Love in Hong Kong – Tax exemptions and other legal considerations | Media Pyro

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IIn the first two chapters of this series, the author covered the basic requirements for setting up a charity in Hong Kong, as well as the limitations in corporate governance. This final chapter examines tax exemptions and other practical considerations in the hope of providing food for thought to volunteers interested in running a charity.

SECTION 88

Under Hong Kong law, charities are entitled to receive tax benefits after meeting certain conditions, the most important of which is the exemption from income tax under section 88 of the Inland Revenue Act (IRO).

According to section 88, if:

    1. proceeds are used for charitable purposes;
    2. such income is not spent substantially outside Hong Kong; a
    3. A trade or business carried on for the purpose of carrying on the stated objects of a charity, or generally carried on by persons for the benefit of whom such charity was founded, shall not be pay income tax. However, pirated trading companies are not entitled to such exemption.
Diane Fan, LC Lawyer
Diane Fan
Advisor
LC Attorney

In addition, tax relief is available for charities under the jurisdiction of the courts in Hong Kong, that is, charities established in Hong Kong or Hong Kong of overseas charities. If the donations of these charities are used outside of Hong Kong, such as for poverty alleviation in mainland China or overseas, they cannot be subject to section 88.

Charities wishing to qualify for exemption must apply to the Internal Revenue Service (IRD). It should be noted that a tax exemption under section 88 indicates the availability of tax benefits under Hong Kong law, but not a license or permit issued to the charity. The IRD can review and confirm the charity’s status based on its turnover and annual tax returns, and the tax exemption may vary.

PRACTICAL CONSIDERATIONS

Once recognized as a tax-free charity, it becomes a priority to meet IRD inquiries or review questions on a timely basis. As mentioned above, the IRD has the right to stop accepting a charity as a tax payer. According to IRD statistics, for the six months ending 30 June 2021, 1,700 tax charities under section 88 were audited, 55 of which were excluded from tax exemption due to lack of response, loss of contact.

Therefore, companies that want to maintain their tax position should review their work and their charitable activities to ensure that they are compatible with the charitable gifts under their management tools, and to solve the questions IRD on time.

In addition, although the IRD does not keep statistics on the nature of complaints, it usually conducts follow-up activities on several cases each year. Of course, philanthropy can easily fall into the hands of weak organizations. For example, according to the Hong Kong Audit Commission’s annual report in 2017, more than six charities were found to have misused funds, one of which paid an excessive amount of HKD13 million (USD1.7 million) to be paid to its directors over three years. , and at least 11 parcels of land were approved for the establishment of charities that were mainly used to operate hotels for profit.

There was also a report in 2021 about charities paying intermediaries to collect donations. These scandals and cases have tarnished the public image of charities and the reputation of charities as a whole, making the governance of charities very important.

Although Hong Kong does not have specific laws governing charities, government agencies have been investigating reform measures. Since fundraising and fundraising are the bread and butter of a charity, charities need to know how to manage their donations or funds and the risk of those funds being used for money laundering. and other crimes.

Although the Anti-Money Laundering and Terrorism Act (cap. 615) only governs financial and non-financial institutions, such as trusts or corporate service providers, charities should consult with government related guidelines.

For example, the Narcotics Section of the Hong Kong Securities Bureau issued a Guidance Note on Preventing the Exploitation of Anti-Trafficking Activities, which states that under the law any known or suspected assets or by terrorists, must immediately report to the Financial Intelligence Unit.

In addition, the Good Practice Checklist – Managing Charities and Fundraising Activities, issued by the Special Commission on Corruption, provides guidance on how to manage donations after collection.

PROCESSING

Running a charity doesn’t just require a good idea, it also requires careful planning and long-term commitment. Before establishing a charity, carefully consider the purpose of the charity, the expected events, and the range of administrative issues that may arise. More importantly, hobbyists should be aware that the expansion of philanthropy in Hong Kong will result in stricter regulations, subjecting them to restrictions that may change over time, and require an open keep their eyes open for potential risks.


Diane Fan a counsel at LC Attorney

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