Non-Profit or Charity?

“Charity” is not equivalent to “Non-Profit-Making Organization” (including “Non-Governmental Organization (NGO)” and “Voluntary” organizations and trusts) . Therefore, not all “Non-Profit-Making organizations” are “Charity” but a “Charity” must be “Non-Profit Making”.

Regardless the purpose of “non-profit making”, a qualified “Charity” organization is a specific form of organization which must be registered in Welfare Department of Hong Kong and list in “Charitable Donations and Tax-Exempt Charities” of Inland Revenue Department.

Inland Revenue Department provides tax exemption to only qualified “Charity” organization but no power to exempt a “voluntary” or “non-profit-making” organization.

A charity must be established for public benefit and for purposes which are exclusively charitable according to law. Charitable purposes are classified into four areas:

  • relief of poverty;
  • advancement of education;
  • advancement of religion; and
  • other purposes of a charitable nature beneficial to the Hong Kong community

Each case must be considered on its own merit. It is not possible to lay down any precise definition of what constitutes a sufficient section of the public.

Legal status of Non-Profit and Charity organizations

Many charities and non-profit organizations opt for incorporation of a Hong Kong Limited Company as vehicle of their organization under the Companies Ordinance empowered by Companies Registry. Since no capital is involved in these organizations, the “company limited by guarantee” is the best choice.

The registration of “company limited by guarantee” follows the usual steps of the registration of “company limited by shares” (the most common type of business entity for business in Hong Kong). Here is the characteristics difference between them:

Incorporation of Local company limited by guarantee highlights.
Processing lead timeThe Certificates of Incorporation will generally be issued in about 3 weeks.
Company structureMust have a company secretary and at least two directors, one of whom may be the company secretary.
It must not have a body corporate as its director.
Government FeeFee is varying according to the number of members stated in the Incorporation Form:
The registration fee is HK$170 (for number of members not exceeding 25 ), HK$340 (for number of members exceeds 25 but does not exceed 100 members), and HK$20 for every additional 50 members or less after the first 100 members.
This registration fee is subject to a maximum fee of HK$1,025.
Organization nameNon-profit organizations can optionally be register their name
without the word “Limited”.
Extra long the processing time is expected e.g. one year, subjected to Companies Registry approval.

Apart from “Company”, most of the less-formal industry associations and social/recreational groups opt for the register as a Society under the Societies Ordinance. To register as a Society, an organization must register with the Societies Office of the Societies Office of Hong Kong Police Force.

Comparing to “company limited by shares”, setup of Society shows the advantages and disadvantages as follows:

Good. Minimal Cost

Unlike incorporation of company, registration of society is free of the statutory controls and
can be inexpensive to run. There is no fee for registering under the Societies Ordinance.

Good. Simplicity

Set-up process is simple and hassle-free. A registered society can be very simple to run. Minimal formalities are required and administrative complexity can be kept to a minimum.

Bad. Unincorporated structure

When the society becomes inactive, the others from outside find difficulties in identifying the person-in-charge for decision making.

Bad. Personal liability

Both members of the management committee and sometimes the members of the association itself may incur personal liability.

Business Registration of Non-Profit Organization

Whether a non-profit organization registers as a Company or a Society, it must also complete Business Registration with the Inland Revenue Department. For company, process of incorporation in CR automatically trigger  the registration of BR in IRD because of One-stop Company and Business Registration and One-stop Notification of Change of Company Particulars.

Setup of Charity Organization

Charity should have a governing instrument. It is essential that a charity is established by a written governing instrument. The type of instrument adopted will depend on the particular circumstances pertaining to the charity proposed and the preference of the promoters or founders. Persons who are considering starting a charity are advised to seek legal advice about the format, content and legal sufficiency of the charity’s governing instrument. Before seeking advice, persons founding a charity must be clear in their own minds as to the purposes of the charity and the manner in which they wish the charity to be administered.

Reference: A Tax Guide for Charitable Institutions and Trusts of a Public Character by Inland Revenue Department