Charitable Giving and Philanthropic Foundations in Hong Kong

Hong Kong is home to a vibrant philanthropic community, with family offices, ultra-high-net-worth individuals, and corporations increasingly structuring their charitable giving through formal legal vehicles. Understanding the available structures, tax incentives, and regulatory requirements is essential for anyone looking to establish a lasting philanthropic legacy in Hong Kong or across the region.

The Legal Framework for Charity in Hong Kong

Unlike many jurisdictions, Hong Kong does not have a single comprehensive Charities Act. Instead, the legal landscape for charities is fragmented across several ordinances:

• Inland Revenue Ordinance (Cap. 112), Section 88: The primary provision granting tax-exempt status to charities
• Trustee Ordinance (Cap. 29): Governs the administration of charitable trusts
• Companies Ordinance (Cap. 622): Governs companies limited by guarantee used as charitable vehicles
• Charities Ordinance (Cap. 111) and the Charities Notice: Govern public collections and solicitation of donations

The Inland Revenue Department (IRD) is the de facto regulator of charities in Hong Kong, as Section 88 status (charitable tax exemption) requires IRD approval and ongoing compliance.

Section 88 Tax Exemption

Under Section 88 of the Inland Revenue Ordinance, a charitable institution or trust of a public character is exempt from Hong Kong profits tax on its income and gains. To qualify:

• The entity must be established and operated exclusively for charitable purposes
• No part of its income or property may be paid or transferred to its members or directors (except as reasonable remuneration for services)
• The entity must be of a public character (i.e., not set up to benefit a private class of persons)

Charitable purposes in Hong Kong are broadly defined and generally align with the English law categorisation: relief of poverty, advancement of education, advancement of religion, and other purposes beneficial to the community. The IRD applies these tests pragmatically. Purely private benefit purposes (e.g., providing scholarships only for descendants of a particular family) will not qualify.

Once Section 88 status is granted, donations made by individuals and corporations to approved charities are tax-deductible:

• Individuals: Charitable donations to approved charities are deductible for Salaries Tax and Personal Assessment purposes, subject to a minimum of HK$100 and a maximum of 35% of the donor's assessable income (after allowances)
• Corporations: Charitable donations are deductible for Profits Tax purposes, subject to the same 35% cap of assessable profits

Charitable Vehicles in Hong Kong

There are three main legal structures used for philanthropic foundations in Hong Kong:

1. Charitable Trust

A charitable trust is a private law arrangement under which trustees hold property on trust for charitable purposes. Key features:

• Flexibility: The trust deed can be tailored to specific charitable objects and administrative requirements
• Perpetual existence: Unlike a company, a trust does not have share capital and can exist in perpetuity
• Governance: Managed by trustees (minimum typically 2–3), who can be individuals or corporate trustees
• No separate legal personality: The trust itself is not a legal person; contracts and property are held by the trustees in their capacity as such
• Registration: No formal registration of the trust itself is required (unlike companies), but Section 88 approval must be obtained from the IRD

Charitable trusts are commonly used for family philanthropic foundations where the founders wish to retain flexibility in governance and succession of trustees.

2. Company Limited by Guarantee

A company limited by guarantee (CLG) is a non-profit company whose members undertake to contribute a fixed amount (typically HK$100 or less) to the company's assets on winding up. Key features:

• Separate legal personality: The CLG is a distinct legal entity, capable of holding property, entering contracts, and suing in its own name
• Perpetual succession: The CLG continues despite changes in membership or directors
• Governance: Managed by a board of directors; members vote at general meetings
• Transparency: Annual reports and accounts must be filed with the Companies Registry (publicly accessible)
• Compliance: Subject to full Companies Ordinance compliance requirements including annual return, audit, and (if the CLG has Section 88 status) IRD reporting

CLGs are popular for larger, more institutional philanthropic operations where a formal governance structure and public accountability are desirable.

3. Unincorporated Association

An unincorporated association is an informal grouping of individuals pursuing a common charitable purpose, without the formality of a trust or company. It has no legal personality, and members may be personally liable for the association's obligations. This structure is generally unsuitable for significant philanthropic activities and is most appropriate for small community groups or informal charitable endeavours.

Applying for Section 88 Status

To obtain Section 88 tax-exempt status, the entity (charitable trust or company) must apply to the IRD by submitting:

• The governing document (trust deed or Memorandum and Articles of Association / Constitution)
• A detailed description of the charitable purposes and proposed activities
• Information on governance arrangements (trustees/directors, decision-making procedures)
• Evidence that no private benefit will flow to members or founders

The IRD reviews the application and may request additional information or amendments to the governing document to ensure compliance with Section 88 requirements. Processing times vary from a few weeks to several months depending on complexity. Once granted, Section 88 status can be relied upon by donors to claim tax deductions.

The IRD maintains a List of Approved Charitable Institutions and Trusts of a Public Character on its website, which donors can consult to verify a charity's status before making a deductible donation.

Governance and Compliance for Approved Charities

Charities with Section 88 status must comply with ongoing obligations to maintain their exempt status:

• Charitable objects: Activities must remain within the scope of the approved charitable purposes. Material changes require notification to and re-approval by the IRD
• No private benefit: No income or property may be paid to members, directors, or associates other than as reasonable remuneration for services rendered
• Annual reporting: The IRD may request annual financial statements and activity reports
• Investment of funds: Trustees and directors must invest charitable funds prudently in accordance with the governing document and applicable law
• Related party transactions: Transactions between the charity and its founders, trustees, or directors require careful governance to avoid conflicts of interest

Public Collections and Fundraising

Charities wishing to solicit donations from the public in Hong Kong (e.g., through street collections, flag days, or telephone solicitation) must obtain a Permit for Public Collections from the Social Welfare Department. The permit specifies the dates, locations, and manner of the collection. Failure to obtain a permit is a criminal offence.

Online fundraising is increasingly common and raises distinct regulatory questions regarding cross-border solicitation, payment processing, and donor data protection under the Personal Data (Privacy) Ordinance.

Cross-Border Philanthropy

Many Hong Kong philanthropists wish to support causes in Mainland China or other Asian jurisdictions. Several considerations arise:

• Mainland China: Donations to Mainland Chinese organisations do not qualify for Hong Kong tax deduction unless the recipient is itself an approved Section 88 entity in Hong Kong. Some philanthropists establish a Hong Kong foundation that then makes grants to vetted Mainland partners. Transfers of funds to Mainland China are subject to applicable foreign exchange and remittance rules.
• Other Asian jurisdictions: Many Asian countries (Singapore, Malaysia, etc.) have their own charity registration and tax exemption regimes. A Hong Kong foundation can typically make grants internationally, but local advice in the recipient jurisdiction is recommended.
• International foundations: Some high-net-worth families establish foundations in multiple jurisdictions (e.g., a Hong Kong CLG alongside a Singapore charity or a Cayman foundation) to achieve the most efficient cross-border philanthropic structure.

Donor Advised Funds

Donor Advised Funds (DAFs) are an increasingly popular philanthropic vehicle globally but are less developed in Hong Kong compared to jurisdictions like the United States or the United Kingdom. In essence, a donor makes an irrevocable contribution to a sponsoring organisation (typically a community foundation or financial institution), receives an immediate tax deduction, and then advises on grants from the fund over time. In Hong Kong, several community foundations and financial institutions offer DAF-type arrangements, though the tax treatment and structural mechanics differ from US or UK models. Legal advice is recommended before establishing a DAF arrangement.

Succession Planning for Philanthropic Foundations

A key concern for family philanthropists is ensuring their foundation outlasts them and continues to reflect their values across generations. Effective succession planning for a philanthropic foundation includes:

• Clear statement of philanthropic mission and values in the governing document or a separate letter of wishes
• Trustee/director succession mechanisms: provisions for appointing successor trustees or directors, including next-generation family members or independent professionals
• Investment policy statement: a documented framework for managing the foundation's endowment over the long term
• Grant-making policy: documented criteria and processes for evaluating and approving grants to ensure consistency across generations
• Family engagement: structures for involving the next generation in philanthropic decision-making (e.g., a junior advisory committee)

Integration with Overall Wealth Planning

For ultra-high-net-worth families, philanthropy is increasingly integrated into the overall family office and wealth planning structure. A charitable foundation can serve multiple functions:

• Tax efficiency: Concentrating appreciated assets in a charitable trust can reduce tax exposure while achieving philanthropic goals
• Family cohesion: A shared philanthropic mission can unite family members across generations and geographies
• Reputation and legacy: A well-governed foundation with a clear mission enhances the family's public profile and legacy
• Investment management: The foundation's endowment can be managed alongside the family's broader investment portfolio by the family office

Conclusion

Hong Kong offers a flexible and tax-efficient environment for philanthropy, anchored by the Section 88 regime and a variety of available legal structures. Whether you are establishing a new charitable foundation, restructuring an existing one, or integrating philanthropy into your broader wealth plan, early legal advice is critical to ensure the structure achieves your charitable goals while meeting regulatory requirements.

Alan Wong LLP advises families, family offices, and corporate donors on the establishment and governance of charitable foundations, Section 88 applications, and cross-border philanthropic structures. Contact us to discuss your philanthropic objectives.