Hong Kong Social Enterprise Tax — Expert Advisory

Under s.88 of the IRO, charities that are established exclusively for charitable purposes (relief of poverty, promotion of education, promotion of religion, or other charitable purposes beneficial to the community) are exempt from profits tax on income from their charitable activities. To benefit from the exemption, the charity must apply to the IRD and be approved. Approved charities are also eligible to accept tax-deductible donations under s.26C.

No. A company that describes itself as a "social enterprise" is not automatically tax-exempt. Tax exemption requires s.88 charitable status — which requires the entity's purposes to be genuinely charitable under IRD guidelines, its governing documents to reflect this, and the IRD to approve the exemption. A company limited by shares operating with a social mission but without s.88 status is fully taxable on its profits, just like any other company.

A charity with s.88 exemption is exempt only on income from its qualifying charitable activities. Commercial trading income — even if profits are applied to charitable purposes — may be taxable. The key question is whether the commercial activity is integral to the charitable purpose (e.g., a charity shop selling donated goods) or a separate trading activity. Commercial activities that are separate from the charitable purpose should be ring-fenced in a separate taxable subsidiary to protect the charity's exempt status.

Under s.26C of the IRO, individuals can deduct donations made to approved charities (s.88 approved entities) up to 35% of their assessable income after allowances. The minimum deductible donation per tax year is HKD 100. For companies, the same 35% of assessable profits limit applies. There is no overall cap on the absolute amount — a very high earner donating a very large amount can deduct up to 35% of their total assessable income/profits.

Yes. Charities can accept property (real estate, shares, art) as donations. For the donor, the deductible amount is the market value of the property at the date of donation. For stamp duty purposes, the transfer of property to a charity may be exempt or reduced, depending on the charity's constitution and the nature of the transfer. The property must be properly valued by a qualified valuer. We advise charities on managing property donations and donors on the deductibility of property gifts.