Establishing a charity in Hong Kong

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Demand for philanthropy planning has surged in recent years, especially since the pandemic’s harsh impact on society and livelihoods, with many enterprises, social organisations, religious groups and benevolent individuals seeking efficient, powerful, targeted ways to help socially vulnerable groups.

This article provides practical information for those intending to engage in philanthropy and set up a charity in Hong Kong, presenting an overview of establishment requirements, organisational structures, compliance and governance, obligations and tax exemption.


Although there are no specific laws and regulations overseeing the registration and operation of charities, the Inland Revenue Department (IRD) provides essential guidelines in the Tax Guide for Charitable Institutions and Trusts of a Public Character, first issued in the 1980s. This is revised from time to time to reflect changes in the tax environment and practical needs, providing updated guidelines on taxation and other related matters of charities or trusts. Its latest revision was updated in September 2021.

  • Establishment Requirements

According to the latest guidance, the following three requirements must be met to set up a legal charity:

  1. An institution or trust must be established solely for charitable purposes – charitable in the legal sense – and can be classified into four main purposes: (1) relief of poverty; (2) advancement of education; (3) advancement of religion; and (4) other charitable purposes that benefit society but do not fall into any of the preceding categories.
  2. A charity must be set up for identifiable public benefit, and the beneficiary must be the general public.
  3. A charity must abide by the law and bear the responsibility of safeguarding national security, and its resources must be used only for charitable work and not to engage in or support any acts and activities that are illegal or detrimental to national security. It is worth noting that this latest requirement is revised in response to implementation of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region.
  • Structures of Charities

Before setting up a charity, the founder must clearly define the organisation’s purpose and clarify its organisational structure to be adopted, based on practical operation and purpose. Generally, charities can be divided into the following categories:

  1. Charitable trust;
  2. Society;
  3. Corporation (including company limited by guarantee) established under the Companies Ordinance; and
  4. Statutory body established in accordance with specific regulations.

A charitable trust is a trust established specifically for a charitable purpose, and its governing instrument is usually a trust deed that defines the purpose of the trust and the power of the trustee. A society is an unincorporated body formed by a group of voluntary members, bound by the rules in its articles of association. On the other hand, the articles of association of a company limited by guarantee established under the Companies Ordinance limit liability of its members to the amount they undertake to pay as the assets of the company at its winding-up, and is therefore suitable for charities and non-profit-making organisations that do not require share capital and profit-sharing. Judging from the actual operation of existing Hong Kong charities, most founders have chosen to set them up in the form of companies limited by guarantee. The guidelines also mention that most of the charities recognised by the IRD for tax exemption are companies limited by guarantee. The reason for this is that, compared with the other structures, companies limited by guarantee have a certain degree of transparency increasing public confidence in their operation. Among these reassurances are:

  1. Operations regulated by their articles of association, which clearly set out the rules related to the mode of operation and management, accessible to the public through the Hong Kong Companies Registry;
  2. They are required to keep and file audited annual financial statements, in accordance with the Companies Ordinance, and as a result financial statements are also available for public review, motivating proper accounts management; and
  3. With no need to share profits, the charity structure without share capital ensures they are not profit-oriented.

In addition, after choosing a name of the charity company, the founder only needs to submit an application form and Notice to the Business Registration Office to the Companies Registry, along with a copy of its articles of association, and pay the registration fee. After the application is approved, the certificate of incorporation and business registration certificate can be obtained. Therefore, the process of setting up a company limited by guarantee is relatively simple, but it should follow another set of procedures to apply for tax exemption from the IRD. Prior to setting up a charity, apart from establishing its general purpose, the organisation should take into account different operational and compliance considerations, including whether these meet all requirements set out in the guidelines, and understand the various applicable structures. After confirming these requirements are met, the charitable organisation may move on to deliberate its governance policies. These relevant compliance requirements will be introduced and summarised in the next part of this series.


Setting up a charity in Hong Kong may sound an attractive proposition, but they are subject to more, not less, compliance requirements than ordinary companies.

  • Governance and compliance

Good corporate governance and compliance is very important to companies, businesses and organisations incorporated in Hong Kong, and the concept of corporate governance covers a lot of aspects.

While legal requirements for corporate governance differ among various types of businesses, they generally include requirements on: accountability of the board of directors, senior management and committees; auditing and reporting; relationships with shareholders and stakeholders; and internal control systems and risk management mechanisms.

Charities, as organisations incorporated and existing under the laws of Hong Kong, must also have in place a sound governance system subject to a series of compliance requirements.

The Guide to Corporate Governance for Subvented Organisations, issued by the Social Welfare Department, outlines best governance practices for subvented organisations, including charities.

  • Governing Instrument

Charities must be established by a written governing instrument. In the case of companies limited by guarantee, the governing instrument is their articles of association. The governing instrument should contain clauses that cover:

  1. Objectives for which the charity is established;
  2. Limiting application of its funds to achieving stated objectives;
  3. Prohibiting distribution of incomes and properties among members;
  4. Prohibiting members of its governing body (e.g. directors, executive committee members, trustees) from receiving remuneration, except in circumstances where the charity can demonstrate that the payment of allowance or remuneration is necessary and reasonable, in which case the prohibition may be relaxed;
  5. Requiring members of its governing body to disclose material interest, and not to vote in respect of a transaction, arrangement or contract in which they are interested;
  6. Specifying how the assets should be dealt with upon dissolution; and
  7. Requiring the keeping of sufficient records of income and expenditure, proper accounting books and compilation of annual financial statements.
  • Continuing Obligations

Since 1 August 2018, charities are required to upload audited accounts of every charity fundraising or lottery activity approved by the Social Welfare Department or Home Affairs Department to the fundraising activities page on the GovHK website.

This applies to all charities, regardless of whether exempted from profits tax under section 88 of the Inland Revenue Ordinance.

After confirmation as tax-exempt, charities are subject to the following continuing obligations: Most charities are companies limited by guarantee, and accordingly must comply with the general requirements under the Companies Ordinance, including the following continuing obligations:
(a)     Submitting accounts, annual reports and other documents to the Inland Revenue Department (IRD) for review of its charitable nature, and if its activities are compatible with the governing instrument. Generally, the IRD performs a review at least every three years on each exempted charity, and the organisation is required to reply within one month of receiving the IRD’s questionnaire;

(b)     Informing the IRD within one month of any changes to its correspondence address, alteration to its governing instrument, termination of its subsidiary body, or cessation of its operation, dissolution or winding-up. Failure of notification may lead the IRD to cease accepting it as a tax-exempt charity;

(c)     If the organisation has earned or is beginning to earn chargeable profits, informing the IRD in writing within four months after the end of the basis period of the relevant year of assessment; and

(d)     Reporting remuneration paid to employees for each year of assessment and preserving such remuneration records, including reporting obligations in respect of the commencement and cessation of employment.

(a)     Preserving corporate records such as the register of shareholders, directors and company secretaries, as well as meeting minutes;

(b)     Notifying the Companies Registry within 15 days of any change to the registered correspondence address, company secretary or director, or company name;

(c)     Companies limited by guarantee should submit an annual return within 42 days from the date of the return (i.e., the end of the nine-month period after the company’s accounting reference period), along with certified true copies of the financial statements, directors’ report and accountant’s report;

(d)     For each accounting year, an annual meeting among members should be held within nine months after the end of the accounting period;

(e)     If the number of members increases beyond the registered number, the Companies Registry should be notified within 15 days from the resolution of increasing members or the increase itself (whichever is earlier).


While governing members generally cannot receive remuneration, charities should nonetheless assume responsibilities of compliance with corporate governance obligations with diligence and professionalism.

Qualified auditors should be engaged to audit the accounts and annual reports submitted to the IRD. The full content of annual reports, including a breakdown of received donations, main costs and expenditures, should be published on the IRD website and made publicly available at all times.

Ultimately, charities may be subject to compliance with even more obligations than an ordinary company. For this reason, prior to establishing a charity, founders are advised to thoroughly consider the issues associated with relevant continuous reporting and compliance requirements.


  • IRO Section 88

Under the laws of Hong Kong, charities are entitled to receive tax benefits after satisfying certain conditions, the most important of which undoubtedly is the exemption of profits tax under section 88 of the Inland Revenue Ordinance (IRO).

According to section 88, if:

  1. profits are applied solely for charity purposes;
  2. such profits are not expended substantially outside of Hong Kong; and
  3. the trade or business is exercised to carry out the expressed objects of the charity, or that it is mainly carried on by persons for whose benefit such charity is established, the charity may be exempted from paying profits tax. However, investee trading companies are not entitled to such an exemption.

In addition, tax exemption is available only for charities subject to the jurisdiction of the courts in Hong Kong, in other words, charities established in Hong Kong or Hong Kong establishments of overseas charities. If donations of such charities are used outside of Hong Kong, such as for alleviating poverty in mainland China or overseas, a section 88 exemption cannot apply.

Charities wishing to qualify for exemption need to submit an application to the Inland Revenue Department (IRD). It should be noted that a tax exemption under section 88 denotes an entitlement of tax benefits under Hong Kong law, but is not a licence or permit issued to the charity. The IRD may review and confirm the charity’s status based on its changes and annual tax declarations, and the tax exemption may also be varied.

  • Practical considerations

Once recognised as a tax-exempted charity, it becomes a priority to address the IRD’s enquiries or review questionnaires in a timely manner. As mentioned above, the IRD has the right to cease recognising a charity as tax-exempt. IRD statistics show that, for the six months ending 30 June 2021, 1,700 tax-exempt charities under section 88 were reviewed, 55 of which were disqualified from tax exemption due to a lack of response or loss of contact.

Therefore, charities wishing to maintain their tax-exempt status should review their operations and charitable activities to ensure they are in line with the charitable objects under their governing instruments, and complete IRD questionnaires on time.

In addition, while the IRD does not keep statistics on the nature of complaints, it generally carries out follow-up actions to several cases every year. In fact, charities can easily fall victim to poor management. For example, according to the annual report of Hong Kong’s Audit Commission in 2017, at least six charities were found to have misused funds, one of which paid as much as HKD13 million (USD1.7 million) in compensation to its directors for three years, and at least 11 parcels of land approved for setting up charities were actually used for running hotels for profit.

There were even reports in 2021 about charities hiring intermediaries to collect donations. Such misconduct and cases have tainted the public perception of charities and the overall reputation of philanthropy, which makes sound governance especially important for running charities.

Although Hong Kong currently does not have any specific law governing charities, government departments have continually explored reform measures. As fundraising and collecting donations are bread and butter for a charity, charities must be aware of managing their donations or funds, as well as the risks of such funds being used for money laundering or other criminal activities.

Although the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (cap. 615) only regulates specified financial institutions and non-financial businesses, such as trusts or company services providers, charities should nevertheless make reference to the corresponding government-issued guidelines.

For example, the Narcotics Division of the Hong Kong Securities Bureau issued An Advisory Guideline on Preventing the Misuse of Charities for Terrorist Financing, which legally requires that known or suspected terrorist property must be immediately reported to the Joint Financial Intelligence Unit.

In addition, the Best Practice Checklist – Management of Charities and Fund-raising Activities, issued by the Independent Commission Against Corruption, provides guidelines on handling donations after collection.


Running a charity takes not only good intent, but also meticulous planning and long-term commitment. Prior to setting up a charity, the purpose of the charity, anticipated events, and the wide range of governing issues that may be encountered should be considered comprehensively. More importantly, prospective philanthropists should be aware that the expansion of philanthropy in Hong Kong will inevitably attract stricter regulation, subjecting them to continuing obligations that may be amended over time, and requiring them to always keep their eyes open for potential risks.

By Diane Fan, Counsel, LC Lawyers LLP

Note: This material has been prepared for general information purposes only and is not intended to be relied upon as professional advice for any cases. Should you need further information or legal advice, please contact us.

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