Tax Concessions for Charitable Institutions in Hong Kong
There are two main tax concessions for charitable institutions in Hong Kong:
Tax Exemption: Qualifying charitable institutions and trusts can be exempt from profits tax under Section 88 of the Inland Revenue Ordinance (IRO). This means they don't have to pay tax on their profits.
Increased Deduction for Donors: People who donate to approved charitable institutions can claim a tax deduction for their donations. The maximum deduction is 35% of their assessable income or profits, with a minimum donation amount of HK$100 claimed annually. This incentivizes donations to charities.
Section 88 of the Inland Revenue Ordinance (IRO)
Section 88 of the Inland Revenue Ordinance (IRO) in Hong Kong deals with tax exemption for charitable institutions and trusts considered public characters. Here's a breakdown of what it offers:
Exemption from Profits Tax: Registered charities fulfilling specific conditions can be exempt from paying profits tax on their income generated in Hong Kong. This makes it financially easier for charities to operate and dedicate more resources to their cause.
Conditions for Exemption: The exemption isn't automatic. Charities need to meet certain criteria outlined in the ordinance. These criteria typically focus on ensuring the charity operates for genuine public benefit and adheres to responsible financial practices regarding any business activities.
Trade or Business Activities: Even charitable organizations might engage in business activities to raise funds or further their goals. Section 88 acknowledges this, but the profits from such activities must also fulfill specific requirements to be exempt from tax.
Conditions for Exemption
There are several key conditions for a charitable institution or trust to be exempt from profits tax under Section 88 of the Inland Revenue Ordinance (IRO) in Hong Kong. Here's a breakdown of the main requirements:
Charitable Purpose:
The institution/trust must be established for charitable purposes as defined by the law. These purposes fall into four broad categories:
Relief of poverty
Advancement of education
Advancement of religion
Other purposes beneficial to the community (e.g., environmental protection, cultural activities)
Public Benefit:
The charitable purpose must be for the public benefit, not for the private benefit of any individual or group.
Constitution and Governance:
The institution/trust must have a written governing instrument (constitution or trust deed) that clearly outlines its charitable purpose and ensures its operation for public benefit.
Activities and Profits:
Profits generated by the institution/trust must be wholly or mainly used for its charitable purpose.
Any trade or business activities conducted by the charity must be incidental and ancillary to its main charitable purpose. Profits from such activities may be exempt if they directly or indirectly contribute to the charitable purpose.
Financial Management:
The institution/trust must demonstrate sound financial management practices.
This includes proper record-keeping and using funds efficiently for the stated charitable purpose.
Registration and Recognition:
While not mandatory for all charities, obtaining recognition for tax exemption from the Inland Revenue Department (IRD) is highly recommended. This confirms the charity's eligibility for tax benefits under Section 88.
By meeting these conditions, charitable institutions and trusts can benefit from tax exemption under Section 88, allowing them to retain more resources for their charitable activities.
Here are some resources for further information:
Inland Revenue Department (IRD): This website has a section on Charitable Donations and Tax-Exempt Charities, which includes a downloadable Tax Guide for Charitable Institutions https://www.ird.gov.hk/eng/tax/ach.htm
GovHK: This website provides information on Approved Charitable Donations, including eligibility and deduction limits https://www.gov.hk/en/residents/taxes/salaries/allowances/deductions/approveddonation.htm
How Bestar can Help
Tax Concessions for Charitable Institutions in Hong Kong
Bestar can be valuable for navigating with tax concessions process for charitable institutions in Hong Kong. Here's why:
Understanding Tax Exemptions: Charitable institutions in Hong Kong qualify for tax exemptions on profits made from activities related to their charitable purposes. Bestar can help you understand the specific requirements for claiming this exemption, ensuring your charity qualifies and maximizes its tax benefits. We can refer to the Inland Revenue Department's (IRD) Tax Guide for Charitable Institutions and Trusts of a Public Character https://www.ird.gov.hk/eng/pdf/tax_guide_for_charities.pdf for details.
Compliance with Reporting Requirements: Even tax-exempt charities have reporting obligations to the IRD. Bestar can ensure your charity meets these requirements by filing the necessary forms and keeping accurate financial records. This helps maintain your tax-exempt status and avoids any potential penalties.
Optimizing Donations: Bestar can advise on maximizing the tax benefits for both your charity and its donors. This includes ensuring donation receipts are issued correctly to qualify for tax deductions by the donors.
Other Tax Considerations: There may be other tax implications for charities, such as property letting or business ventures. Bestar can provide guidance on these areas to ensure your charity remains compliant.
Consider Bestar:
We have experience with tax concessions for charitable institutions. Bestar is familiar with the IRD's regulations and has experience working with non-profit organizations.
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