Singapore Non-Profit Entities
The Volunteer Welfare Organization or VWO is a nonprofit organization in Singapore, which aims to engage in social interest activities wherein commercial profit is not its primary goal. The VWO has no legal definition in Singapore, but is registered as a society via the Societies Act, which stands for a company limited by guarantee under the Trustees Act or Companies Act. When the company generates profit in excess of its expenses, the generated amount will be retained by the entity to be used for future activities. It does not distribute its earnings to its members, which the profit making organization usually does.
When deciding to set up and register a VWO, there are some things you need to consider and these are the following:
The characteristics of VWO (Volunteer Welfare Organizations
The Volunteer Welfare Organizations in Singapore are governed by the managing committee, board of trustees, and governing council, which is consists of individuals who have vast experience in managing nonprofit organizations. The VWO also generates benefits for various sectors of the society, which is outside the membership of the organization. They also prohibit the distribution of any money related surpluses or profit to their own members, for an instance, shareholders, directors, and the like.
If the company successfully accorded a charity, then the company will be tax exempted. These are VWOs set up exclusively for charitable reasons and perform activities in order to achieve these purposes and may be registered as charities. As per the Charities Act, it is a must for the VWO to apply as charity registration within three month period of its establishment. If you want more information about the charity status and procedures of application, you may refer to the Charity Portal maintained by COC or Commissioner of Charities. Being a charity, the organization can proceed to registration as an IPC or Institution of Public Character.
Nonprofit organization registration like VWOs
There are so many benefits associated with registering to VWO and one of which is the ease of engaging in sustainable public interest activities being a registered entity. The registered VWO can benefit from entering into contractual agreements such as buying of contracts, leases, and the like. If the organization is not registered, then the person concerned should be liable and should accept contractual obligations. Aside from that, the fundraising ability as VWO becomes limited just because your organization is not a registered entity. As a matter of fact, it would be impossible for you to generate funds both from members and nonmembers. Furthermore, you will not be tax exempted if your VWO is not a registered entity.
Registering VWO means that you are going to work with legally binding rules that provide clarity, which is actually beneficial not only for the organization, but as well as to third parties and the public in general. For an instance, the philanthropists and donors require that the organization should be registered first before they will be enticed to donate or contribute their money. If the organization is registered, then it will be accountable, which automatically inspire greater public confidence.
When registering to VWO, it is essential to note that there are three forms of registered organizations and your choice should be based on essential factors like the size of the organization, the complexity, and how funding can be obtained.
As a VWO you have the following options
Registered as a society
The registration can be done at the ROS or Registry of Societies website
Incorporate as company limited by guarantee
You should first apply for a new company name under the ACRA and then apply to incorporate the company limited by guarantee. Basically, the approval for the name of the company would take around 14 days or longer depending on various circumstances. After completing the necessary fees, the incorporation follows which actually take around 15 minutes. Form a Trust (/ a Charitable Trust) based on the Trustees Act, you can set up a trust for VWO activities purpose. We can offer legal help for you when it comes to preparation of the needed administrative papers.
Registering VWO as public company limited by guarantee
This means that the public company limited by guarantee performs nonprofit activities that are tied to the interest of the public including art promotion, charitable cause, and so on. Those companies do not actually have share capital and instead of shareholders, they have members. Their members will be the one to predetermine the sum to the liabilities of the company in situations wherein the company wound up. The guaranteed sum amount can be as low as $1.
Those companies in Singapore that are set up as public company limited by guarantee should include the suffix “Limited” in its company name. If you want to get rid of the word “limited” after incorporation, you can do so, but the company shouldn’t distribute profits. According to the law, the company limited by guarantee is a legal entity and that it has its own existing rights that are separate to that of the individuals involved with it. The company can use and can be sued, can enter into a legally binding contracts, and can purchase property under its name. The companies limited by guarantee are engaged in nontrading, religious, charitable, artistic, and scientific activities. They have the advantage to incorporate a separate legal entity with limited liability for its members, which made it a desirable structure.
Tax related Issues
If the funds came from the contribution of the members, then the organization registered as company limited by guarantee in Singapore is income tax exempted. More so, if more than 50% of gross revenue receipts from the members are not tax deductible for members, then they are also income tax exempted. For the organization to be fully tax exempted, after registering the company should apply for a charity status. There are tax exemption schemes. For example, for approved non profit organization for a period of not more than 10 years, the income tax exemption for exempt charities and registered charities without requiring to meet the 80% of the spending rule.
Registering your non-profit organisation as a Society
In this context, the society is referred as the company, club, association, or partnership that is consists of not less than 10 people regardless of the nature or objective of the society and is not a registered under any other laws. The society is suitable for memberships and or volunteer based groups, ideally smaller groups that are not heavily dependent on donations or funds coming from external source.
Just like the public company limited by guarantee, the society registered with Registrar of Societies are also income tax exempted if the surplus funds come from the contributions of the members and if more than 50% of the gross revenue receipts come from the members and also not tax deductible for members. If you want a full tan exemption, you must apply for “charity” status right after registration.
Registration of a Charitable Trust
What is a trust? Well, it is an arrangement in the form of written document or also referred as trust deed, which states that the founder or owner donates the funds or property to the Board of trustees who administer the assets for the beneficiaries as per the stated objective. A charitable trust actually promotes a purpose and not benefits to certain people.
Who should register a charitable trust? You should first be aware that charitable trusts in Singapore are recognized as a legal entity. They are set up by people who set aside a portion of their assets for a charitable cause in a defined and long term way. A perfect example for this is the administration of educational scholarship or bursary. The primary duty of the trustees is to hold and invest funds or property and disburse the income to the trust beneficiaries.
Structural wise, it has few risks or liabilities in its operations and transactions, except to some matters like when the organization purchase or lease a real estate, join a contractual relationship for procurement of professional services, and the like.
Applying for the “Charity” status
After the VWO has been registered and legalized in Singapore, then it will be eligible for “charity” status by the Commissioner of Charities provided it meets the requirements. There are four generic categories for charitable purposes such as:
- Relief of poverty
- Advancement and encouragement of education
- Advancement of specific religion
- Other helpful purpose to the community such as advancement of community development, health advancements, advancement of heritage, science, and the arts, advancement of environmental protection, relief of the needy including the aged, youth disabled and ill individual, and those experiencing financial struggles, and the advancement of the welfare of the animals.
The charities in Singapore are governed by the SCA or Singapore Charities Act and should be registered with the Commissioner of Charities. It should be without any charges within three months of its establishment. The process usually lasts around three months or so.
Institutions of a Public Character (IPC) status
The approved IPC is a nonprofit organization that has a charity status. Their activities are favorable to the community in Singapore in general and not just limited to specific ethnicity, religion, or group. The Institution of a Public Character is actually approved by the Commissioner of Charities to accept tax deductible donations. Majority of IPCs are charities, but there are also those sports associations. The application process for IPC usually last for about two months.
Who can apply for IPC status?
- Hospital institutions not operated for profit purpose
- A benevolent or public institution not operated for profit purpose
- A society or a public authority that is not conducted for profit purpose and is primarily engage in research and other related work such as diagnosis, cure, and prevention of diseases to human beings, and the like.
- A public fund/university fund which will be used for establishment, maintenance, and improvement of the university as a whole.
- Educational institutions not operating for profit purpose.
- A private or public fund for the provision, establishment, and endowment of scholarship, prizes in the university, or educational institutions that operate not for the purpose of profit.
- Public funds used as relief to the distress public.
- A charitable institution that is established solely for charitable purpose.
- Organizations not conducted for the sake of profit and are engaged with culture, arts, and sports promotion.
Donors should be aware that registered charities do not automatically mean they are automatically approved by the IPCs. Hence, the donations made to charities approved by the IPCs are income tax deductible. Cash donation is the famous one, but apart from that IPCs also qualify you for tax deduction if you donate the following:
- Donations or artefacts
- Donations of land and establishments
- Donations of shares
- Donations of computers and Information Technology related equipment
Another important thing to note is that if the donation is for a foreign charitable purpose, then it is automatically not qualified for tax deductible even if it is made to an approved IPC in Singapore.