Is All NGO Income Tax Exempted? | Article – HSBC VisionGo
Translated by Mr. Stanley Hui Partner of CityLinkers Group
The Inland Revenue Department (the “IRD”) has never been responsible for the registration and monitoring of Non-Government Organisations (the “NGO”) but to grant tax exempted to eligible NGOs registered under Section 88 of the Inland Revenue Ordinance. The recently published updated version of the Tax Guide for Charitable Institutions and Trusts of a Public Character has further clarified the role of the IRD and provided a clearer guidance on assessing whether if income of a NGO is taxable.
Charitable institutions and trusts of a public character are tax exempted if they are set up solely for charity purposes and their activities are carried out mainly for those purposes. However, not all income of an NGO is exempted from tax but the portion for charity purposes and those that help the NGO fulfilling those purposes. For example, if a NGO owns a property and rent it out at market rate without specific tenant group, even if the rental income is purely used for charity purposes, such income would still become taxable as the NGO was established to promote a religion, but leasing of the property is clearly not an activity carried out to fulfil its purpose of establishment.
Moreover, whether if provision of products and services of a NGO would be classified as “operational activities” is based on a number of factors, the IRD would generally make references to 6 benchmarks, for example, the frequency of such transaction, the nature and purposes of provision of such products and services, whether if it is aim to generate profits etc.. In general, if a NGO is selling products that is donated to the NGO for the purposes of reselling, or profit from disposing an investment of capital nature, would not be classified as “operational activities” transactions.
Although NGOs are tax exempted, they are still obliged to submit their books and annual reports to prove whether if their activities is carried out in line with their purposes of establishment and provided to the target receivers. If a NGO is starting to generate taxable income, or ceases to be a NGO and recorded taxable income, it should notify the IRD in writing within 4 months after the end of the assessable period that it is subject to tax for the period. Donors should also confirm whether if a NGO is still on the list of exempted charitable institutions and trusts before applying for deduction for their recognisable donations.