Section 88 of the Inland Revenue Ordinance, tax-exempt status for charities? Is running a “business” exempt from profits tax?

Charities in Hong Kong have attracted the attention of the public. Since the establishment of relevant organizations has made a lot of contributions to the society, the Government has been providing various support to accredited charities, including Section 88 of the Inland Revenue Ordinance. What is the content? How can taxpayers find accredited charities? This article will answer them one by one.

What is section 88 of the Inland Revenue Ordinance? Do accredited charities enjoy tax-exempt status?

Pursuant to section 88 of the Inland Revenue Ordinance, any charitable institution or charitable trust of a public nature, the trade or business of the trade or business is exempt from profits tax if certain conditions are met.

According to the guidelines of the Inland Revenue Department, charitable organizations may request the Department to confirm the tax-exempt status of their organizations, generally subject to the following requirements:

• the trade or business is carried on in practice for the express purpose of the institution or trust; or

• The work related to the trade or business is mainly carried out by persons for whose benefit the institution or trust was established.

According to Appendix 1 of the Inland Revenue Department’s “Tax Guidelines for Charities and Trusts of a Public Character”, examples of charitable purposes judged by the court include:

• Help the poor;

• Rescue victims of special disasters;

• Establish or operate a non-profit-making school;

• Provide scholarships;

• Dissemination of knowledge in specific disciplines;

• establish or operate a church;

• Establishment of religious institutions of a public nature;

• Rescue the sick;

• Rescue the physically and mentally handicapped;

• Prevention of animal cruelty;

• Protect the environment or suburbs.

If a charity runs a “business”, is it exempt from profits tax?

If a charity operates any trade or business, the profits of the charity must meet the following conditions to qualify for tax-exempt status:

• Profits obtained for purely charitable purposes;

• Most of the profits are not used outside Hong Kong;

However, since the definition of “business” in the tax regulations is not exhaustive, whether a charity operates a business will likely depend on individual cases, but generally consider facts such as nature, size, and profit-making motives.

How can I check the list of charities and charitable trusts?

A list of charities and charitable trusts exempt from tax under section 88 of the Inland Revenue Ordinance can be found at the following website. Charitable donations made by members of the public to the authorized institutions on the list can be claimed as charitable donations for the year of assessment in respect of individuals or businesses subject to salaries tax, personal assessment, or profits tax.

However, although the Inland Revenue Department publishes the “List of Charities Exempted from Tax under Section 88”, the Department emphasizes that it does not constitute a formal register of charities, and charities that do not agree to publish their names and do not request tax-exempt status from the Inland Revenue Department May Not included.

How to maintain tax-exempt status for charities? Are there principles and standards?

Commonly known as “88-licence” charitable organizations, the Inland Revenue Department has corresponding principles and standards for this. The tax-exempt status was established and clearly defined as early as 1949.

To maintain the tax-exempt status of charities, the Inland Revenue Department reviews the tax-exempt status of recognized charities every four years to ensure that the activities of the charities concerned “directly further their purposes or contribute to the achievement of those purposes”. and decide after reviewing all reasons or explanations to correct the tax-exempt status of the relevant institution.

In general, if a charity conducts its activities “for political purposes”, the charity may lose the relevant tax exemption rights.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.