Singapore Foundation: Introduction
A Singapore foundation, also known as a charitable trust, is a legal entity that charities and non-profit organizations can choose to incorporate. Typically, it will provide grants or monetary assistance to individuals and organizations for charitable purposes.
For a typical formation of a local foundation, an individual or legal entity (Settlor), transfers the legal ownership of assets (Trust Property) to another person or persons (Trustees) to hold for a charitable intention as stipulated in the Trust Instrument (Trust Deed). The Trustees will be required to manage the assets in the foundation according to the terms stated in the Trust Instrument.
Tetra Consultants can assist our international clients to set up a Singapore foundation.
Why set up a foundation in Singapore?
- In a local foundation, a donor (Settlor) can choose to transfer his/her assets to the Trustees for a specified period of time such that a portion of the interest earned from the assets are used for a charitable purpose or transferred to other charities.
- The main purpose of a foundation is to hold, invest and disburse funds to a specific group of people for a charitable purpose. Hence, it may be advantageous to set up a foundation if you wish to set up a scholarship or distribute wealth to the needy. Typically, individuals choose to start a foundation to support a specific cause and provide cumulative monetary benefits over a long period of time. Families may choose to set up a foundation to establish their legacy and express commitment towards improving and contribution back to the society. This can help to build their reputation, especially if they are operating a family business.
- Furthermore, there are also tax benefits to setting up a foundation. Since the ownership of the assets have been transferred to the Trustees, the donor (Settlor) will not be required to pay income tax on the profits earned through the Trust. If the foundation is a registered charity, the foundation can be exempted from tax. The donor can also apply for income tax relief based on the amount donated.
Features of a Singapore foundation
- Unlike other types of Trust, there is no limit to the duration of a Singapore foundation.
- It does not have individual beneficiaries. Instead, it promotes a charitable purpose.
- Since a foundation is a charitable trust, Trustees in a foundation will be regulated under the Trustees Act.
- A foundation must have at least three Trustees.
- For the foundation to be eligible as a registered charity, the foundation must meet the following conditions:
- The foundation’s purpose must be only for the aim of charity.
- It is compulsory to have a minimum of 3 members on the board of management and of the 3 members, 2 of them need to either hold Singapore citizenship or permanent residency.
- The foundation needs to be entirely, or significantly advantageous to local communities in the country.
How to register a foundation in Singapore?
Step 1: Prepare the Trust Instrument
- A Singapore foundation is formed when the Settlor transfers legal control of the assets to the Trustees, for a charitable purpose. To set up, the Settlor will have to prepare the Trust Instrument (Trust Deed). The Trust Instrument will clearly state the rights that the Trustee has with the assets and the obligations that need to be carried out by the Trustee to promote a charitable cause or donate to other charities.
- Tetra Consultants can assist you in drafting the Trust Deed, which will contain information about the Governing Board members and Trustees, charitable purpose of the Trust, conflict of interest policy, quorum for meeting and procedure in the case of dissolution of charity status.
Step 2: Search for the availability of foundation name
- The name of your foundation cannot be similar to an existing charity or contain only a foreign language.
- Tetra Consultants will search for the availability of your foundation name through the Charity Portal.
Step 3: Register as a charity
- Once the availability of your foundation name has been confirmed, Tetra Consultants will assist you in filling up the application form and submitting the Trust Instrument through the Charity Portal.
- After the Commissioner of Charities has approved your application, your new foundation will be considered a registered charity.
Step 4: Apply for the relevant grants
- There are a few grants announced in the news by the government to support charities in different areas such as training courses, consultancy services and audit management.
- Tetra Consultants will apply for the relevant grant based on the needs of your foundation.
- A registered charity in the country is automatically exempted from income tax and is not required to file an income tax return. However, they will still be required to register for goods and service tax (GST) if their annual taxable supplies exceed SGD1 million.
- In addition, all domestic foundations are required to submit an annual report and a Governance Evaluation Checklist (GEC) to the Commissioner of Charities.
- Both documents must be submitted through the Charity Portal within 6 months after the end of each financial year. All submitted documents will be published on the Charity Portal to promote transparency of charity organizations by allowing the public to view the financial information of these charities.
- The charity’s annual report should be prepared in accordance with the requirements set out in the Charities (Accounts and Annual Report) Regulations 2011. Generally, the annual report will include content relating to the governing board members, a report by the governing board and all audited financial statements.
- The GEC will state the extent of compliance of the charity with the guidelines and principles stated in the Code of Governance for Charities and IPCs. In the case that the charity fails to comply with certain guidelines, the charity must explain the reasons and its future plans to address the non-compliance.
- Trustees in the foundation are required to keep and maintain audited accounts under the Trustees Act. The accounts must be filed with the Public Trustee annually.
Disadvantages of setting up a foundation in Singapore
Not a separate legal entity
- A foundation is not a separate legal entity from its Trustees. This means that the Trustees will be held liable for all the debts and liabilities incurred by the foundation. This is not desirable if the charity conducts many transactions or enters into numerous contacts as it could potentially expose the Trustees to unnecessary risks.
- If a foundation is registered as a charity, it will have to disclose its annual report and all financial statements to the public. This is to ensure transparency of all charitable organizations in the nation.
No individual beneficiary
- There cannot be individual beneficiaries in a Singapore foundation. The beneficiaries must be a charity or a specific group of people that meet the eligibility criteria.
Alternatives to a Singapore foundation
- If your main objective is to set up a non-profit organization for charitable purpose (i.e. a charity), a foundation is not the only option. You can also choose to incorporate a company limited by guarantee or a society.
Company limited by guarantee
- A company limited by guarantee has no shareholders and does not issue shares. Instead, the company has members that undertake to contribute to the liabilities of the company in the case of insolvency.
- A company limited by guarantee must have at least one resident director, one local company secretary and 2 members. If the company wishes to be registered as a charity, it must do so within 3 months after incorporation.
- The main advantage of a company limited by guarantee is that members will be subjected to limited liability. Since a company limited by guarantee is regarded as a separate legal entity, members of the company will only be held liable to the amount they had guaranteed to contribute.
- Since a company limited by guarantee is considered a corporate body, it will have to adhere to the annual corporate governance procedures stipulated by the Accounting and Corporate Regulatory Authority (ACRA). This includes holding an Annual General Meeting (AGM) and lodging its AGM resolutions and any change in company particulars or officeholders. A company limited by guarantee can be more expensive and time-consuming to establish and maintain as compared to a foundation or a society.
- Unlike a foundation or a society, a company limited by guarantee can sue or be sued.
- A society can be established by registering with the Registrar of Societies under the Societies Act. There must be at least 10 members in the society.
- Generally, the three key officeholders of a society, the president, general secretary and treasurer must be local citizens. However, these officeholders can be permanent residents if the society is one of the following:
- A religious society.
- A society which membership is limited to a specific race.
- A society that promotes social causes related to gender or sexual orientation.
- A society that promotes the use or education of a specific language.
- An arts group, except those that promote classical work.
- The majority of the committee members must also be Singapore citizens.
- A society is a more flexible entity as it can decide on its own constitution. The constitution, including the charitable intentions of the society, will be submitted to the Registry of Societies during registration.
- Like a foundation, the society is not a separate legal entity. This means that all members of the society can be held personally liable for the debts and liabilities incurred.
- Generally, it is advisable to set up a society for a volunteer-based group that advocates a specific purpose and mission and has close connections with the community.
Looking to set up Singapore Foundation?
- Contact us to find out more about how to set up a Foundation in Singapore. Our team of experts will revert within the next 24 hours.
What is the difference between a charity and a foundation?
- The main area of difference between the two is the fact that the charity performs charitable activities itself, directly. On the other hand, a foundation can choose whether or not to carry out direct activities for a charitable purpose. Typically, a foundation can choose to either contribute the income earned from its assets to other charities or use them directly for a charitable purpose.
- A foundation can be registered as a charity in Singapore. This will allow it to be exempted from income tax.
What are the types of charities in Singapore?
- There are three main business entities for a charity in Singapore – a company limited by guarantee, a society and a foundation (charitable trust). To register as a charity, the organization must submit its governing instrument, together with the application form, to the Commissioner of Charities. The governing instrument will be the Constitution for a company limited by guarantee and a society; and a Trust Instrument for a foundation.
- All registered charities must have at least 3 governing board members and are required to submit annual reports to the Commissioner of Charities.
Can charities earn profit?
- Yes, charities can generate profit from selling products in fundraising events. However, all profits earned by the charity must be used to promote and carry out activities related to the organization’s charitable purpose. They cannot be distributed to its own members.
Is an audit required for a foundation in Singapore?
- Yes, all local foundations must have their accounts audited according to the Charities Act. However, there is no requirement for the charity to be audited by a public accountant unless the annual income or expenditure of the charity exceeds SGD500,000 or it is stipulated otherwise by the Commissioner of Charities. Foundations in Singapore are required to submit an annual report consisting of audited financial statements to the Commissioner of Charities within 6 months after the end of each financial year.
Can a Singapore foundation last forever?
- Yes, a foundation can last forever. The charitable trust will continue to contribute to the specified group of people even after the death of the Settlor.
How much does it cost to start a foundation in Singapore?
- Although there is no minimum amount required to set up a foundation in Singapore, it is not recommendable to start a foundation if you only have a small amount of funds. Generally, individuals that set up a foundation will set aside at least a few hundred thousand dollars for the foundation’s assets.
- As for Tetra Consultants’ engagement fees, this will depend on the exact services required from Tetra Consultants. Our fees are inclusive of government fees and all fees will be clearly stated in our engagement letter prior to the start of the engagement. Tetra Consultants believes in transparency with our valued clients and there are no hidden fees.
How do I get a tax exemption for a foundation in Singapore?
- When you register your foundation as a charity with the Commissioner of Charities, it will automatically receive a tax exemption under the Income Tax Act. You will not be required to file a tax return with the Inland Revenue of Singapore (IRAS). However, you will still be required to pay GST if your foundation’s annual taxable supplies exceed SGD1 million.