Setting Up a Non-Profit Entity in Singapore
Singapore law allows for creation of non-profit organizations (NPO) dedicated for activities of social or public interest. These organizations’ aim is not of making profit. If there are surplus funds then it is not distributed among its members, but, retained and used for its future activities.
NPOs are also referred to as Voluntary Welfare Organizations (VWOs). According to Singapore law an NPO can take form of
- A Public Company Limited by Guarantee
- A Society
- A Charitable Trust
NPO Registration as a Public Company Limited by Guarantee
A group of dedicated people can come together and form an NPO as a public company limited by guarantee. Its aim is to conduct religious, scientific, or artistic activities which are important for nation or to public.
These companies are registered with Accounting and Corporate Regulatory Authority (ACRA)under the Singapore Companies Act. It is advisable to use professional help such as SBS Consulting in registering a Public Company Limited by Guarantee in Singapore to as an NPO.
Company Limited by Guarantee as an NPO
- It has a separate legal existence from its members.
- It can sue and be sued in its own name.
- The liability of its members is limited.
- It has the rights of a natural person.
- It can own property and estate for its own use.
- Its members give guarantee or undertaking of contributing a sum to the liabilities of the company. The sum, which can be as little as S$1, becomes due when the company is needed to be wound up.
- It is governed by a managing committee, a board of trustees or the governing council.
- Such an entity exists independently of the government
- The company must have at least 2 directors, 2 members, anda qualified Company Secretary.
- It must submit Memorandum & Articles of Association at the time of registration.
- A director and company secretary must be Singaporean citizens or permanent residents. Failing that the appointed persons must possess Employment Passes or a Dependant Passes.
- It must file its annual returns with ACRA.
- It must hold its annual general meeting without fail.
- The company name must include term ‘Limited’ as a suffix in its name.
- It has to follow public disclosure obligations and statutory control imposed by the Singapore authorities.
- Annual reporting requirements mandated for these companies are complex and for small groups, it may prove constricting.
Taxation for an NPO
These entities are exempt from income tax if the contributions by its members give it surplus funds, or 50% of its gross tax receipts are from members and they are not tax-deductible for them. After registration, the company can apply for full charity status. Such a status makes it eligible for full tax exemptions.
NPO registration as a Society
Ten or more individuals can come together to form a society which can take form of a club, company, partnership or an association. Generally, smaller groups that are not that dependent on donations and external funding use this business structure. Societies are incorporated with the Registrar of Societies (ROS) under the Singapore Societies Act. It is advisable to take professional help while registering a Society in Singapore
Statutory Requirements Imposed by ACRA
- At the minimum ten individuals are required to incorporate a society.
- It does not have separate legal identity than its members.
- It is mandated by law for a society to appoint, a President, Secretary and Treasurer who are Singapore citizens or its permanent residents.
- A society must audit its accounts annually.
- It must file its annual returns with the Registrar of Societies.
- There must be a constitution that governs the activities of society.
- It is quick and easy to register, but donors prefer to donate to a public company limited by guarantee.
Taxation for Societies
Societies are exempted from income tax, if the surplus funds are from member’s contribution, or 50% of revenue receipts are from members and they are not tax-deductible for them. For full tax exemption, a society must apply for a charity status.
NPO Registration as a Charitable Trust
A charitable trust stands for and supports a purpose. It is not setup for the benefit of a specific individual.
Features of a Charitable Trust
- A charitable trust must have a board of trustees.
- It must have a trust deed or the constitution which works as the framework for the activities of the trustees.
- It is not a separate legal entity and its trustees bear the liabilities arising out of its activities.
- Anyone can set it up for the purpose of charity, for example, distributing scholarships or grants.
- It is useful in limited fashion if the trustees were meant to hold and invest funds and similar property and distribute the income.
- It is not a very useful device if its activities or transactions lead to increase in its liabilities.
- Its disclosers are public and limited, unless mentioned in the trust deed.
- It is expensive to establish.
- The control of the charitable trust lies with its trustees. They are not accountable to other members of the trust.
- After the registration of non-profit entity, it can apply for the charitable status to Commissioner of Charities.
Benefits of Charity Status
- A registered charity entity is automatically exempted from all taxes.
- Fund raising becomes easy.
- It gives status and credibility to the entity.
- A charity in Singapore is governed by the Singapore Charities Act
- It must be registered with the Commissioner of Charities within 3 months of its formation.
- It takes three months to process the application for charity status.
- There are four main charitable categories:
- The relief of poverty
- The advancement of education
- The advancement of religion
- Other purposes beneficial to the community
- The following are well recognized charitable purposes:
- The advancement of health
- The advancement of citizenship or community development
- The advancement of arts, science or heritage
- The advancement of environmental improvement or protection
- The relief of those in need by reason of youth, age, disability, ill-health, financial hardship or other disadvantages
- The advancement of animal welfare.
- Registering a charity is free and needs no money under the Charities Act.
- A charity must submit its financial statements and annual returns.
- It must also file annual report detailing its activities and future plans.
- It must maintain proper record of donations and accounts.
- It must hold annual general meeting.
- It is mandated for it to disclose its fund raising activities online.
Taxation for a Charity
All registered charities are now exempted from taxes.
Applying for Institutions of a Public Character (IPC) status
An official IPC is a non-profit organization with a charity status. It works for communities benefits without excluding anyone. It can receive tax-deductible donations. Most of these organizations are charities or the sports associations.
Any organization not operated or conducted for profit can apply for IPC status. It takes 2 months to process IPC status.
Statutory Compliance for IPC
All IPCs must:
- Give receipts for tax deduction to donors upon receiving donations which are tax deductible.
- Maintain records of donation.
- Disclose its financial and non-financial information online.
- Submit audited financial statements and annual returns of donations.
- File an annual report giving the use of donation money and organization’s future plans.
- Be governed by independent trustees.
Tax deductible donations
Only donations to an entity with Institution of a Public Character status are tax deductible. Donations made to a registered charity without IPC status are taxed.
- Computer Donations
- Cash Donations
- Land and Building Donations
- Shares Donations
- Public Art Tax Incentive Scheme
- Artifact Donations
The donations for a foreign charitable purpose are not tax exempted, even if, they are made to an IPC.