Tax-Exempt under IRO S88

The proviso to section 88 of the Inland Revenue Ordinance (IRO) provides that where a charity carries on a trade or business, the profits derived from such trade or business are exempt from profits tax only if all the following conditions are satisfied:
1. the profits are applied solely for charitable purposes；

2. the profits are not expended substantially outside Hong Kong; and 

3. either-

(a) the trade or business is exercised in the course of the actual carrying out of the expressed objects of such institution or trust; or
(b) The work in connection with the trade or business is mainly carried on by persons for whose benefit such an institution or trust is established.

It is essential that a charity is established by a written governing instrument, which is a formal document setting out the key provisions regarding the charity’s administration such as the charitable purposes or objects, composition of the governing body and how the meetings will be held. A charity’s governing instrument should generally include the clause stating precisely and clearly the charitable purposes for which the charity is established, as well as certain other crucial clauses.

The charity often takes the form of a guarantee company registered with Hong Kong Company Registry. An audited financial statement and annual return are required to be submitted to the Company Registry.

The procedures to apply for a tax exemption under S88 are typically as follows:

1. Register a guarantee company with Company Registry,

2. Compose the object and articles of the charity,

3. list a charitable activity held in the past 12 months and/or an scheme in the next 12 months,

4. file application with Inland Revenue Department with all required documents.

A charity or foundation also can apply for removing the wording of “limited company” from its name after the S88 tax exemption is awarded.