Introduction to Charities and Section 88 of the IRO
💡 Under Section 88 of the Inland Revenue Ordinance (Cap 112) (the IRO), a registered charity in Hong Kong is exempt from profits tax subject to certain conditions. Find out how to acquire the tax exemption status in this guide.
What is a Charity?
Charity must be established for charitable purposes and for public benefits.
As per the law, charitable purposes are classified into four categories:
- the relief of poverty
- the advancement of education
- the advancement of religion
- other purposes of a charitable nature beneficial to the community but not falling under any of the preceding heads.
Tax Exemption Requirements
- The profits are applied solely for charitable purposes
- The profits are not expended substantially outside Hong Kong
- (i) the trade or business is exercised in the course of actual carrying out of the expressed object of the charity (e.g. A charity for religion sells relevant books); or (ii) the work in connection with the trade or business is mainly carried on by persons for whose benefit such charity is established. (e.g. A charity for orphans may hold an exhibition of their drawings.)
Apply for Tax Exemption
Required Documents for Established Charities
- A letter requesting the recognition of the tax exemption status
- A copy of the relevant certificate of registration
- A certified true copy of the instrument and rules governing its activities
- A limited company – the Articles of Association
- A trust – the trust deed,
- A society – the constitution
- A list of any activities which have been carried out in the past 12 months and are planned within 12 months ahead.
- A list of members of the governing body
- A copy of the company’s accounts for the last financial year (for charities established for more than 18 months)
Required Documents for Unestablished Charities
- A letter requesting the recognition of tax exemption status
- A draft of the instrument and rules governing its activities
- A list of the activities planned for the next 12 months from the date of establishment or date of application
- A list of founder members/ settlors (for trusts only) and proposed members of the governing body
Submit the Application
Once the required documents are ready, send them to: the Commissioner of Inland Revenue, G.P.O. Box 132, Hong Kong.
Things to Note
Duty
- If the following circumstances are changed, charities are obligated to inform IRD of the change:
- Correspondence address;
- Alteration to the governing instrument;
- Termination of the subsidiary body;
- Cessation of operation, dissolution, or winding up.
- A charity is required to disclose its remuneration to its employees.
Review of Tax Exemption Status
The IRD will, from time to time, call for accounts, annual reports, etc. to check whether the operations are for charitable purposes. If there are any unlawful irregularities, IRD will request further evidence. After further investigation, if a charity is found to be contravening its charitable objects, its tax exemption status will be terminated and taxes will be assessed.
Additional Readings:
- [OFFICIAL] Tax guide for charitable institutions and trusts of a public character by Inland Revenue Department
