Charities – Tax Deductions and Regulations
Many conscientious local companies will give back to the society through donations and support for charitable activities when the company has made a profit. Doing good deeds and helping those in need can enhance the corporate image. In fact, charitable donations can be applied for tax deduction. Kind-hearted bosses who have the habit of donating may wish to learn about the application requirements!
- Know more about tax deduction conditions
During the epidemic, some companies have extended a helping hand to grassroots citizens, such as donating meal coupons or holding charity sales, and donating the money raised to low-income families. Can they apply for tax deduction?
First of all, the amount of donations to apply for tax deduction must not be less than HKD$100. Secondly, no matter how you donate through any means, you must keep a valid receipt and present the proof when the tax bureau conducts random checks in the future.
However, not all donations are tax-deductible. For example, donating materials, purchasing charitable lottery tickets, or being responsible for sponsoring the supply of goods in charity bazaars are all tax non-deductible amounts.
Also, not all non-profit organisations or voluntary groups are recognized charities which can issue tax deductible donation receipt. The donation must made to charitable organisation which is exempt from tax under section 88 of the “Inland Revenue Ordinance”, or a cash donation that is directly donated to the government for charitable purposes, in order to be eligible for tax deduction.
- How to form a “Charity” under Seciton 88
The Inland Revenue Department has certain requirements on the purpose of establishing an organization, sources of funds, use of charitable funds, and directors’ remuneration. Directors and managers of charities perform their duties on a voluntary basis and cannot receive salaries or benefits. 100% of the donations raised by the organization must be used for charitable purposes, and conflicts of interest must also be declared when handling funds.
Highly recommended to ask professional accountant’s advice before applying the registration of charity under section 88. The successful rate is guaranteed. Besides, financial statements are required to be audited by professional accountants annually to avoid legal liability due to improper fund arrangements, omissions or incorrect information. Experienced Accountants is needed to manage the charity accounts which specify knowledge is required.
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