Application for Tax Exemption Status under Section 88

Application for Tax Exemption Status under Section 88 | Bestar

Application for Recognition of Tax Exemption Status under Section 88

If you're interested in applying for tax exemption under Section 88 of the Inland Revenue Ordinance (IRO) in Hong Kong, here's a detailed guide to help you through the process:

Eligibility:

• Charitable Institutions: You must operate as a registered institution established for charitable purposes like education, poverty relief, religion, etc.

  
  

• Trusts of a Public Character: Your trust must be designed for charitable purposes and not benefit specific individuals.

Requirements:

• Governing Instrument: A written document outlining your charitable objectives, operation structure, and governance procedures.

  
  

• Charitable Purpose: You must be primarily dedicated to charitable activities. Any commercial activities should be incidental and directly linked to your charitable goals.

  
  

• Public Benefit: Your activities must benefit the wider public, not a select group.

  
  

• Financial Records: Audited financial statements for the past 3 years (or since establishment if younger).

  
  

• Governing Body Details: Information about your governing body members, their qualifications, and selection process.

  
  

• Activities and Beneficiaries: Details of your activities, how they fulfill your charitable goals, and the beneficiaries you serve.

Application Process:

1. Gather Required Documents: Ensure you have all the necessary documents listed above.

   
   

2. Download the Application Form: Download the appropriate form from the IRD website.

   
   

3. Fill Out the Application: Carefully complete the form, providing accurate and detailed information.

   
   

4. Attach Supporting Documents: Include all required documents with your application.

   
   

5. Submit the Application: You can submit your application electronically through the IRD's online portal or by mail to the Commissioner of Inland Revenue, G.P.O. Box 132, Hong Kong.

Important Notes:

• Processing time for applications can take up to 4 months.

  
  

• Incomplete applications will be returned for further information.

  
  

• Meeting all the requirements doesn't guarantee tax exemption. The IRD will assess your application based on their criteria.

  
  

• Consider seeking professional guidance from a tax consultant or legal advisor to ensure compliance and increase your chances of success.

Specific Mandatory Clauses the IRD Looks for in the Articles of Association

That is the most critical element of the entire Section 88 application. The Inland Revenue Department (IRD) focuses intensely on the organization's governing instrument—such as the Articles of Association for a Company Limited by Guarantee (CLG)—to ensure the legal structure is exclusively charitable and cannot be used for private gain.

Here are the specific, mandatory clauses the IRD requires to be clearly drafted in the Articles of Association:

1. Exclusive Charitable Objects Clause

This clause is the foundation of the organization.

• Requirement: The objects must be precisely and clearly stated and must fall exclusively under one or more of the four legal heads of charity recognized under common law:

  
  

  • Relief of Poverty

  • Advancement of Education

  • Advancement of Religion

  • Other purposes of a charitable nature beneficial to the community (and for the benefit of the public or a sufficient section of the public).

    
    

• Why it Matters: The organization must not have any non-charitable objects. If the objects are too broad, vague, or include non-charitable activities (like promoting a political party or commercial interest), the application will fail.

2. Application of Funds Clause

This clause ensures all money is used for the stated charitable mission.

• Requirement: A statement limiting the application of the organization's income and property solely towards the attainment of its stated charitable objects.

  
  

• Why it Matters: It legally prevents funds from being diverted for non-charitable purposes, such as private benefit or lavish administrative spending unrelated to the mission.

3. Non-Distribution of Income/Assets Clause

This is a mandatory anti-private-gain provision for all charities.

• Requirement: An explicit prohibition on distributing any income, profits, or property to the members or subscribers of the organization.

  
  

• Why it Matters: It reinforces the non-profit nature, ensuring that members cannot receive a dividend or return on investment, which is the core difference between a charitable CLG and a company limited by shares.

4. Prohibition on Governing Body Remuneration Clause

This clause governs the payment of directors/trustees.

• Requirement: A clause prohibiting members of the governing body (e.g., Directors, Trustees, Executive Committee members) from receiving any remuneration (monetary compensation) for acting in their capacity as a governing body member.

  
  

• Exception: Payment for reasonable out-of-pocket expenses (like travel) is permitted. Payment may also be allowed for professional services rendered by a Director (e.g., a Director who is a qualified doctor providing medical services to the charity), provided that:

  
  

  • It is specifically permitted by the Articles.

  • The member has a qualification otherwise not available to the charity.

  • The member is absent from all discussions and abstains from voting on their appointment, services, and remuneration.

5. Dissolution/Winding-Up Clause

This clause ensures the perpetuity of the charitable assets.

• Requirement: A clause specifying that upon dissolution, winding up, or ceasing operations, any remaining assets must not be distributed to members but must be transferred or paid to another approved charity (a body also exempt from tax under Section 88).

  
  

• Why it Matters: This legally prevents the founders or members from taking ownership of the residual charitable property when the organization closes.

6. Accounting and Record Keeping Clause

This relates to transparency and compliance.

• Requirement: A clause requiring the organization to keep sufficient records of its income and expenditure (including donation receipts), proper accounting books, and to compile annual financial statements.

  
  

• Why it Matters: It allows the IRD to periodically review the organization’s financial activities to ensure they remain consistent with the charitable objects.

  
  

Because these clauses must use precise legal wording to comply with both the Companies Ordinance and the Inland Revenue Ordinance, using a professional to draft the Articles is highly recommended to avoid delays or outright rejection.

Fees for Section 88 Tax Exemption Application

There is no direct fee charged by the Hong Kong Inland Revenue Department (IRD) for submitting the application for recognition of tax exemption status under Section 88 of the Inland Revenue Ordinance (Cap. 112).

The application process itself, which involves submitting an application letter and supporting documents to the Commissioner of Inland Revenue, does not have an official government filing fee.

Professional Fees for Section 88 Application

Professional fees for services like drafting the governing instrument and preparing the Section 88 application package are highly variable, depending on the complexity of the organization, and the structure chosen.

You can expect the professional fees for the entire process (incorporation + drafting documents for Section 88) to fall into the following broad range:

	Fee Range (HKD)	What the Fee Includes
	HK$10,000 −HK$25,000	Incorporation of the Company Limited by Guarantee (CLG), drafting the Memorandum and Articles of Association (A&A) with the necessary IRD-compliant charitable clauses, and preparation/submission of the Section 88 application forms and documents.
	HK$25,000 and up	Generally higher fees for complex structures, extensive consultation on governance, or drafting a specific Trust Deed (if not using a CLG), and representation/advice during the application process.

Why Professional Drafting is Essential

The largest component of the fee is often the drafting of the Governing Instrument (e.g., Articles of Association for a CLG). This document must contain several mandatory clauses to satisfy the IRD that the organization is exclusively charitable. If these clauses are missing or poorly worded, the application will be rejected.

Key clauses that require precise drafting include:

1. Exclusive Charitable Objects: The primary purposes must fall clearly under one of the four recognized categories of charity (poverty, education, religion, or other public benefit).

   
   

2. Application of Funds: A clear statement that all income and assets must be applied solely towards the charitable objects.

   
   

3. Non-Distribution Clause: A prohibition on paying any dividends, bonus, or return of capital to members or directors (beyond reasonable out-of-pocket expenses or professional fees for services rendered).

   
   

4. Dissolution Clause: A provision ensuring that upon winding up, any remaining assets are transferred to another approved Section 88 charity.

Cost Breakdown of the Professional Services

A professional service package will cover the following core components:

• Consultation & Strategy: Advising on the most appropriate legal structure (CLG, Trust, Society) and confirming the charitable objects.

  
  

• Legal Entity Setup: Preparing and filing all documents with the Companies Registry (or relevant body) for incorporation.

  
  

• Governing Instrument Drafting: Drafting the Articles of Association or Trust Deed with all the specific clauses required for Section 88.

  
  

• Application Preparation: Preparing the formal application letter, completing the IRD forms (C.D. 22/C.D. 22A), and structuring the supporting documents (activity plans, financial forecasts, management details).

  
  

• Liaison: Handling follow-up queries or requests for clarification from the IRD during the 4-6 month review process.

Additional Resources:

• IRD Notes to Applicants

  
  

• IRD Tax Guide for Charities

How Bestar can Help

application-for-tax-exemption-status-under-section-88

Some general information how Bestar helps with applications for tax exemption under Section 88 in Hong Kong:

Bestar's Services:

• Consulting: Bestar offers consulting services to help organizations understand the requirements for tax exemption under Section 88 and assess their eligibility. We can also help develop a strong application package that demonstrates your organization's commitment to charitable purposes and public benefit.

  
  

• Legal Support: We provide legal assistance in drafting and reviewing your governing instrument, ensuring it complies with the necessary legal requirements and effectively outlines your charitable objectives.

  
  

• Financial Guidance: Bestar might offer financial expertise to prepare and present your financial statements in a way that accurately reflects your organization's financial position and aligns with the IRD's expectations.

  
  

• Application Assistance: We help you complete the application form accurately and efficiently, ensuring all required information and supporting documents are included.

  
  

• Liaison with IRD: Bestar is able to liaise with the IRD on your behalf, answering any questions or clarifying any issues that may arise during the application process.

Benefits of using Bestar:

• Expertise: We possess knowledge and experience in tax law and non-profit organizations, potentially increasing your chances of a successful application.

  
  

• Efficiency: Our assistance can streamline the application process, saving you time and effort.

  
  

• Compliance: We can help ensure your application complies with all legal and regulatory requirements.

  
  

• Credibility: Having professional support can lend credibility to your application and enhance your organization's image.

Important Note:

It's crucial to remember that Bestar cannot guarantee tax exemption. The final decision rests with the IRD based on their assessment of your application and compliance with Section 88 criteria.

Contact Bestar. Reach out to us to discuss our specific services for Section 88 applications and fees.

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