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Tax Guide for Charitable Institutions and Trusts of a Public Character

Updated: Jul 6



Tax Guide for Charitable Institutions and Trusts of a Public Character


The Inland Revenue Department (IRD) of Hong Kong publishes a guide specifically for charitable organizations and trusts seeking tax-exempt status. It's called the "Tax Guide for Charitable Institutions and Trusts of a Public Character".


How Charitable Institutions can Qualify for Tax Exemption under Section 88 of the Inland Revenue Ordinance (IRO)


Here's how charitable institutions can qualify for tax exemption under Section 88 of the Inland Revenue Ordinance (IRO) in Hong Kong:


General Requirements:


  • Be a registered charitable institution or trust of a public character.

  • Have a genuine charitable purpose that benefits the public.

  • Operate for charitable purposes only, not private gain.

  • Possess a written governing instrument that outlines the charity's objectives, management structure, and procedures.


Specific Requirements for Tax Exemption:


  • Income Used for Charitable Purposes: The charity's income must be used primarily for its charitable purposes.

  • No Private Distribution of Profits: Profits cannot be distributed to members or founders of the charity.

  • Business Activities:

  • Any business activities conducted by the charity must be wholly or mainly carried on for the purpose of the charity.

  • The work of the business should be carried on mainly by beneficiaries of the charity.


Additional Considerations:


  • The IRD offers a list of acceptable and unacceptable clauses for a charity's governing instrument to help ensure it meets the requirements for tax exemption.

  • Even if a charity qualifies for tax exemption, there might be limitations on the exemption for certain types of income, such as profits from unrelated business activities.


Application Process for Obtaining Tax-Exempt Status


The application process for obtaining tax-exempt status for charitable institutions in Hong Kong has recently undergone some changes. Here's a breakdown of the key steps:


Preparation:


  1. Review the Tax Guide: Familiarize yourself with the requirements for tax exemption under Section 88 of the IRO. You can find the guide on the IRD website: https://www.ird.gov.hk/eng/pdf/tax_guide_for_charities.pdf [URL]

  2. Governing Instrument: Ensure your charity has a written governing instrument outlining its objectives, management structure, and operational procedures. This document should be drafted to comply with the IRD's expectations for tax-exempt charities.


Application:


  1. Application Form: Obtain the latest application form for "Recognition of Tax Exemption Status under Section 88 of the Inland Revenue Ordinance (Cap. 112)" from the IRD website or their offices.

  2. Supporting Documents: Gather the required documents as listed on the application form. These typically include:

  • A copy of your certificate of registration as a charitable institution.

  • A certified copy of your governing instrument.

  • Audited financial statements for the past few years.

  • Detailed descriptions of your charitable activities.

  • Any other documents requested by the IRD.


Submission:


  1. Submit the completed application form along with all supporting documents to the Inland Revenue Department's Inland Revenue Centre.


Processing:


  • The IRD will review your application and may request additional information if needed.

  • The processing time can vary depending on the complexity of your application.


Outcome:


  • The IRD will inform you of their decision in writing. If successful, you'll receive a notification confirming your tax-exempt status.


Here's some key information from the guide:


  • Tax Exemption:  The guide explains how charitable institutions can qualify for tax exemption under Section 88 of the Inland Revenue Ordinance (IRO). This exemption applies to profits tax, but there are conditions that need to be met.

  • Conditions for Exemption:  For a charity's profits from business activities to be exempt, the guide outlines specific requirements.  These include demonstrating that the business primarily benefits the charity's beneficiaries and that the work is carried out mainly by those beneficiaries.

  • Application Process: The guide has been updated to reflect recent changes in the application process for obtaining tax-exempt status. It includes information on the new application form and required supporting documents.

  • Governing Instrument:  The guide emphasizes the importance of a written governing instrument for charities. This document should outline the charity's purpose, governing body structure, and how meetings are conducted.


Obtaining the Tax Guide:


The IRD website offers the downloadable version of the Tax Guide for Charitable Institutions and Trusts of a Public Character



Additional Resources:



How Bestar can Help


Bestar can be a valuable asset for charitable institutions navigating the process of obtaining tax-exempt status under Section 88 of the IRO in Hong Kong. Here's how we can help:


Understanding the Requirements:


  • Bestar has a deep understanding of the complex tax laws and regulations surrounding charitable organizations in Hong Kong. They can help you interpret the requirements for tax exemption under Section 88 and ensure your charity meets all the necessary criteria.


Reviewing Governing Instrument:


  • A well-drafted governing instrument is crucial for tax exemption. Bestar can review your existing governing instrument or help draft a new one that aligns with the IRD's expectations for tax-exempt charities.


Application Process Guidance:


  • The application process can be intricate, and Bestar can guide you through each step. We can help you complete the application form accurately and gather all the required supporting documents.


Dealing with the IRD:


  • Bestar has experience communicating with the IRD. We can represent your charity during the application process and address any questions or concerns raised by the department.


Maximizing Tax Benefits:


  • Beyond tax exemption, Bestar can advise you on other tax benefits available to charitable institutions in Hong Kong, such as tax deductions for donors.


Risk Management:


  • Bestar can help you identify potential tax risks and ensure your charity operates in a way that maintains its tax-exempt status.


Overall, Bestar can save you time, effort, and avoid costly mistakes during the application process.  Our expertise can significantly improve your chances of successfully obtaining tax-exempt status for your charitable institution.









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