KEY POINTS
- Donors with family offices to get 100 per cent tax deduction for overseas donations
- Donations to be made through qualifying local intermediaries
- Tax deduction capped at 40 per cent of donor’s statutory income
DONORS with family offices in Singapore may soon be able to get 100 per cent tax deduction for overseas donations, made through “qualifying local intermediaries”.
This appears to be the first time that overseas donations can qualify for a tax deduction. Until now, tax relief is given to donations to approved Institutions of Public Character (IPCs) of up to 2.5 times the donation amount.
IPCs are Singapore based and have Singapore beneficiaries.
The new Philanthropy Tax Donation Scheme for Family Offices is an item in the Annex to Budget 2023, but details are sparse. The scheme was not mentioned in the Budget speech by Finance Minister Lawrence Wong. The Monetary Authority of Singapore is expected to provide more details by June 30.
To qualify, donors must have a fund under the MAS’ Section 13O or 13U schemes, and meet eligibility conditions, such as incremental business spending of S$200,000. The tax deduction is capped at 40 per cent of the donor’s statutory income.
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Lennon Lee, PwC partner and financial services tax leader, said that a family office’s fund vehicle may typically avail of the MAS’ Section 13O and 13U schemes, which provide tax exemption on specified income, such as dividends and interest, from designated investments or assets.
The 13O and 13U schemes must also satisfy certain conditions such as annual business spending of S$200,000.
“High-net-worth individuals would have or intend to have their own philanthropic vehicle to make donations based on their family values and purpose. In other words, they have been making overseas donations either in their own name or their vehicles. These philanthropic vehicles are generally separate from their family fund vehicles,” he said.
“We see that it is common that a portion of the investment returns from the family funds under 13O and 13U would be channelled to these philanthropic vehicles.”
He said the new scheme appears to extend the tax deduction to overseas donations. “The catch here is that the overseas donations must be made through local intermediaries for the new incentive to apply.
“It makes sense to introduce a tax incentive to capture the flow of the monies (since it is already managed by the family offices in Singapore through the 13O/13U scheme) through local intermediaries for philanthropic purposes.”
Lee added: “The intent of the tax incentive is to spur philanthropic activities in Singapore with more qualifying local intermediaries and management of the donation funds to be disbursed, whether to local beneficiaries or otherwise.”
Stephen Banfield, KPMG partner (family office and private clients), welcomed the incentive as a positive move to help position Singapore as a philanthropy hub.
“Many family offices in Singapore have a regional and sometimes global approach to philanthropy. It will be interesting to see the details of this incentive, and see how it may be used in practice. Often, the funds used to support philanthropy are managed within an entity that does not pay any Singapore tax (due to the Section 13O and Section 13U incentives).”
He added: “This incentive will presumably be directed at qualifying donors such as high-net-worth individuals and family offices who are tax-paying and may therefore benefit from this scheme.”
He said: “Certainly there is a desire among high-net-wealth individuals and families to donate to overseas causes, in addition to supporting local charities.’‘
Lee Woon Shiu, DBS Bank regional head of wealth planning, family office and insurance solutions, said: “This is wonderful news, and augurs well for Singapore’s evolution to becoming an international and purposeful wealth management centre. I believe that the proposed tax incentive scheme would certainly boost Singapore’s ambition to be a regional philanthropic hub, and would over time attract more catalytic capital onto the shores of Singapore.’’
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