Rocking the Foundations
A savvy generation of young Asian tycoons is realising the benefits of philanthropic foundations in building communities and lasting family legacies, writes Tara Loader Wilkinson
The history of philanthropy in Asia spans millenniums, but most Asian private family foundations have only been around for two or three generations, if that. Take, for example, Hong Kong’s Li Ka Shing Foundation, set up by the tycoon 35 years ago with an education and healthcare focus, or Singapore’s Lien Foundation, established by businessman Lien Ying Chow in the same year, 1980, to help children and the elderly. Hong Kong’s Robert H N Ho Family Foundation was set up just 10 years ago to promote Chinese culture and Buddhist philosophy.
Compared to the situation in Europe and the US, the charitable foundation sector in Asia is in its infancy. There are more than 100,000 private foundations in the US, according to the National Centre for Charitable Statistics. In Singapore, about 130 foundations are registered with the Commissioner of Charities (COC).
It’s not that well-off Asians are stingy. Wealth is still a relatively new phenomenon in the region, where an estimated 70 per cent of high-net-worth individuals are first-generation entrepreneurs. In recent years, more private foundations have been set up to drive a more focused and strategic way to support causes in Singapore, says Susan Sy, who heads the philanthropy advisory and values-based investing arm of UBS Wealth Management in Southeast Asia.
“According to the recent UBS and PWC 2015 report, the average age of Asian billionaires is 57, an age when many begin to consider how to preserve and transfer their wealth. This wealth demographic can trigger a wave of philanthropic giving,” she says.
Foundations are usually created when wealth is passed from one generation to the next, to help build a lasting family legacy, or when a company is sold or listed. Steven Seow, head of wealth management at Mercer in Singapore, says the motivation for setting up a foundation lies not just in giving to charity. “For families, it is a way of building bonds between older and younger members, and allowing for emotional values, as well as financial assets, to be passed down.”
Laurence Lien, who in 2002 took the role of chairman of the board of his grandfather’s foundation, says, “My grandparents invited me to the role with the task of growing its grant-making programmes. It’s a role I was happy to take: the foundation has grown extremely well and carved out a niche… in Singapore and Asia.”
As Asia moves into its largest intergenerational transfer of assets in
history, families are beginning to see the value of hiring professionals to execute their philanthropic objectives, says Seow. The result is a more sophisticated method of philanthropy, akin to investment management as opposed to the old-fashioned way of writing blank cheques. “In the past, Asian families tended to make simple donations,” he says. “But within the last three to five years, we have seen a trend of families wanting to contribute in a systematic way to a specific mission. This has spurred an increase in the setting up of foundations.”
That trend, Seow adds, coincides with younger generations being more involved in the management of family assets. “The younger generation is more receptive to paying fees for advice and employing experts—whether it’s for wealth management, art advice or philanthropic activities,” he says. “We’ve seen a lot of youngsters who want to do things differently from their parents. Instead of traditional grant-making, they may consider impact investing [investments made with the aim of generating social or environmental benefits as well as financial gain] and social returns.”
Singapore has one of the most taxfavourable regimes that encourages both the establishment of charities here as well as donations, says Stacy Choong, partner at law firm Withers Khattarwong. “All the income of a registered charity is exempted from tax. A family foundation can also set up a segregated account where funds are earmarked for distribution to institutions of a public character—charities or non-profits that benefit the Singapore community— within a period of five years. The family’s donation immediately qualifies for a 250 per cent tax deduction, which I can say is one of the most generous tax deductions in the world.”
Those who champion a cause get added gratification from dollar-matching schemes by the Singapore government, particularly in the arts and cultural scene. Chua Yee Hoong, partner at Withers Khattarwong, says,
“Donations to arts, heritage and cultural groups could allow the beneficiary to raise further funds by receiving dollar-for-dollar matching by the Singapore government. Such added incentives come over and above existing tax deductions which donors could enjoy for donations of sculpture or public artworks or donation of money or services for installing and maintaining such public art works.”
There’s no minimum legal funding requirement for starting a foundation, Chua adds, so in theory you could do it with just $100. “But that would be impractical. A foundation would incur set-up and operational costs. There are also regulatory filings to be made if the foundation is a registered charity or if it takes the form of a company limited by guarantee incorporated under the Singapore Companies Act.”
Although the basic set-up cost for a foundation which takes a corporate form may be as low as $5,000, “we encourage clients to take a more holistic advice and consider the full range of structuring options, taxes, governance and succession issues at the outset to avoid any unnecessary operational difficulties and subsequent family misunderstanding” says Choong. The broader scope of advice can cost between S$15,000 and $20,000.
Hong Kong is another hub for establishing foundations due to its liberal tax laws. “It’s the most flexible place in Asia to set up a foundation as you’re able to donate all over the world and still enjoy a full tax exemption,” says Christina Tung, head of philanthropy and values-based investing at UBS Hong Kong. “In China, Singapore and Taiwan, the local rules mean that you can only donate to causes inside the country to get the tax benefits. Otherwise you pay tax on your donation.”
Foundations in Hong Kong require only two board members, who can be family members, she adds. “The cost is low, just like maintaining a regular company. All you need is to set up a company limited by guarantee or a trust structure, and apply for tax exemption from the Inland Revenue Department.”
Hong Kong is the most flexible place in Asia to set up a foundation as you’re able to donate all over the world and still enjoy a full tax exemption