Philanthropic Giving and Charitable Trusts in Hong Kong: Structuring Your Legacy

Introduction

Philanthropy occupies an increasingly prominent place in the wealth planning strategies of high-net-worth individuals and families in Hong Kong. Whether motivated by a desire to give back to the community, to instil values across generations, or to create a lasting institutional legacy, structured charitable giving offers significant advantages over ad hoc donations — from tax efficiency to governance and impact measurement.

This article examines the principal vehicles available for philanthropic giving in Hong Kong, including charitable trusts, the Section 88 tax exemption regime, foundations, and international philanthropic structures. It also addresses the practical considerations that donors and their advisers should navigate when designing a giving strategy aligned with personal and family values.

The Legal Framework for Charity in Hong Kong

Unlike jurisdictions such as England and Wales, Hong Kong does not have a single comprehensive Charities Act. Instead, the legal framework for charity is derived from a combination of common law (the law of trusts and equity), the Inland Revenue Ordinance (IRO), and sector-specific regulations.

Under Hong Kong common law, charitable purposes are recognised in four principal categories, drawn from the English case of Income Tax Special Purpose Commissioners v Pemsel [1891]:

• Relief of poverty
• Advancement of education
• Advancement of religion
• Other purposes beneficial to the community

Modern Hong Kong courts and the Inland Revenue Department (IRD) apply a broader conception of charitable purposes, consistent with developments in English charity law, including purposes such as the promotion of health, the advancement of the arts and culture, and environmental protection, provided these purposes are for the public benefit.

Tax Exemption Under Section 88 of the Inland Revenue Ordinance

What Is Section 88 Status?

Section 88 of the IRO provides that charitable institutions or trusts of a public character are exempt from profits tax in Hong Kong. This is the cornerstone of tax-efficient philanthropy in Hong Kong: once an organisation obtains Section 88 status, its income and gains applied for charitable purposes are not subject to profits tax.

Crucially, donations to Section 88 organisations are tax-deductible for the donor under Section 26C of the IRO, subject to a cap of 35% of the donor's assessable income (or profits, for corporate donors). This deductibility makes giving to Section 88 charities particularly attractive from a tax planning perspective.

Obtaining Section 88 Status

Applications for Section 88 status are made to the IRD. The key requirements are:

Charitable purpose: The organisation must be established and operated for charitable purposes as recognised under Hong Kong law.

Public benefit: The charitable purpose must benefit the public or a sufficient section of the public. A trust or institution that restricts its benefits to a private class (e.g., members of a particular family) will not qualify.

Non-profit distribution: Surpluses must not be distributed to members or related parties. All income and gains must be applied exclusively for the charitable purpose.

Proper governance: The organisation must have appropriate governance arrangements, including a constitution or trust deed that reflects its charitable character.

The IRD maintains a list of approved charitable organisations on its website, providing donors with a convenient reference for eligible donees.

Charitable Trusts

What Is a Charitable Trust?

A charitable trust is a trust established for exclusively charitable purposes. Unlike a private trust (which benefits identified individuals), a charitable trust benefits the public or a defined public class. Key features include:

• The trust is constituted by a trust deed appointing trustees and defining the charitable purposes and distribution policy
• The trust has perpetual existence — unlike private trusts, charitable trusts are not subject to the rule against perpetuities
• The trustees hold and manage the trust assets for the benefit of the charitable purposes
• If the original purposes become impossible or impractical, the court may apply the cy-près doctrine to redirect the trust assets to similar charitable purposes

Advantages of a Charitable Trust

Charitable trusts offer several advantages as a philanthropic vehicle:

Flexibility of assets: A charitable trust can hold a wide range of assets, including cash, securities, real property, and interests in private companies.

Perpetual giving: The trust survives the donor, allowing philanthropic giving to continue across generations in accordance with the donor's wishes as expressed in the trust deed.

Privacy: Unlike a company limited by guarantee, a charitable trust is not required to file public accounts, offering a degree of privacy in the administration of giving.

Tax efficiency: Upon obtaining Section 88 status, the trust's investment income and gains are exempt from profits tax, maximising the resources available for charitable distribution.

Establishing a Charitable Trust

To establish a charitable trust in Hong Kong:

• Draft a trust deed that clearly defines the charitable purposes, the class of beneficiaries (or the public benefit objective), the trustees' powers and duties, and the distribution policy
• Appoint one or more trustees (individuals or a corporate trustee), who may include the donor or their family members, subject to the requirements for good governance and public benefit
• Transfer the initial trust fund to the trustees by way of gift
• Apply to the IRD for Section 88 status, submitting the trust deed and supporting information

Once established, the trustees must administer the trust in accordance with the trust deed and their fiduciary duties, maintaining proper accounts and records and ensuring all distributions are made for qualifying charitable purposes.

Companies Limited by Guarantee

An alternative to the charitable trust is the company limited by guarantee (CLG) — a not-for-profit company structure used by many charities, social enterprises, and professional bodies in Hong Kong. Key features of the CLG structure include:

• Legal personality separate from its members, allowing the CLG to own property and enter contracts in its own name
• Members provide guarantees (typically nominal) rather than share capital
• Directors (the governing board) manage the organisation in accordance with its articles of association and the Companies Ordinance
• Subject to Section 88 approval, the CLG is exempt from profits tax
• Annual accounts must be filed with the Companies Registry, providing a degree of public transparency

The CLG structure offers the advantage of limited liability for members and directors (subject to fiduciary duties), and is well-suited to organisations with a broad membership base or that wish to engage with the public as a recognisable legal entity.

Donor-Advised Funds and Community Foundations

For donors who wish to achieve the tax benefits of charitable giving without the administrative burden of establishing and operating a dedicated vehicle, donor-advised funds (DAFs) and community foundations offer a compelling alternative.

Under a DAF arrangement, the donor makes an irrevocable gift to a sponsoring organisation (which itself holds Section 88 status), and then advises that organisation on how to distribute grants to qualifying charities over time. The donor obtains tax deductibility on making the gift, while retaining the ability to direct giving according to their priorities.

Community foundations in Hong Kong, such as the Hong Kong Community Foundation, operate similar models, pooling philanthropic capital from multiple donors and deploying it across a range of charitable causes.

Philanthropic Structures for Family Offices

For family offices and ultra-high-net-worth families, philanthropy is often integrated into the broader family governance and wealth planning framework. Common approaches include:

Dedicated family foundation: A CLG or charitable trust established and controlled by the family, operating as a vehicle for the family's collective philanthropic activity. The foundation may employ professional staff, maintain a grants programme, and engage in impact measurement.

Named endowments: Contributions to established charitable institutions (universities, hospitals, arts organisations) in exchange for naming rights — a legacy-building strategy that carries the family name forward without the administrative complexity of an independent foundation.

Social impact investing: Some family offices integrate philanthropy with impact investment, deploying capital into enterprises that generate both financial returns and measurable social or environmental benefits. The legal structures for impact investing vary — from conventional equity or debt investments to hybrid instruments — and require careful legal structuring.

Cross-Border Philanthropic Considerations

Giving to Overseas Charities

Hong Kong residents wishing to support charities established outside Hong Kong face a limitation: Section 26C deductibility is available only for donations to Hong Kong Section 88 organisations. Donations to foreign charities, however worthy, do not give rise to a tax deduction in Hong Kong.

One solution is to channel giving through a Hong Kong Section 88 entity that itself makes grants to foreign charities — a "pass-through" structure that preserves the deduction while allowing international impact.

Foundations in Other Jurisdictions

For donors with a global philanthropic vision, structures in other jurisdictions may be appropriate, including:

• Cayman Islands Foundations: A relatively new vehicle combining features of trusts and companies, increasingly used in philanthropy and purpose-driven giving by families connected to the Cayman Islands financial ecosystem
• Singapore Section 40 Charities: Donor-friendly charity structure, relevant for families with connections to Singapore
• US 501(c)(3) structures: For families with US beneficiaries or connections, US tax-exempt foundations offer deductibility for US taxpayers

Cross-border philanthropic structures require advice on the interaction of multiple tax regimes and the legal requirements of each jurisdiction.

Governance Best Practices for Charitable Organisations

Regardless of the vehicle chosen, good governance is essential to the long-term effectiveness and credibility of a charitable organisation. Best practices include:

Board composition: Appoint a diverse, qualified board with relevant expertise and a commitment to the organisation's mission. Avoid over-representation of family members where this could compromise independence.

Conflict of interest policies: Implement and enforce robust conflict of interest policies to prevent self-dealing and ensure that all grants and expenditures serve the charitable purpose.

Accounts and records: Maintain accurate financial accounts and retain records of all grants and charitable activities. Charities that also engage in non-charitable activities must maintain adequate accounting separation.

Grantmaking policies: Adopt a structured grantmaking process with clear criteria, due diligence on recipient organisations, and impact measurement mechanisms.

Succession planning: Address leadership succession within the governing documents to ensure the organisation's continuity beyond the founding donor generation.

Practical Steps for Donors

Individuals and families contemplating structured philanthropy in Hong Kong should consider the following steps:

Clarify philanthropic intent: Before selecting a vehicle, articulate the purposes, geographic focus, and governance model for the giving programme. Different causes and geographies have different structural implications.

Assess tax implications: Consider the interaction of charitable giving with the donor's overall tax position, including profits tax, salaries tax, and estate planning objectives.

Engage specialist advisers early: Trust and estate lawyers, tax advisers, and philanthropy consultants can guide the structural decisions and help draft governing documents that withstand regulatory scrutiny.

Consider the long game: Philanthropic vehicles are intended to endure. Drafting flexibility into the trust deed or articles of association — allowing trustees to adapt investment and distribution policies to changing circumstances — is important for longevity.

How Alan Wong LLP Can Help

Our private wealth and trusts practice advises individuals, families, and family offices on all aspects of philanthropic structuring in Hong Kong and across the Asia-Pacific region. We assist clients with establishing charitable trusts and companies limited by guarantee, applying for Section 88 status, drafting governance documents, and integrating philanthropy into broader estate and succession planning.

If you are considering establishing a charitable vehicle or wish to review your existing giving structure, please contact our team for a confidential discussion.