Establishing a Charitable Foundation in Hong Kong: Legal Structures and Tax Exemption Guide

Introduction

Hong Kong has a vibrant philanthropic sector, with substantial giving by ultra-high-net-worth families, listed company groups, and international foundations. Whether you are a high-net-worth individual seeking to formalise your giving, a family establishing a philanthropic legacy, or a corporate group creating a foundation for ESG and social impact purposes, Hong Kong offers several effective legal structures for charitable giving.

This guide explains the main vehicles for philanthropy in Hong Kong, the critical Section 88 tax exemption, governance requirements, and practical considerations for donors and foundation founders.

Why Establish a Charitable Foundation in Hong Kong?

Hong Kong’s legal framework offers several advantages for philanthropy:

• Tax exemption – charitable institutions exempt under Section 88 of the Inland Revenue Ordinance (IRO) are exempt from profits tax, with donations eligible for tax deduction by donors;
• Legal infrastructure – a mature common law system with well-established charitable trust law and company law;
• Gateway to Asia – foundations based in Hong Kong can efficiently deploy assets to charitable projects across Mainland China, Southeast Asia, and beyond;
• Reputation – Hong Kong’s international credibility enhances the reputation of foundations based here for international fundraising and grant-making.

Legal Structures for Philanthropy in Hong Kong

1. Company Limited by Guarantee (CLG)

The most common structure for charitable foundations in Hong Kong is a company limited by guarantee incorporated under the Companies Ordinance (Cap. 622). Key characteristics include:

• Members guarantee a nominal amount (e.g., HKD 1) on winding up in lieu of share capital;
• No distribution of profits to members – all income and assets must be applied for charitable purposes;
• Separate legal personality, enabling the foundation to hold assets, enter contracts, and employ staff;
• Governed by a board of directors (often called trustees or governors in a philanthropic context);
• Incorporation is straightforward and relatively inexpensive.

Upon incorporation, the CLG applies to the Inland Revenue Department (IRD) for Section 88 exemption and to the Companies Registry for waiver of the requirement to include “Limited” in its name (for genuine charitable purposes).

2. Charitable Trust

A charitable trust is a trust created under Hong Kong’s trust law (based on English equity principles, supplemented by the Trustee Ordinance, Cap. 29) under which trustees hold and apply trust assets exclusively for charitable purposes. Key features include:

• No separate legal personality – assets are held by the trustees rather than the trust itself;
• Flexibility in structuring – the trust deed can be tailored to the founder’s philanthropic intentions;
• Perpetuity – a valid charitable trust can exist indefinitely (unlike trusts for private purposes, which are subject to the rule against perpetuities);
• The cy-près doctrine allows the court to vary the objects of a charitable trust if the original purposes become impossible or impractical.

Charitable trusts in Hong Kong may also apply for Section 88 exemption. The trust deed must confine objects to charitable purposes only.

3. Donor-Advised Funds (DAF)

A donor-advised fund is an account established within an existing public charity (the sponsoring organisation), to which a donor makes an irrevocable contribution and receives an immediate tax deduction (subject to IRD approval). The donor may then advise the sponsoring organisation on grants from the account to eligible charities.

DAF structures are less common in Hong Kong than in the United States, but certain community foundations and private banks offer DAF-like services. They offer simplicity for donors who wish to benefit from immediate deductibility without the governance burden of a standalone foundation.

Section 88 Tax Exemption

What Is Section 88?

Section 88 of the Inland Revenue Ordinance exempts charitable institutions or trusts of a public character from profits tax. A Section 88-exempt organisation also enables donors to deduct contributions from their assessable income (up to 35% of their assessable income) under Section 26C of the IRO.

Qualifying as a Charity

To qualify for Section 88 exemption, the institution or trust must:

• Be established exclusively for charitable purposes;
• Be for the benefit of the public or a sufficient section of the public (not a private class);
• Not operate for private profit or benefit.

Recognised Charitable Purposes

Hong Kong follows the English law categories of charitable purposes (as updated by the Charities Act 2006 in England, which serves as persuasive guidance):

• Relief of poverty;
• Advancement of education;
• Advancement of religion;
• Any other purpose beneficial to the community.

The “other purposes beneficial to the community” category is broad and includes medical research, arts and culture, environmental protection, animal welfare, and disaster relief. The IRD applies the public benefit test rigorously; activities that primarily benefit private individuals or members will not qualify.

Application Process

To obtain Section 88 status, the organisation must:

• Be incorporated (CLG) or constituted (charitable trust);
• Submit an application to the IRD with the governing documents (articles of association or trust deed), proposed activities, financial projections, and any other relevant information;
• Demonstrate that all objects and activities are exclusively charitable;
• Provide evidence that activities will benefit the public.

The IRD processes Section 88 applications over several weeks to months. If granted, the exemption applies from the date of application or incorporation (subject to the IRD’s discretion).

Ongoing Compliance

Section 88 organisations must:

• File annual returns with the IRD confirming continued charitable status;
• Maintain accounts showing charitable income and expenditure;
• Not undertake non-charitable activities or distribute surpluses to private individuals;
• Obtain IRD approval before any amendment to the governing documents that could affect charitable status.

Governance Requirements

A well-governed charitable foundation builds credibility with donors, grantees, and the public. Best practices include:

• Independent board – a majority of independent directors/trustees without conflicts of interest with the foundation’s activities;
• Conflicts of interest policy – requiring directors to disclose and recuse themselves from decisions in which they have a personal interest;
• Grant-making policy – transparent criteria for selecting grantees and evaluating impact;
• Annual report and accounts – published to demonstrate accountability to donors and beneficiaries;
• Investment policy – governing how endowment funds are invested, with consideration for ESG factors and impact investing alignment.

Cross-Border Philanthropy

Many Hong Kong foundations grant to charities or projects in Mainland China, Southeast Asia, or other jurisdictions. Key considerations include:

• Mainland China – foreign foundations must register with Chinese authorities under the Overseas NGO Activities Management Law to operate or fund activities in Mainland China. Direct grants from a Hong Kong foundation to Mainland Chinese organisations require careful legal structuring;
• Overseas grantees – Section 88-exempt organisations must ensure that grants to overseas bodies are used for charitable purposes; the IRD may scrutinise grants to related or controlled overseas entities;
• Tax efficiency – cross-border giving structures may involve establishing parallel foundations in other jurisdictions alongside the Hong Kong CLG.

Family Philanthropy and Legacy Planning

For ultra-high-net-worth families, a charitable foundation can serve both philanthropic and family cohesion purposes. Involving family members in governance, grant-making committees, and strategic direction creates a shared family mission and transmits values across generations. The foundation can also be integrated into a broader estate plan, with bequests in wills directing assets to the foundation on the founder’s death.

Families should consider whether a private foundation (where the family retains control) or a public foundation (with independent governance) better serves their philanthropic goals and governance comfort level.

How Alan Wong LLP Can Assist

Alan Wong LLP’s Private Wealth & Trusts team advises high-net-worth individuals, family offices, and corporate groups on establishing and operating charitable foundations in Hong Kong. Our services include:

• Incorporation of companies limited by guarantee and drafting of charitable trust deeds;
• Section 88 exemption applications and ongoing IRD compliance;
• Governance framework design, including board structures and conflict of interest policies;
• Cross-border philanthropy structuring, including Mainland China NGO registration advice;
• Integration of philanthropic giving into family estate plans and wealth succession strategies.

Contact us to discuss establishing your charitable foundation or philanthropic vehicle in Hong Kong.