Setting Up a Charity in Hong Kong
- a22162
- Nov 22, 2024
- 10 min read
Updated: Jul 4
Hong Kong Charity Setup Guide
Setting Up a Charity in Hong Kong
Setting up a charity in Hong Kong involves several steps and adherence to specific legal requirements. While there isn't a single, comprehensive charity law or central regulator, various government departments oversee different aspects of charitable organizations, most notably the Companies Registry and the Inland Revenue Department (IRD).
Here's a breakdown of the process:
1. Define Your Charitable Purpose:
Your organization must be established exclusively for charitable purposes, which are generally categorized into four heads in Hong Kong, based on English common law:
Relief of poverty
Advancement of education
Advancement of religion
Other purposes of a charitable nature beneficial to the community (this is a broad category and purposes must be demonstrably for public benefit).
The purpose must genuinely benefit the public or a significant section of it, and any personal benefit to individuals other than beneficiaries must be incidental. Your activities must also be lawful and not contrary to national security interests.
2. Choose a Legal Structure:
The most common legal structures for charities in Hong Kong are:
Company Limited by Guarantee: This is the most popular choice as it provides limited liability to its members, meaning members are only liable for a pre-determined amount if the company is wound up. It's suitable for organizations with a more formal structure and long-term goals.
Society: A simpler and less formal structure, often used for smaller or community-based organizations. However, members typically have unlimited liability. Registration is done under the Societies Ordinance.
Trust: A charitable trust can also be established, governed by a trust deed.
Statutory Body: Less common, established by specific Hong Kong legislation.
3. Key Steps for Setting Up (Commonly for a Company Limited by Guarantee):
Name Reservation and Approval: Choose a unique name that aligns with your mission. Check its availability with the Companies Registry and reserve it.
Draft Governing Document: This is crucial. For a company limited by guarantee, it's the Articles of Association. This document must clearly state your charitable objectives, governance structure, operational guidelines, and importantly, include clauses that:
Precisely define the charitable purposes.
Prohibit the distribution of income or property among members.
Specify how assets will be dealt with upon dissolution (e.g., donating to other charities).
Require proper record-keeping of income and expenditure, accounting books, and annual financial statements.
Appoint Directors and Company Secretary:
You need at least one director (must be over 18, can be of any nationality).
A company secretary is mandatory. This can be an individual ordinarily residing in Hong Kong or a corporate entity registered in Hong Kong.
Obtain a Registered Office Address: This can be a physical address or a virtual office in Hong Kong.
Submit Documents to the Companies Registry: This includes the incorporation form (Form NNC1G for companies not limited by shares), the Articles of Association, and other relevant supporting documents. Pay the applicable fees.
Obtain Certificate of Incorporation: Once approved, you'll receive this certificate, confirming your organization's legal status.
Business Registration Certificate: The Companies Registry process often automatically triggers business registration with the Inland Revenue Department.
4. Apply for Tax Exemption Status (Section 88 of the Inland Revenue Ordinance):
This is a critical step for a charity in Hong Kong, as it allows your organization to be exempt from profits tax and enables donors to claim tax deductions for their contributions.
Eligibility: To qualify, your organization must be established exclusively for one or more of the four recognized charitable purposes and be for public benefit.
Application: Submit an application to the Inland Revenue Department (IRD) using Form C.D.22 and C.D.22A, along with supporting documents such as:
Certificate of Incorporation (or equivalent registration)
Certified true copy of your governing instrument (e.g., Articles of Association, Trust Deed, Constitution)
Accounts for the last financial year (if applicable)
List of activities carried out and planned activities for the next 12 months.
Review Process: The IRD will review your application to ensure your objectives and operations align with charitable definitions. This process can take several months.
Compliance: Once tax-exempt status is granted, you must maintain proper records, transparent financial management, and ensure activities strictly align with your stated charitable objectives. You will also need to submit annual financial statements, which may require auditing depending on the size and activities.
5. Open a Bank Account:
Once you have your Certificate of Incorporation and Business Registration Certificate, open a dedicated bank account for your charity to manage funds and donations.
6. Ongoing Compliance and Governance:
Annual Filings: File annual returns with the Companies Registry (for companies limited by guarantee) and ensure ongoing compliance with the Inland Revenue Department.
Financial Reporting: Maintain proper financial records, including donation receipts, and prepare annual financial statements.
Governance Best Practices: Implement strong governance, including regular board meetings, clear roles and responsibilities for board members, and policies on conflict of interest and financial management.
Important Considerations:
No Single Charity Regulator: Hong Kong's charity law is somewhat fragmented. While the IRD grants tax-exempt status, other departments (like the Social Welfare Department and the Police) may oversee specific activities like fundraising.
Professional Advice: It is highly recommended to seek professional advice from lawyers and accountants experienced in Hong Kong non-profit and charity law to ensure proper setup and compliance.
Fundraising: Be aware of specific regulations concerning fundraising activities.
Transparency: Maintaining transparency in your operations and financial management is crucial for building public trust and complying with regulations.
This comprehensive approach will help you navigate the process of establishing a charity in Hong Kong effectively.
Fees
Setting up a charity in Hong Kong involves various fees, which can be broadly categorized into government fees and professional service fees. The total cost can vary significantly depending on whether you handle much of the process yourself or engage professional assistance.
Here's a breakdown of the typical fees:
1. Government Fees:
These are mandatory fees paid to government departments.
Companies Registry Incorporation Fee (for Company Limited by Guarantee):
Electronic submission: HK$155 (for up to 25 members)
Hard copy submission: HK$170 (for up to 25 members)
For more members, the fee increases incrementally, with a maximum of HK925 (electronic) or HK1,025 (hard copy) for over 100 members.
Business Registration Certificate (BRC) Fee: This is paid to the Inland Revenue Department (IRD).
One-year certificate: HK$2,200 (as of April 1, 2024).
Three-year certificate: HK$5,870 (total for three years).
Note: The HK$150 levy for the Protection of Wages on Insolvency Fund is currently waived for two years (from April 1, 2024, to March 31, 2026) for new businesses.
IRD Tax Exemption Application Fee (Section 88): There is no direct fee charged by the IRD for applying for tax exemption status under Section 88 of the Inland Revenue Ordinance. However, there will be indirect costs related to preparing the application.
Application for exemption from using "Limited" (optional): If you wish for your company limited by guarantee not to have the word "Limited" in its name, there's an additional application and fee. This can be around HK$1,600 (USD 1,600) or more, and requires the company to be a charity.
2. Professional Service Fees:
These are fees you might pay to Bestar for our expertise and assistance.
Company Formation/ Incorporation Services: If you engage Bestar to handle the incorporation process (drafting Articles, filing with Companies Registry, etc.), costs can range widely.
Packages may start from HK7,000 to HK9,000 (excluding government fees). These include services like initial company formation, one year of company secretary services, and a registered office address.
Simpler packages for basic incorporation might be less, but typically do not include ongoing services.
Bestar quotes around USD 450 to USD 850 for handling the registration of a company limited by guarantee (excluding specific drafting of Articles for Section 88).
Company Secretary Services (Annual): All Hong Kong companies are legally required to have a company secretary.
Annual fees can range from HK2,000 to HK10,000 or more, depending on the level of service.
Registered Office Address Services (Annual): If you don't have a physical office, you'll need to use Bestar.
Annual fees can range from HK1,000 to HK5,000.
Drafting of Articles of Association for Section 88 Application: This is a crucial step for charities. While some standard templates exist, having Bestar draft or review your Articles to ensure they meet the IRD's stringent requirements for tax exemption is highly recommended.
Professional fees for this can vary significantly, ranging from HK10,000 to HK50,000+ depending on the complexity.
Bestar offers "Application for Section 88 exemption" as a separate service for around USD 520 to USD 1,250, but this does not include comprehensive legal drafting of the Articles.
Accounting and Audit Services (Annual): Tax-exempt charities are required to maintain proper records and submit financial statements. Depending on the size and activities, an audit might be required.
Annual accounting and audit fees can range from HK5,000 to HK10,000+ for smaller charities, increasing with complexity and transaction volume.
Bank Account Opening Assistance (Optional): Bestar offers assistance with this, with fees ranging from HK1,000 to HK5,000.
Summary of Initial Setup Costs (for a Company Limited by Guarantee, including basic professional services):
Government Fees (Incorporation + 1-year BR): Approximately HK155 − HK2,200 = HK2,355 to HK2,370
Professional Services (Company Formation + 1-year Company Secretary + 1-year Registered Office): Can range from HK7,000 to HK11,000+ depending on the package.
Professional Fees (for Articles review/ drafting for Section 88): Budget at least HK10,000 − HK30,000+ for thorough professional review.
Total initial setup cost (excluding audit): Could range from HK19,000 to HK45,000+
Ongoing Annual Costs:
Annual Return Filing Fee (Companies Registry): HK$105 (if filed on time).
Business Registration Certificate Renewal: HK2,200 (one−year) or HK5,870 (three-year).
Company Secretary Services: HK2,000 to HK10,000+
Registered Office Address Services: HK1,000 to HK5,000
Accounting and Audit Services: HK5,000 to HK10,000+ (or more for larger organizations).
Important Notes on Fees:
Waivers and Exemptions: While there are government fees, some businesses (including charities) might be eligible for exemptions on the Business Registration Fee if their average monthly sales or receipts do not exceed certain limits (e.g., HK10,000 for service businesses, HK30,000 for others). However, companies incorporated under the Companies Ordinance generally do not qualify for this specific exemption.
Complexity: The more complex your charity's structure, objectives, or activities, the higher the professional fees will likely be.
How Bestar can Help
Setting up and managing a charity in Hong Kong involves navigating complex legal and financial landscapes. This is where the expertise of Bestar becomes invaluable. We can help ensure your organization is properly established, compliant with all regulations, and operates transparently and effectively.
Here's how Bestar can assist:
Bestar provides critical guidance from the initial conceptualization to ongoing compliance. Our role is primarily focused on legal structure, governance, and ensuring adherence to the myriad of regulations. Bestar is crucial for establishing sound financial management systems, ensuring transparency, and maintaining financial compliance.
Choosing the Right Legal Structure:
Expert Advice: Bestar can explain the pros and cons of different legal structures (Company Limited by Guarantee, Society, Trust) and recommend the most suitable one based on your charitable objectives, size, and governance preferences.
Liability: We clarify the implications of each structure regarding personal liability for founders and board members.
Drafting Governing Documents:
Articles of Association (for Companies Limited by Guarantee) or Trust Deed: This is the most crucial document. Bestar ensures it is meticulously drafted to:
Clearly define your charitable purposes in a way that satisfies the Inland Revenue Department (IRD) for tax exemption.
Include clauses that prohibit the distribution of income or assets to members or directors.
Stipulate how assets will be handled upon dissolution (e.g., transferred to another approved charity).
Outline robust governance mechanisms, including board responsibilities, meeting procedures, and decision-making processes.
Ensure compliance with the Companies Ordinance and the specific requirements for tax-exempt charities under Section 88 of the Inland Revenue Ordinance.
Constitutions (for Societies): Similar assistance in drafting the constitution to meet Societies Ordinance requirements.
Incorporation and Registration:
Companies Registry: Bestar handles the entire incorporation process, including name reservation, preparing and submitting all required forms and documents to the Companies Registry.
Business Registration: We ensure timely business registration with the IRD.
Applying for Tax Exemption (Section 88):
Strategic Application: Bestar prepares and submits the comprehensive application to the IRD, ensuring all necessary documentation (governing instrument, activity plans, financial statements) is included and presented correctly.
Addressing IRD Queries: We can respond to any queries or requests for clarification from the IRD during the application process, which is often iterative.
Compliance Review: We review your proposed activities to ensure they are genuinely charitable and not for private benefit, a key criterion for tax exemption.
Ongoing Legal Compliance and Governance:
Statutory Filings: Advising on and assisting with annual filings with the Companies Registry and other relevant bodies.
Charity Governance: Providing guidance on best practices for board governance, conflicts of interest, and fiduciary duties to ensure the charity operates ethically and legally.
Fundraising Regulations: Advising on specific legal requirements for fundraising activities, including obtaining necessary permits or licenses.
Data Privacy: Ensuring compliance with the Personal Data (Privacy) Ordinance, especially concerning donor information.
Risk Management: Identifying potential legal risks and developing strategies to mitigate them.
Financial Planning and Budgeting:
Initial Setup: Assisting with developing initial budgets and financial forecasts, which are often required for the Section 88 application.
Sustainable Model: Helping to create a financially sustainable model for the charity's operations.
Setting Up Accounting Systems:
Chart of Accounts: Designing a chart of accounts tailored to the needs of a charity, categorizing income (donations, grants, etc.) and expenditure (program costs, administrative costs, fundraising costs).
Bookkeeping: Establishing proper bookkeeping procedures and, if necessary, providing ongoing bookkeeping services to record all financial transactions accurately.
Internal Controls: Implementing robust internal control systems to safeguard assets, prevent fraud, and ensure accurate financial reporting, crucial for public trust.
Financial Reporting and Statements:
Preparation of Financial Statements: Preparing annual financial statements (income and expenditure accounts, balance sheets) in accordance with Hong Kong accounting standards. These are essential for reporting to the IRD and the public.
Management Accounts: Providing regular management accounts to the board, offering insights into the charity's financial performance and position.
Donor Reporting: Assisting in preparing reports for donors, detailing how their contributions have been utilized.
Audit and Assurance Services:
Annual Audit: Many charities, especially those that are companies limited by guarantee or receive substantial public donations, are required to undergo annual audits. Bestar's partnered qualified auditors conduct these audits, providing independent assurance on the accuracy and fairness of the financial statements.
Compliance Audits: Ensuring that the charity's financial practices comply with all relevant laws, regulations, and the terms of its tax-exempt status.
Tax Compliance and Exemptions:
Section 88 Compliance: Advising on the ongoing financial requirements to maintain tax-exempt status, such as ensuring that profits derived from any trade or business carried on by the charity are applied solely for charitable purposes.
Tax Filings: Preparing and filing annual profits tax returns with the IRD, even if the charity is tax-exempt.
Donation Receipts: Guiding on proper issuance of donation receipts for tax deduction purposes for donors.
Advisory Services:
Financial Health: Providing advice on the charity's financial health, cash flow management, and investment policies.
Grant Management: Assisting with the financial aspects of grant applications and ensuring compliance with grant terms.
Best Practices: Offering guidance on best practices in non-profit financial management and governance.
In summary, Bestar is highly recommended for anyone looking to set up and successfully run a charity in Hong Kong. Our expertise ensures that the charity is legally sound, financially transparent, and well-positioned to achieve its charitable mission.
Comments