Hong Kong’s Tax Treatment of Family Office Philanthropic Structures

Introduction: Hong Kong as a Global Philanthropy Hub

Hong Kong has emerged as a leading jurisdiction for family offices seeking to combine wealth management with philanthropic endeavors. With the introduction of the Family-owned Investment Holding Vehicle (FIHV) tax concession regime in May 2023 and a robust charitable framework under Section 88 of the Inland Revenue Ordinance, the territory offers sophisticated structures that enable ultra-high-net-worth families to achieve both tax efficiency and meaningful social impact.

The Hong Kong government’s strategic vision positions the city as a philanthropic center for global family offices and philanthropists to deploy charitable capital benefiting Hong Kong, Mainland China, and overseas communities. This ambition is supported by concrete policy initiatives, including the establishment of a repository platform for charity projects announced as part of the government’s family office development strategy, designed to assist families in planning their wealth legacy and transition while promoting social good.

The numbers tell a compelling story: Hong Kong’s tax-exempt charities have grown nearly threefold over the past two decades. For the 2020-21 tax year, approved charitable donations totaled HK$4.35 billion from corporate donors and HK$7.45 billion from individual donors, demonstrating the territory’s deeply embedded philanthropic culture and the practical tax advantages available to donors.

The FIHV Regime: Integrating Philanthropy with Family Wealth

Overview of the Tax Concession Scheme

The tax concession scheme for family offices, which passed into law on 19 May 2023, represents a watershed moment for Hong Kong’s wealth management industry. The regime applies retrospectively to years of assessment commencing on or after 1 April 2022, providing eligible FIHVs managed by eligible Single Family Offices (SFOs) with exemptions from profits tax on specified transactions.

Under this framework, qualifying FIHVs benefit from tax concessions on foreign-sourced interest, dividends, and disposal gains, provided they meet the economic substance requirements. The Inland Revenue Department’s Advance Ruling Case No. 73, issued on 9 February 2024, provided the first official confirmation of how these concessions apply in practice, offering crucial clarity for family offices structuring their investment activities.

The Philanthropic Innovation: 25% Charitable Ownership

One of the most significant features of Hong Kong’s FIHV regime is its explicit accommodation of philanthropic objectives. Originally, the legislation required that at least 95% of the beneficial interest in an Eligible SFO and FIHV be held by family members. However, recognizing the diverse structures and philanthropic goals that characterize modern family offices, the regime was amended to permit up to 25% of the beneficial interest to be held by one or more charitable entities.

This means that a family can reduce their direct ownership stake from 95% to 75% if at least 20% of the remaining beneficial interest is held by Hong Kong tax-exempt charitable institutions approved under Section 88 of the Inland Revenue Ordinance. This structural flexibility enables families to embed philanthropic commitments directly into their core investment vehicle while maintaining eligibility for tax concessions—a unique feature that distinguishes Hong Kong’s regime from competing jurisdictions.

The practical implications are profound. A family office can establish an FIHV where 75% is owned by family members and 25% by the family’s private charitable foundation, allowing the foundation to participate directly in the investment returns of the family’s wealth vehicle. This creates a self-sustaining philanthropic engine that grows alongside the family’s wealth, ensuring long-term funding for charitable activities without requiring annual distributions from family members.

Economic Substance Requirements

To qualify for the FIHV tax concessions, family offices must satisfy meaningful economic substance requirements that ensure genuine presence in Hong Kong. At a minimum, the FIHV must employ at least two full-time qualified employees in Hong Kong and incur at least HK$2 million in annual operating expenditure within the territory.

These requirements ensure that family offices contribute meaningfully to Hong Kong’s economy through employment, professional services engagement, and operational spending. For philanthropic structures, this substance requirement aligns well with the need for professional management of charitable activities, grant-making, and impact monitoring—all of which require skilled personnel and operational infrastructure.

Section 88: The Foundation of Hong Kong’s Charitable Tax Framework

Understanding Section 88 Tax Exemption

Section 88 of the Inland Revenue Ordinance provides the legal framework for charitable tax exemption in Hong Kong. Organizations granted Section 88 status are exempt from profits tax on their income and can issue tax-deductible donation receipts to their donors—a dual benefit that makes this designation highly valuable for family office philanthropic structures.

To qualify for Section 88 exemption, an organization must be established exclusively for charitable purposes and operate for public benefit. The Inland Revenue Department interprets “charitable purposes” broadly to include the relief of poverty, the advancement of education, the advancement of religion, and other purposes beneficial to the community. Critically, the organization must not operate for profit—any surplus must be reinvested in the charity’s mission rather than distributed to members or founders.

Application Process and Compliance Requirements

The application process for Section 88 status requires careful preparation. Organizations should thoroughly review the Inland Revenue Department’s “Tax guide for charitable institutions and trusts of a public character” before submitting applications. The Department endeavors to respond within four months of receiving a complete application, though this timeline depends on the quality and completeness of the submitted documentation.

Once granted Section 88 status, charities face ongoing compliance obligations. The Inland Revenue Department conducts a first review of newly recognized charities two years after recognition, followed by reviews at least once every three years for established organizations. Charities must submit annual financial statements and audit reports, operate transparently according to their stated objectives, avoid non-charitable trading or profit-seeking activities, and maintain accurate donor communications.

Conditions for Tax Exemption on Business Profits

If a Section 88 charity carries on a trade or business, the profits remain exempt from tax only if specific conditions are met. First, the profits must be applied solely for charitable purposes and not expended substantially outside Hong Kong. Second, either (i) the trade or business must be exercised in the course of actually carrying out the charity’s express objects (such as a religious charity selling religious books), or (ii) the work in connection with the trade or business must be mainly carried on by persons for whose benefit the charity is established.

These conditions are particularly relevant for family foundations that may generate investment income or operate social enterprises. Careful structuring is required to ensure that commercial activities do not jeopardize tax-exempt status.

Tax Benefits of Charitable Giving for Family Offices

The 35% Deduction Limit: Mechanics and Strategy

Hong Kong offers generous tax deductions for charitable donations, with both individual and corporate donors able to claim deductions up to 35% of their assessable income or profits. This ceiling has increased progressively from 10% in 2002 to 25% in 2003 and finally to the current 35% in 2008, reflecting the government’s commitment to encouraging philanthropic activity.

For corporations subject to profits tax, the deduction applies to cash donations made to Section 88 approved charities during the basis period for a year of assessment. The aggregate of such donations must be at least HK$100 to qualify for any deduction, and the maximum deduction is capped at 35% of assessable profits for that year. For individuals subject to salaries tax or personal assessment, the same 35% ceiling applies to assessable income after allowable deductions.

Strategic timing is important. Hong Kong’s tax year runs from 1 April to 31 March, meaning a donation made on 10 April 2024 is eligible for deduction in the tax year ending 31 March 2025, not the preceding year. Family offices with regular giving programs should carefully plan the timing of major donations to optimize tax efficiency across multiple years.

Qualifying Donations and Record-Keeping

Only cash donations to Section 88 approved charitable institutions or to the Government for charitable purposes qualify for tax deduction. Donations in kind—such as property, securities, or services—do not qualify, though they may still provide other benefits such as capital gains tax exemption (noting Hong Kong does not impose capital gains tax).

Donors must retain donation receipts and all relevant documentation for at least six years following the end of the basis period to which the tax return relates. The Inland Revenue Department may request these records during audits or reviews, and failure to provide adequate documentation can result in disallowance of claimed deductions.

Philanthropic Structures Available to Family Offices

Private Foundations vs. Public Charities

Family offices establishing philanthropic vehicles in Hong Kong typically choose between two primary structures: private foundations and public charities. Both can obtain Section 88 status, but they differ significantly in governance, fundraising capabilities, and operational flexibility.

Private Foundations are typically funded by a single family or individual and maintain closer control over grant-making decisions. These foundations usually do not engage in broad public fundraising. In Hong Kong, private foundations are often structured as companies limited by guarantee or as trusts. The key advantage is control: the founding family can maintain significant influence over the foundation’s direction, grant-making priorities, and operational strategies, subject to their fiduciary duties to act in furtherance of the charitable objects.

Public Charities, by contrast, typically engage in broader fundraising from the public and may have more diverse governance structures with independent board members. Public charities in Hong Kong often undertake direct charitable activities (operating programs, schools, hospitals, etc.) rather than solely making grants. The trade-off is less family control in exchange for greater public engagement, broader fundraising capabilities, and potentially higher public profile.

For family offices, the choice often depends on objectives. Families seeking maximum control and privacy typically prefer private foundations integrated into their FIHV structure. Those wanting to leverage their wealth to attract additional public support and build broader coalitions around specific causes may opt for public charity structures.

Donor-Advised Funds and Alternative Structures

While traditional foundations dominate Hong Kong’s philanthropic landscape, donor-advised funds (DAFs) are emerging as an alternative for families who want philanthropic flexibility without the administrative burden of operating their own Section 88 entity. With a DAF, donors contribute to a fund held within an existing Section 88 charity, receive immediate tax deductions, and then advise on grant-making over time.

DAFs offer several advantages: lower setup costs, no ongoing compliance burden, immediate tax deductibility, and professional administration. However, they provide less control than a private foundation—the sponsoring charity legally owns the funds and has final authority over grants, though in practice, donor recommendations are typically followed absent concerns about legitimacy or alignment with the charity’s mission.

Integration with FIHV Structures

The ability to include up to 25% charitable ownership in FIHVs creates unique structuring opportunities. A family office might establish:

• An FIHV owned 75% by family members and 25% by the family’s private Section 88 foundation
• A Single Family Office managing both the FIHV and providing advisory services to the foundation
• The foundation receiving its proportionate share of FIHV investment returns tax-free (due to its Section 88 status)
• The family receiving tax deductions for donations made to the foundation, up to 35% of assessable income/profits

This integrated structure creates a virtuous cycle: the family receives tax deductions for funding the foundation, the foundation participates in the family’s investment success through its FIHV ownership, and the FIHV itself benefits from tax concessions on qualifying transactions. All elements work together to maximize both financial efficiency and philanthropic impact.

Cross-Border Philanthropy Considerations

Geographic Restrictions on Charitable Activities

A critical consideration for family offices with global philanthropic ambitions is the geographic restriction on Section 88 charities. As noted above, charities must not expend their funds “substantially outside Hong Kong” to maintain tax-exempt status. This requirement reflects the Hong Kong government’s policy that tax benefits should primarily support activities benefiting Hong Kong residents or the local community.

In practice, the Inland Revenue Department has not published a specific percentage threshold for what constitutes “substantially,” leading to some interpretative uncertainty. Conservative advisors typically recommend that at least 50% of charitable expenditure be directed to Hong Kong-based activities to maintain compliance, though some argue that lower percentages might be acceptable depending on circumstances.

For family offices focused on Mainland China or regional Asian philanthropy, this creates a structural challenge. Possible approaches include:

• Establishing separate Hong Kong and offshore charitable entities, with only the Hong Kong entity holding Section 88 status
• Structuring Hong Kong-based programs that benefit cross-border populations (such as education programs in Hong Kong for Mainland students)
• Using the Hong Kong foundation as a grantmaker to non-Hong Kong charities, carefully monitoring the proportion of such grants
• Focusing the Section 88 entity on Hong Kong activities while pursuing international philanthropy through non-tax-advantaged vehicles

Tax Treaty Considerations and Foreign Equivalency

Hong Kong has an extensive network of comprehensive double taxation agreements (DTAs), though these primarily address business profits and personal income rather than charitable giving. Unlike some jurisdictions that recognize “foreign equivalent” charities for tax deduction purposes, Hong Kong’s deduction is limited to gifts to Section 88 approved Hong Kong charities or to the Hong Kong Government for charitable purposes.

This means that a Hong Kong taxpayer donating directly to a foreign charity—even a highly reputable international organization—cannot claim a Hong Kong tax deduction unless that organization has obtained Section 88 approval in Hong Kong. Many major international charities have indeed established Hong Kong presences with Section 88 status to facilitate local fundraising, but family offices should verify status before making substantial donations intended to generate tax benefits.

Recent Developments and Future Outlook

November 2024 Consultation on FIHV Enhancements

On 25 November 2024, the Financial Services and the Treasury Bureau issued a consultation paper outlining proposed enhancements to the FIHV tax concession regime. Among the significant proposals is the expansion of “Specified Assets” eligible for tax concessions to include virtual assets—a forward-looking move that recognizes the growing importance of digital assets in family office portfolios.

The consultation reflects the government’s commitment to maintaining Hong Kong’s competitiveness as a family office hub. As set out in the 2024-25 Budget, the government aims to attract global family offices and asset owners to bring capital and drive ancillary economic activities. The proposed enhancements to the FIHV regime, alongside complementary measures for funds and carried interest, demonstrate a comprehensive strategy to capture family office flows.

The Wealth for Good Initiative

The Hong Kong government’s “Wealth for Good” initiative represents an ambitious effort to position the territory as a global center for philanthropy. The initiative includes the establishment of a repository platform for charity projects, designed to connect family offices with vetted charitable opportunities and facilitate more strategic, impactful giving.

The second Wealth for Good in Hong Kong Summit, scheduled for late March 2025, will showcase Hong Kong’s unique advantages to global family offices with particular emphasis on philanthropic opportunities. This high-profile event signals the government’s intention to elevate philanthropy from a secondary consideration to a core value proposition for family offices considering Hong Kong as their base.

National Security Considerations

Recent amendments to charitable regulation in Hong Kong emphasize that charities must act lawfully and have a duty to safeguard national security. This reflects Hong Kong’s evolving regulatory environment following the implementation of national security legislation. While this requirement applies to all organizations operating in Hong Kong, it has particular salience for charities given the historically cross-border and politically engaged nature of some philanthropic activities.

Family offices establishing charitable structures should ensure robust governance, compliance procedures, and due diligence on grantees to manage these requirements effectively. This includes careful vetting of grant recipients, clear charitable purposes that focus on non-political objectives, and transparent reporting that demonstrates alignment with legal and regulatory expectations.

Practical Implementation Guidance

Establishing a Philanthropic Structure: Step-by-Step

For a family office seeking to establish a philanthropic structure integrated with an FIHV, the typical implementation process involves:

1. Define philanthropic objectives and strategy: Clarify the family’s charitable mission, geographic focus, issue areas, and preferred approach (grant-making vs. operating programs).
2. Choose legal structure: Determine whether to establish a company limited by guarantee, a trust, or utilize a donor-advised fund within an existing institution.
3. Prepare Section 88 application: Draft governing documents, prepare detailed descriptions of charitable purposes and planned activities, and compile required supporting documentation.
4. Submit application to IRD: File the application with the Commissioner of Inland Revenue and respond to any queries during the review process (typically 4 months for complete applications).
5. Establish FIHV structure: If integrating with an FIHV, structure the ownership so that 75% is held by family members and up to 25% by the Section 88 charitable entity.
6. Set up Single Family Office: Establish the SFO to manage the FIHV, ensuring it meets economic substance requirements (minimum 2 full-time Hong Kong employees and HK$2 million annual Hong Kong operating expenditure).
7. Implement governance and compliance systems: Establish board structures, investment policies, grant-making procedures, financial reporting systems, and compliance monitoring processes.
8. Commence operations: Begin charitable activities, ensure proper documentation of all donations and grants, and maintain records for IRD review requirements.

Common Pitfalls and How to Avoid Them

Insufficient economic substance: Some family offices underestimate the genuine operational requirements for the FIHV regime. Simply hiring two employees and incurring HK$2 million in expenses is not sufficient—the substance must be real and proportionate to the activities. Engage experienced Hong Kong professionals, maintain genuine Hong Kong decision-making, and ensure your operating expenditure includes meaningful local costs.

Improper documentation: Failure to maintain adequate records is a common compliance failing. Implement systems from day one to track all donations received, grants made, investment decisions, board meetings, and operational expenses. Remember the six-year retention requirement.

Geographic compliance issues: Exceeding the “substantially outside Hong Kong” threshold for charitable expenditure can jeopardize Section 88 status. Monitor expenditure geography carefully and maintain a clear majority of spending within Hong Kong if tax-exempt status is important.

Commingling charitable and commercial activities: Mixing charitable operations with commercial business ventures within the same entity creates tax risks. Structure carefully, with separate entities for different activities if necessary, and ensure any business activities meet the specific exemption criteria.

Inadequate governance: Section 88 charities are subject to increasing regulatory scrutiny. Establish robust governance with independent oversight, clear conflicts of interest policies, documented decision-making processes, and regular reviews of compliance with charitable purposes.

Conclusion

Hong Kong’s integration of the FIHV tax concession regime with its established Section 88 charitable framework creates a uniquely compelling proposition for family offices seeking to combine wealth management with philanthropy. The ability to include up to 25% charitable ownership in FIHVs, combined with generous 35% tax deductions for charitable giving, positions Hong Kong as a jurisdiction where doing good and doing well are not merely compatible but structurally integrated.

With approximately 2,700 single family offices already established in Hong Kong managing over HK$31 trillion in assets, and over 9,700 Section 88 approved charities operating across diverse sectors, the infrastructure and expertise to support sophisticated philanthropic structures are well-developed. The government’s ongoing enhancements to the FIHV regime and its “Wealth for Good” initiative signal continued commitment to this strategic direction.

For family offices considering Hong Kong as a base, the philanthropic dimension should be integral to the decision-making process. The tax advantages are substantial, but the broader opportunity—to participate in a growing ecosystem of purpose-driven capital, to access high-quality charitable opportunities across Hong Kong and the Greater Bay Area, and to benefit from a government actively promoting philanthropy as a core element of family office value—may prove even more valuable in the long term.