Donating to Mainland China from Hong Kong: Tax Implications and Best Practices

A comprehensive guide to understanding the tax treatment of cross-border charitable donations between Hong Kong and Mainland China, including Section 88 requirements, intermediary structures, and compliance best practices.

Understanding Hong Kong’s Charitable Donation Framework

Hong Kong’s tax system provides generous incentives for charitable giving, allowing both individuals and corporations to claim deductions for approved charitable donations. However, the framework operates within a clearly defined legal structure that presents unique challenges for donors wishing to support causes in Mainland China.

The Section 88 Requirement

Under Section 88 of the Inland Revenue Ordinance (Cap. 112), an “approved charitable donation” is specifically defined as a donation of money to any charitable institution or trust of a public character which is exempt from tax under Section 88, or to the Government for charitable purposes. This creates the foundational requirement: only donations to Hong Kong-based, IRD-approved Section 88 charities qualify for tax deductions.

For a charity to obtain Section 88 tax-exempt status, it must satisfy three critical conditions:

1. Charitable purpose application: The profits are applied solely for charitable purposes
2. Geographic restriction: The profits are not expended substantially outside Hong Kong
3. Operational requirement: Either the trade or business is exercised in the course of actual carrying out of the expressed objects of the charity, or the work in connection with the trade or business is mainly carried on by persons for whose benefit the charity is established

The second condition – that profits are not expended substantially outside Hong Kong – creates the primary obstacle for charities seeking to operate exclusively in Mainland China while maintaining Section 88 status.

Charitable Purpose Categories

The IRD recognizes four categories of charitable purposes under common law:

This distinction is crucial: while charities focused on poverty relief, education, or religion may conduct activities anywhere in the world (subject to the “not expended substantially outside Hong Kong” requirement), charities under the fourth category must demonstrate direct benefits to the Hong Kong community.

The Cross-Border Challenge: Direct Donations to Mainland Charities

Hong Kong and Mainland China maintain fundamentally separate legal and tax systems. Despite the proximity and increasingly integrated relationship between the two jurisdictions, this separation creates significant implications for charitable giving.

Why Direct Donations Don’t Qualify

Charitable organizations registered solely in Mainland China – even those operating under China’s Charity Law and recognized by Chinese authorities – do not automatically qualify as Section 88 approved charities in Hong Kong. The key barriers include:

• Jurisdictional requirement: Section 88 tax exemption is available only for charities subject to the jurisdiction of Hong Kong courts
• IRD approval requirement: Each charity must individually apply for and receive Section 88 approval from the Hong Kong Inland Revenue Department
• Separate regulatory frameworks: Mainland China operates under the Charity Law administered by various government departments, while Hong Kong operates under the IRO administered by the IRD

This means that a Hong Kong taxpayer who donates directly to a Mainland charity – regardless of how legitimate or beneficial the charity’s work may be – cannot claim a tax deduction under Hong Kong’s salaries tax, profits tax, or personal assessment.

The CDTA and Its Limitations

Hong Kong and Mainland China have entered into a Comprehensive Double Taxation Agreement (CDTA), which includes a Third Protocol. However, the CDTA primarily addresses double taxation relief for income and does not create specific provisions for coordinating charitable donation deductions between the two jurisdictions.

Each region maintains its own independent rules for charitable donation deductions, and the CDTA does not override the fundamental requirement that donations must be made to locally-approved charitable institutions to qualify for tax benefits.

The Intermediary Solution: Hong Kong Charities Supporting Mainland Programs

Despite the restrictions on direct donations, there is a well-established and legitimate mechanism for Hong Kong taxpayers to support charitable causes in Mainland China while obtaining tax deductions: donating through Hong Kong-registered Section 88 charities that conduct programs in Mainland China.

How the Intermediary Structure Works

Many major Hong Kong charities operate programs both locally and in Mainland China. When these organizations maintain Section 88 status, donations to them qualify for tax deductions even when the funds ultimately support Mainland programs. The key is that the donation is made to the Hong Kong charity, which then allocates the funds according to its charitable objectives.

Example: Hong Kong Red Cross

The Hong Kong Red Cross (IRD ref no. 91/356) is an approved charitable institution under Section 88. The organization works closely with the International Red Cross and concerned Red Cross/Red Crescent societies for disaster relief and development projects in Mainland China and overseas. Donations to Hong Kong Red Cross are fully tax-deductible for Hong Kong taxpayers, regardless of whether the funds ultimately support Hong Kong programs or Mainland China programs.

The Hong Kong Red Cross ensures compliance through several mechanisms:

• Opening separate bank accounts for Mainland projects
• Conducting audits according to national or international standards by qualified auditors
• Implementing well-established monitoring mechanisms
• Ensuring donations are used under proper approval procedures

Example: Oxfam Hong Kong

Oxfam Hong Kong is another Section 88 approved charity that runs programs with poor people in Hong Kong, Mainland China, and overseas. Donations are tax-deductible upon receipt of an official receipt, regardless of the ultimate geographic destination of the funds. The organization maintains transparency regarding its use of donations while preserving the tax-deductible status for Hong Kong donors.

Balancing the Geographic Restriction

You might wonder: if Section 88 requires that profits “not be expended substantially outside Hong Kong,” how can charities supporting Mainland programs maintain their tax-exempt status?

The answer lies in the interpretation of “substantially.” The IRD does not prohibit all overseas expenditure; rather, it requires that the majority of a charity’s activities and expenditures remain within Hong Kong, or that the charity’s structure and operations demonstrate sufficient Hong Kong connection. Many established Hong Kong charities achieve this balance by:

• Maintaining significant Hong Kong programs alongside overseas activities
• Ensuring Hong Kong-based governance and administrative structures
• Demonstrating how overseas programs (particularly in Mainland China) benefit the Hong Kong community or align with the first three charitable purposes (poverty, education, religion)
• Operating as part of international networks with strong Hong Kong roots

Philanthropic Intermediaries

Beyond traditional charities, specialized philanthropic intermediaries have emerged to facilitate cross-border giving. Organizations such as Give2Asia and the King Baudouin Foundation (and their global affiliates) provide mechanisms for Hong Kong donors to give internationally while receiving tax deductions. These organizations typically hold Section 88 status in Hong Kong and can process donations for ultimate distribution to charitable causes in Mainland China and other jurisdictions.

These intermediaries offer several advantages:

• Simplified compliance with cross-border regulations
• Expertise in verifying beneficiary charitable status
• Streamlined documentation and verification processes
• Established pathways that help avoid complications
• Professional due diligence on recipient organizations

Tax Deduction Mechanics and Limitations

Deduction Rates and Caps

Both individual and corporate donors can claim deductions for approved charitable donations, but subject to specific limitations:

Key points regarding deduction mechanics:

• Aggregate calculation: The HK$100 minimum and 35% maximum apply to the aggregate of all approved charitable donations in a year of assessment
• Monetary donations only: Only donations of money qualify; donations of property, goods, or services do not qualify
• Non-qualifying payments: Payments for lottery tickets, raffle tickets, admission tickets to charity shows, grave spaces, bazaar goods, or services (such as prayers or ancestral worship reservations) do not qualify
• No carryforward: Unused deduction capacity cannot be carried forward to future years

Tax Year Timing

Hong Kong’s tax year runs from 1 April to 31 March of the following year. The year of assessment is denoted by the year in which the period ends. For example:

• Year of Assessment 2024/25: Covers income from 1 April 2024 to 31 March 2025
• Donation timing: A donation made on 10 April 2024 is eligible for deduction in the year of assessment 2024/25, not 2023/24
• Tax return filing: The IRD issues tax returns in May each year for the preceding year of assessment

Accurate dating of donations is essential for correctly reporting claims on the appropriate tax return.

Documentation Requirements and Compliance

Essential Receipt Information

To claim a tax deduction, donors must obtain and retain official receipts from the charitable organization. The receipt must contain specific information:

1. Full charity name: The complete name of the approved charity as stated in its constitutional document
2. Donation amount: The exact amount stated in Hong Kong dollars
3. Date of donation: The specific date the donation was made
4. Donor identification: Sufficient information to link the donor to the contribution (full name or other identification)
5. Transaction nature: Clear marking that the payment is a “donation,” not mixed with other payments

Record Retention Requirements

The IRD imposes strict record retention requirements:

• Retention period: All donation receipts must be kept for at least 6 years after the end of the basis period to which the tax return relates
• Original receipts: While digital copies are useful for personal records, the IRD may specifically request original receipts during inquiries or audits
• Example: For year of assessment 2024/25 (covering 1 April 2024 to 31 March 2025), receipts should be retained until at least 31 March 2031

Filing Procedures

When filing your tax return:

• Reporting location: Enter the total amount of approved charitable donations in the designated section of your Tax Return – Individuals (BIR60) or Profits Tax Return (BIR51/52)
• No attachment required: You do not need to attach receipts or supporting documents when submitting your tax return
• IRD verification: The IRD may request receipts during processing or subsequent review
• Burden of proof: The responsibility lies with the donor to produce receipts if requested

Enhanced Scrutiny for Cross-Border Donations

When donations are channeled through Hong Kong intermediaries for ultimate use in Mainland China, additional documentation may be prudent:

• Intermediary receipts: Official receipt from the Section 88 Hong Kong charity
• Program documentation: Information about the specific program or project being supported
• Fund flow verification: For corporate donors, bank transfer records confirming the donation
• Mainland recipient information: Where applicable, documentation regarding the Mainland organization’s registration and qualification to receive foreign funds
• Approval documentation: Any required approval documentation from Mainland authorities for larger donations

While not all of this documentation is required for Hong Kong tax purposes, comprehensive records are essential for both tax compliance and mitigating potential scrutiny regarding cross-border fund flows.

Corporate Donations: Additional Considerations

Profits Tax Deductions

Corporations making charitable donations can claim deductions under Section 16D of the IRO for profits tax purposes. The same fundamental requirements apply:

• Donations must be to Section 88 approved charities or the Government
• Maximum deduction of 35% of assessable profits
• Minimum aggregate donation of HK$100
• Monetary donations only

Strategic Philanthropy and ESG Considerations

For corporations, charitable donations to Mainland China through Hong Kong intermediaries can serve multiple strategic purposes:

• ESG initiatives: Demonstrating environmental, social, and governance commitment through regional philanthropy
• Stakeholder engagement: Supporting communities where employees, suppliers, or customers are located
• Brand positioning: Aligning corporate values with cross-border social responsibility
• Tax efficiency: Achieving philanthropic objectives while maintaining deductibility
• Compliance: Navigating complex cross-border regulations through established intermediaries

Due Diligence for Corporate Donors

Corporations making significant donations through intermediaries should conduct appropriate due diligence:

1. Verify Section 88 status: Confirm the Hong Kong charity’s current Section 88 approval using the IRD’s online search tool
2. Review governance: Examine the charity’s governance structure, board composition, and transparency
3. Assess program effectiveness: Evaluate the charity’s track record in Mainland programs
4. Understand fund allocation: Clarify how donations are allocated between Hong Kong and Mainland programs
5. Monitor compliance: Ensure the charity maintains adequate monitoring mechanisms for cross-border activities

Establishing a Hong Kong Charity for Mainland Giving

For high-net-worth individuals, family offices, or corporations with substantial philanthropic objectives in Mainland China, establishing a dedicated Hong Kong charity may be advantageous.

Strategic Advantages

• Control: Direct oversight of charitable objectives and fund allocation
• Legacy planning: Structured vehicle for intergenerational giving
• Tax efficiency: Both for the charity (tax-exempt on profits) and donors (35% deduction)
• Regional hub: Hong Kong’s proximity and connections to Mainland China and Southeast Asia
• Transparency: Hong Kong’s transparent regulatory regime and rule of law
• Professional management: Access to Hong Kong’s sophisticated financial and professional services sector

Navigating the Geographic Restriction

To obtain and maintain Section 88 status while conducting programs in Mainland China, the charity must carefully structure its activities:

• Balanced programming: Maintain sufficient Hong Kong activities to demonstrate that profits are not “expended substantially outside Hong Kong”
• Charitable purpose alignment: Focus on poverty relief, education, or religion (which may operate globally) rather than “other community benefits” (which must benefit Hong Kong)
• Hong Kong governance: Maintain Hong Kong-based board, administration, and decision-making structures
• Transparent reporting: Provide clear documentation of activities and expenditures in Hong Kong versus overseas

Application Process

The IRD endeavors to respond to Section 88 applications within 4 months, provided all relevant information is supplied and further information is not required. The process involves:

1. Establishing the legal entity (typically a company limited by guarantee or trust)
2. Drafting constitutional documents clearly stating charitable objectives
3. Applying to the IRD for Section 88 recognition
4. Providing comprehensive information about governance, operations, and financial projections
5. Undergoing initial review (conducted approximately 2 years after recognition)
6. Submitting to periodic reviews (at least once every 3 years for established charities)

Common Mistakes and How to Avoid Them

Mistake 1: Donating Directly to Mainland Charities

The Error: Making donations directly to charitable organizations registered solely in Mainland China and expecting to claim Hong Kong tax deductions.

The Solution: Channel donations through Hong Kong Section 88 approved charities that support Mainland programs. Verify Section 88 status using the IRD’s online charity search tool before donating.

Mistake 2: Incorrect Tax Year Attribution

The Error: Claiming a donation made in April 2024 on the 2023/24 tax return instead of the 2024/25 return.

The Solution: Carefully track donation dates and ensure they are attributed to the correct year of assessment (1 April to 31 March).

Mistake 3: Inadequate Documentation

The Error: Failing to obtain or retain official receipts, or accepting receipts that lack required information.

The Solution: Obtain proper receipts containing all required information (charity name, amount, date, donor identification, transaction nature) and retain original receipts for at least 6 years.

Mistake 4: Non-Monetary Donations

The Error: Attempting to claim deductions for donations of property, goods, services, or payments for charity event tickets or goods.

The Solution: Ensure all donations claimed are monetary donations only. Donations of goods or services, while valuable to the charity, do not qualify for tax deductions.

Mistake 5: Exceeding the 35% Cap

The Error: Claiming the full amount of charitable donations when they exceed 35% of assessable income or profits.

The Solution: Calculate the deduction cap correctly. If you donate HK$200,000 but your assessable income is HK$500,000, your maximum deduction is HK$175,000 (35% x HK$500,000), not the full HK$200,000.

Verifying Section 88 Status

Before making a donation, verify that the charitable organization holds current Section 88 approval:

1. Visit the IRD website: Access the “Search for Tax-Exempt Charities” tool at www.ird.gov.hk/eng/tax/ach_search.htm
2. Search by name or reference number: Enter the charity’s name or IRD reference number
3. Verify current status: Confirm the charity’s exemption is current and has not been revoked
4. Note the reference number: Record the IRD reference number for your records

Section 88 status can be revoked if a charity contravenes its charitable objects or fails to meet the ongoing requirements. Regular verification is prudent, especially for recurring donations or major gifts.

Future Outlook and Policy Considerations

Enhanced Integration

As Hong Kong’s integration with the Greater Bay Area and Mainland China continues to deepen, there may be future developments in cross-border charitable giving frameworks. Potential areas of evolution include:

• Possible streamlining of recognition for certain categories of Mainland charities
• Enhanced cooperation between Hong Kong and Mainland regulatory authorities
• Development of specialized cross-border philanthropic vehicles
• Greater clarity on the interpretation of “substantially outside Hong Kong”

Regulatory Trends

Recent trends in Hong Kong’s charitable sector regulation include:

• Enhanced scrutiny: The IRD has increased monitoring of tax-exempt charities, conducting reviews at least once every three years
• Transparency requirements: Greater emphasis on transparent governance and reporting
• Large donation oversight: Heightened attention to substantial claims and large donations
• Cross-border fund flow monitoring: Increased awareness of anti-money laundering and counter-terrorism financing requirements for cross-border charitable transfers

Practical Recommendations

For Individual Donors

1. Research intermediaries: Identify established Hong Kong Section 88 charities with proven track records in Mainland China programs
2. Verify Section 88 status: Always confirm current approval before donating
3. Obtain proper receipts: Ensure receipts contain all required information
4. Maintain records: Retain original receipts for at least 6 years
5. Plan timing: Consider tax year timing when making large donations
6. Stay informed: Monitor changes in charitable regulations and approved charity status

For Corporate Donors

1. Conduct due diligence: Thoroughly assess intermediary charities’ governance, transparency, and effectiveness
2. Integrate with ESG strategy: Align cross-border charitable giving with broader corporate social responsibility objectives
3. Maintain comprehensive documentation: Keep detailed records beyond minimum requirements for both tax compliance and audit purposes
4. Consider establishing a dedicated charity: For substantial ongoing commitments, evaluate the benefits of creating a Hong Kong charity
5. Engage professional advice: Consult tax advisors and legal counsel for complex cross-border charitable structures
6. Monitor compliance: Regularly review intermediary charities’ continued Section 88 status and program effectiveness

For Philanthropic Advisors and Family Offices

1. Structure strategically: Design cross-border giving structures that balance control, tax efficiency, and impact
2. Navigate regulations carefully: Understand both Hong Kong and Mainland regulatory requirements
3. Leverage intermediaries: Utilize established philanthropic intermediaries for specialized cross-border giving
4. Consider long-term vehicles: Evaluate establishing dedicated Hong Kong charities for multi-generational philanthropy
5. Maintain flexibility: Design structures that can adapt to evolving regulatory environments
6. Focus on impact: Ensure tax considerations support, rather than dominate, philanthropic objectives

Conclusion

Donating to Mainland China from Hong Kong presents both opportunities and challenges. While direct donations to Mainland charities do not qualify for Hong Kong tax deductions, well-established intermediary mechanisms enable Hong Kong taxpayers to support charitable causes across the border while maintaining full tax deductibility.

The key to successful cross-border charitable giving lies in understanding the Section 88 framework, carefully selecting appropriate intermediary charities, maintaining meticulous documentation, and ensuring ongoing compliance with both Hong Kong and Mainland regulations. For those with substantial philanthropic objectives, Hong Kong’s transparent regulatory regime, strategic location, and sophisticated professional services sector make it an ideal hub for regional and cross-border charitable activities.

As the regulatory environment continues to evolve and Hong Kong’s integration with Mainland China deepens, donors should stay informed of changes while adhering to fundamental principles: donate only to Section 88 approved charities, obtain and retain proper documentation, and ensure charitable objectives align with regulatory requirements. By following these best practices, Hong Kong taxpayers can effectively support meaningful charitable causes in Mainland China while maximizing available tax benefits.

This article provides general information and should not be considered as professional tax advice. Tax laws and regulations are subject to change, and individual circumstances vary. Readers should consult qualified tax professionals and legal advisors before making charitable donation decisions with cross-border implications.

Sources:

• IRD: Charitable Donations and Tax-Exempt Charities
• GovHK: Approved Charitable Donations
• Tax Guide for Charitable Institutions and Trusts of a Public Character
• FAQ on Approved Charitable Donations
• Setting Up a Tax-Exempt Charity in Hong Kong: A Strategic Guide
• Hong Kong Tax Treatment of Donations & Charities
• Hong Kong Red Cross: Use of Donation & Donation Details
• Oxfam Hong Kong: Use of Donations
• LCQ17: Monitoring of Charitable Institutions
• Charity in Hong Kong: Tax Exemptions and Other Legal Perspectives