Digital Assets & Virtual Assets
RWA Tokenisation in Hong Kong: Legal Framework and Structuring Guide
Introduction
Impact investing — the deployment of capital with the dual objective of generating measurable social or environmental impact alongside financial returns — has grown rapidly among Hong Kong's UHNW individuals, family offices, and institutional investors. Philanthropy and impact investing sit on a spectrum, from outright charitable giving with no expectation of return, through programme-related investments and impact-first debt, to mainstream ESG-integrated investing that seeks market returns with positive impact.
Hong Kong provides a range of legal structures to accommodate different points on this spectrum, each with different tax and regulatory implications.
Charitable Structures
Charitable Trusts
A charitable trust is a trust established for exclusively charitable purposes, recognised under common law and the Charitable Uses Ordinance (Cap. 206). Charitable purposes in Hong Kong are broadly those that benefit the community and fall within recognised categories — relief of poverty, advancement of education, advancement of religion, and other purposes beneficial to the community.
A charitable trust can apply to the Inland Revenue Department (IRD) for recognition under Section 88 of the Inland Revenue Ordinance (Cap. 112), which exempts the trust from profits tax on charitable activities and allows donors to deduct qualifying donations against Hong Kong salaries or profits tax (up to 35% of assessable income).
Companies Limited by Guarantee
A company limited by guarantee (CLG) is a corporate alternative to a charitable trust for philanthropic purposes. Like a charitable trust, it can apply for Section 88 recognition. CLGs are often preferred for larger or more operationally complex philanthropic organisations because the corporate structure allows for a professional board, clear governance, and legal personality to hold assets and enter contracts.
Section 88 Charities
Recognition under Section 88 of the IRD is the key step for any charitable structure wishing to offer tax deductibility for donations. The process involves an application to the IRD demonstrating that the organisation's purposes are exclusively charitable, that it is administered properly, and that its income and assets are applied for charitable purposes only.
Impact Funds and Blended Finance
For investors seeking both financial returns and impact, a structured fund approach is more appropriate than a pure charitable vehicle. Impact funds typically take one of several forms:
Grant-Making with Programme-Related Investments
Some philanthropic foundations combine outright grants with programme-related investments (PRIs) — concessionary loans or equity investments made to support the foundation's charitable purposes, where a return (however modest) is anticipated. PRIs allow foundations to deploy capital more efficiently, as repaid funds can be recycled into new investments.
Impact Investment Funds
A formal impact investment fund (typically structured as a Cayman ELP or LPF) accepts capital from investors seeking a combination of financial returns and impact. The fund's constitution, investment policy, and reporting framework incorporate impact metrics alongside financial objectives. SFC-licensed fund managers can manage impact funds subject to the same regulatory requirements as conventional alternative investment funds.
Social Impact Bonds
Social impact bonds (SIBs) are outcome-based contracts where private investors provide upfront capital to fund social services, and government pays returns conditional on the achievement of pre-agreed social outcomes. The Hong Kong SAR government has explored SIB structures for social services, though the market is at an early stage.
ESG Integration and Impact Measurement
Institutional impact investors in Hong Kong increasingly align with international frameworks for impact measurement and reporting, including the UN Sustainable Development Goals (SDGs), the Impact Management Project (IMP) framework, and the GIIN's IRIS+ metrics system. Fund managers targeting institutional capital should demonstrate robust impact measurement and reporting capabilities alongside conventional financial reporting.
Tax Considerations
Unlike some jurisdictions, Hong Kong does not have comprehensive "social enterprise" tax incentives or concessionary tax treatment for impact investors. The primary tax benefit available is the Section 88 exemption for charities and the related tax deductibility of qualifying donations for donors. Financial returns from impact investments are generally taxed in the same way as other investment returns.
How Alan Wong LLP Can Assist
Alan Wong LLP advises family offices, philanthropists, foundations, and impact investors on the full range of philanthropic and impact structures available in Hong Kong. We assist with establishing charitable trusts and CLGs, obtaining Section 88 recognition, structuring impact investment funds, designing impact measurement frameworks, and navigating the interaction between charitable and investment activities. Our private wealth and investment funds teams work together to provide integrated advice for clients across the philanthropic-to-impact spectrum.
