Hong Kong: City of Philanthropy
Hong Kong is renowned for being an international financial center with a large number of high-net-worth individuals and families. With the growth in wealth, these people start considering how to do good to the community and to the world. Many set up charities to serve various social causes and issues.
Registration of charities has to go through the approval process laid down by the Inland Revenue Department (IRD). Three types of entities with appropriate objects can be approved. They are: companies limited by guarantee (guarantee companies) incorporated under the Companies Ordinance (Cap 622), societies registered under the Societies Ordinance (Cap 151) and trusts. Most charities are guarantee companies because of their transparency and ease of setting up.
Guarantee companies must have at least 2 individual directors and 1 member (either corporate or individual). No capital requirement. Member is only required to contribute to the assets of the company in the event of its liquidation when there is insufficient asset to pay off its debt. The contributing amount is not defined. It could be as low as HK$1 or any currency. Articles of association (Articles) define the rights and obligations of directors and member(s) as well as the objects of the company. This document together with the specified form containing details of directors / member(s) / company secretary / registered office address have to be submitted to the Companies Registry (CR) for registration. All documents are available for download at the CR website. Incorporation fee chargeable on the number of members and business registration (BR) fee are payable. BR fee is payable annually but will be cancelled when the company is approved as a charity.
Application for charity registration can be done simultaneously when the incorporation process commences. Objects of the company must be in line with the tax guide issued by the IRD. They are: relief of poverty, advancement of religion, advancement of education and other purposes which are beneficial to the community. The first 3 can be for the benefit of the world while community services are expected to be mainly for the local community. A company can adopt one or more of the approved objects. The Articles, the specified form mentioned above together with a list of activities planned for the forthcoming 12 months can be sent to IRD for review.
Once the company is incorporated, notification has to be sent to the IRD again which will, in due course, responses with queries on the objects and activities. With one or more rounds of correspondence, approval is usually given when the Articles are amended in accordance with the suggestions of the IRD.
Alternatively, application can be made to IRD for charity status first before incorporation. This may take a longer time for the charity to be up and running as the company must be fully incorporated before any activity could be performed.
Once a guarantee company is granted the charity status, any donation of or above HK$100 entitled the donor for tax exemption.
It should be noted that if the company conducts business deemed not within its objects, the amount may be subject to profits tax. To minimize queries from the IRD, activities must be planned and carried out in accordance with the objects. Activities in line with the objects are, in general, tax exempt.
Early this year, the Government of the Hong Kong Special Administrative Region announced a plan to strengthen the status of Hong Kong as a philanthropic center. The biggest local charity organization, Hong Kong Jockey Club, announced in September the donation of HK$5 billion for the establishment of the Institute of Philanthropy. This Institute will work with fellow foundations and all kinds of stakeholders to promote philanthropic thought leadership at local, regional and global levels for the common good around the globe.
Future activities comprise connecting and bringing together thought leaders from fellow foundations and other institutions to develop programs to enhance the skills and capacities of professionals as well as to set up guidelines on best practices. Researches will also be conducted with universities and all other relevant institutions on philanthropic issues and to publish books and papers on the projects in relation thereto.
Stay tuned for all the philanthropic events in the years to come!
Useful links:
https://www.cr.gov.hk/en/services/fees.htm
https://www.ird.gov.hk/eng/tax/ach.htm#a02
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