to be sued, in its own name; it can enter into contracts, and can own property all in its own name.
Companies limited by guarantee are typically engaged in non-trading, charitable, religious, scientific, or artistic activities. A company limited by guarantee as a non-profit organisation has the advantages of incorporating a separate legal entity with limited liability for its members, and is a desirable structure for these reasons.
Characteristics of Public Company Limited by Guarantee
- Requires at least 2 directors, 2 members, and qualified Company Secretary. One director and secretary must be ordinarily resident in Singapore i.e. a Singaporean Citizen, a Singaporean Permanent Resident. A foreigner who wishes to act as a local director of a company has to already hold an Employment Pass or a Dependant Pass
- Required to have a Memorandum & Articles of Association setting out the objects and by-laws of the organisation.
- Required to audit accounts annually.
- Required to hold Annual General Meetings.
- Required to file its Annual Returns with ACRA.
Public companies limited by guarantee are registered with Accounting and Corporate Regulatory Authority (ACRA) and are governed by the Singapore Companies Act. You should seek professional assistance if you are interested in registering a Public Company Limited by Guarantee in Singapore.
The Advantages of Public Company Limited by Guarantee :
- Independent legal personality from its members, and having the ability to enter into contracts, agreements, leases etc.
- Members’ liability is restricted
The Disadvantages of Public Company Limited by Guarantee:
- Subject to ongoing public disclosure obligations and statutory control
- Annual reporting and compliance requirements are more complex, including audit requirements that are not always suitable for small groups— usually requires hiring significant professional services for such matters
If surplus funds are from members’ contributions, organisations registered as companies limited by guarantee in Singapore are exempt from income tax; additionally, if over 50% of gross revenue receipts are from members and are not tax-deductible for members, the same may apply. For FULL tax exemption, the company must apply for a Charity status after registering.
There are tax exemption schemes, for instance for approved non-profit organisations for an initial period of not more than 10 years (subject to conditions), or the income tax exemption for Registered Charities and Exempt Charities, without having the need to meet the 80% spending rule (with effect from YA 2008).
4. Registering your non-profit organisation as a Society
The definition of a “society” is a club, company, partnership or association of 10 or more persons, whatever its nature or objective, and not already registered under any other law. Societies are suitable for membership or volunteer based groups, especially smaller groups not heavily dependent on donations and external funding.
- A minimum of 10 persons are required to form a society.
- 3 key office bearers are mandatory, i.e. President, Secretary and Treasurer who should be Singapore Citizens or Singapore Permanent Residents.
- Required to have a Constitution that governs the society
- Required to audit accounts annually.
- Required to file Annual Returns with Registrar of Societies
- Does not enjoy a separate legal identity status, that means members are exposed to liability
Societies are registered with the Registrar of Societies (ROS) and are governed by the Singapore Societies Act. Rikvin can provide you with professional advice in registering a Society in Singapore.
- Quick, easy and inexpensive to establish
- More fluid, allowing donors the autonomy to get into arrangements without having to comform to the confines of a public company limited by guarantee
As with public companies limited by guarantee, societies registered with the Registrar of Societies (ROS) are exempt from income tax if surplus funds are from members’ contributions and/or if over 50% of gross revenue receipts are from members and are not tax-deductible for members. Again, for full tax exemption, the society must apply for “Charity” status after its registration.
5. Registration of a Charitable Trust
A trust is an arrangement in a written document (the trust deed) where an owner or founder donates property and/or funds to a Board of Trustees who administer the assets for the benefit of other people (beneficiaries) for a stated objective. A charitable trust is a type of purpose trust in that it promotes a purpose and not benefits to specific individuals.
You might have questions about who should register a charitable trust, in which case it is crucial for you to first and foremost know that charitable trusts in Singapore are a recognised legal entity, typically set up by an individual or individuals who set aside some of their assets for charitable cause(s) in a structured and long-term manner, for instance by the administration of an educational scholarship or bursary. The trustees’ primary duties are to hold and invest funds or other similar property and to disburse the income from available funds to the beneficiaries of that trust.
Structurally, it typically has few significant risks or liabilities arising out its operations and transactions except for very few matters like when the organisation buys or leasees real estate, enters into contractual relationships for the procurement of professional services, etc.
- Required to have a board of trustees.
- Required to have a trust deed and the constitution of the charitable trust setting out the framework within which the trustees and the organisation must operate.
Trusts are licensed by the Monetary Authority of Singapore (MAS) and are governed by the Singapore Trust Companies Act, which means legal and professional advice may be required in setting up such a trust. Rikvin can render you such professional advice and can procure legal advice for you in registering your Charitable Trust in Singapore.
- Public disclosure requirements are limited– no audit requirements are necessary unless these are required by the trust deed
- No independent legal personality
- Control remains with the trustees, thus it allows for greater flexibility— usually the key person involved with the family or individual setting up the trust, thus no public at large / members’ approval is required in the execution or operations of such trust
- Time-consuming and expensive to establish, not in the least because it requires professional assistance, especially in engaging the lawyers to draft and structure the trust etc.
- Because control is with the trustees and there are little disclosure/accountability requirements in respect of the public, any abuse may be harder to track
6. Applying for the “Charity” status
After your VWO— whether it be a society, company limited by guarantee or trust— has been registered and has obtained a legal status in Singapore, it may be granted a “charity” status by the Commissioner of Charities if it fulfills the requirements.
Charitable purposes may be classified into 4 generic categories:
- The relief of poverty
- he advancement or encouragement of education
- The advancement of a certain religion
- Other beneficial purposes to the community, like:
- the advancement of health;
- the advancement of citizenry or community development;
- the advancement of the arts, heritage or science;
- the advancement of environmental protection or improvement;
- the relief of those in need – youth, aged, individuals in ill health, the disabled, those facing financial hardship or other disadvantages and
- vthe advancement of animal welfare.
All charities in Singapore are governed by the Singapore Charities Act and must be registered with the Commissioner of Charities, without any charge, within 3 months of being established. The processing time takes about 3 months.
All registered charities:
- Are required to submit financial statements and an Annual Report detailing activities conducted and proposed future plans
- Are required to ensure that accounting and donations records are maintained properly
- Are required to submit Annual Returns
- Are required to hold Annual General Meetings
- Automatic tax exemption.
- Fund-raising advantages, because many grant-giving trusts and foundations are only allowed to provide funding to recognised charities with a “charity” status. Further, the term “charity” may be very persuasive in encouraging the general public to donate.
7. Institutions of a Public Character (IPC) status
An approved IPC is an non-profit organisation with a “charity” status whose activities are beneficial to the community in Singapore as a whole, and not merely limited to group interests based on ethniticity, beliefs or religion/ faith. IPCs are approved by the Commissioner of Charities to receive tax-deductible donations. Most IPCs are charities, although others may be sports associations. The processing time on applying for IPC status takes about 2 months.
The following may apply for IPC status:
- a hospital not operated or conducted for profit;
- a public or benevolent institution not operated or conducted for profit;
- a public authority or society not operated or conducted for profit and which is engaged in research or other work connected with the causes, prevention or cure of disease in human beings, where the gift is for such activities;
- a university or a public fund for the establishment, maintenance, enlargement or improvement of a university;
- an educational institution not operated or conducted for profit, or a public fund for the establishment, maintenance, enlargement or improvement of such an educational institution;
- a public or private fund for the provision, establishment or endowment of a scholarship, exhibition or prize in a university, or an educational institution not operated or conducted for profit;
- a public fund established and maintained for the relief of distress among members of the public;
- a charitable institution or a body of persons or a trust established for charitable purposes only; or
- an organisation not operated or conducted primarily for profit which is engaged in or connected with the promotion of culture or the arts or with the promotion of sports.
On acquiring IPC status, all IPCs:
- Are required to be administered by a group of independent trustees with impartial control
- Are required to maintain Donation Records
- Are required to post financial and non-financial information online
- Are required to submit audited financial statements
- Are required to submit an Annual Return of donations
- Are required to submit an Annual Report detailing the use of donation money and proposed future plans
- Are required to issue Tax Deduction Receipts to donors upon receiving tax deductible donations
Donors should note that not all registered charities are approved IPCs. Thus, only donations to charities that are approved IPCs are income tax deductible (i.e. donors are given tax deduction for donations made to these organisations).
Apart from cash donations, the following types of donations to IPCs normally qualify you for a tax deduction:
- Donations of Shares
- Donations of Computers and IT equipment
- Artefact Donations
- Land and Building Donations
Do note also that if the donations or gifts are for a “foreign charitable purpose”, they are not tax deductible even though they are made to an approved IPC in Singapore.
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