Charitable Donations and Tax-Exempt Charities
- Approved Charitable Donations and List of Tax-Exempt Charities
- Tax Guide for Charitable Institutions and Trusts of a Public Character
- Procedures on Application for Recognition of Tax Exemption Status under Section 88 of the Inland Revenue Ordinance
- Potential Profits Tax Liabilities of Tax-Exempt Charities
Individual and business donors who are chargeable to salaries tax, personal assessment or profits tax can claim deduction for the aggregate of approved charitable donation up to 35% of the assessable income or profits, as the case may be, in the basis period of a year of assessment. Such aggregate must not be less than $100. (Sections 16D and 26C of the Inland Revenue Ordinance (the IRO))
"Approved charitable donation" means a donation of money to any charitable institution or trust of a public character, which is exempt from tax under section 88 of the IRO, or to the Government, for charitable purposes. (Section 2 of the IRO)
Members of the public may check the list of charitable institutions and trusts of a public character, which are exempt from tax under section 88 of the IRO as to whether the donations can be claimed for tax deduction.
Charitable institutions and trusts of a public character may be granted tax exemption under section 88 of the IRO. The Department has issued the "Tax guide for charitable institutions and trusts of a public character" for reference by the public.
It is essential that a charity is established by a written governing instrument, which is a formal document setting out the key provisions regarding the charity’s administration such as the charitable purposes or objects, composition of the governing body and how the meetings will be held. The type of governing instrument to be adopted by a charity depends on the legal structure that is chosen by the charity. It may have different names depending on the type of structure (e.g. Articles of Association in the case of a limited company, ordinance where the body is established by statute, trust deed in the case of a trust, or constitution in the case of a society).
A charity’s governing instrument should generally include the clause stating precisely and clearly the charitable purposes for which the charity is established, as well as certain other crucial clauses. For more information on writing charitable purposes in the governing instrument, please refer to “Guidance on writing charitable purposes in the governing instrument”. Regarding examples of the crucial clauses, please refer to “Examples of clauses generally contained in a charity’s governing instrument”.
Any organisation wishing to seek recognition as a charity exempt from tax under section 88 of the IRO is advised to read the "Tax guide for charitable institutions and trusts of a public character" before submitting an application. When lodging an application, the organisation should complete the following application form and provide the documents specified therein to the Department.
The request should be sent to the Commissioner of Inland Revenue, G.P.O. Box 132, Hong Kong. An incomplete application form (including a form with insufficient supporting documents) will be returned to the applicant for follow-up before the application is processed.
The Department endeavours to respond within 4 months of the date of receipt of an application for recognition of tax exemption status under section 88 of the IRO, provided that all relevant information is supplied with the application and further information from the applicant is not required.
The proviso to section 88 of the IRO provides that where a charity carries on a trade or business, the profits derived from such trade or business are exempt from profits tax only if all of the following conditions are satisfied:
Therefore, if a charity carries on a trade or business, the profits derived from that trade or business (such as property letting and provision of hotel or catering services), including interest income and investment profits attributable to the fund of that trade or business, are exempt from profits tax only if all of the conditions under the proviso to section 88 of the IRO are satisfied. Otherwise, the profits of that trade or business which are arising in or derived from Hong Kong will be chargeable to profits tax under section 14(1) of the IRO.
Regarding the condition that a trade or business of a charity is exercised in the course of the actual carrying out of the expressed objects of the charity, the trade or business must be directly related to the achievement of the charity’s expressed objects. Fund-raising activities that are not directly related to the achievement of the charity’s expressed objects (such as letting properties to tenants not belonging to specific service targets of the charity) cannot satisfy the proviso. The fact that the profits from a trade or business are applied for the charitable objects of the charity is not sufficient to establish that all the conditions under section 88 of the IRO have been satisfied. Instead, it is the nature of the trade or business and whether it directly accomplishes the charity's objects that have a bearing on the question whether the trade or business is exercised in the course of the actual carrying out of the expressed objects of the charity. Further, a clear distinction should be drawn between a charity’s objects (i.e. the charitable purposes that a charity is established to achieve) and its powers which support the operation of the charity and may incidentally facilitate the achievement of the objects (such as the power to lease out its properties). The objects of a charity and its powers to be exercised in effecting the objects are different issues.
For further information, please refer to paragraphs 20 to 49 of the "Tax guide for charitable institutions and trusts of a public character" at the Department’s website.