Potential Profits Tax Liabilities arising from a Trade or Business by Charities of HK - Part 1

Описание: Potential Profits Tax Liabilities arising from a Trade or Business Carried on by Charities of Hong Kong -
Part 1
Narrated by: JLIAACEA
7 November 2023

It has become increasingly common for charitable institutions to carry out activities to raise funds to finance their charitable work. Depending on the circumstances of each case, such activities may amount to the carrying on of a trade or business. It is to explain the potential profits tax liabilities arising from any trade or business carried on or to be carried on by charitable institutions or trusts of a public character (‘charities’) whilst being recognised by the Inland Revenue Department (‘IRD’) as tax-exempt charities under section 88 of the Inland Revenue Ordinance (Cap. 112)(‘the Ordinance’).

The Relevant Statutory Provisions
Under section 14(1) of the Ordinance, any person carrying on a trade, profession or business in Hong Kong is chargeable to profit tax in respect of the assessable profits arising in or derived from Hong Kong from such trade, profession or business (excluding profits arising from the sale of capital assets).

‘Person’ is defined in section 2(1) of the Ordinance to include ‘a corporation, partnership, trustee, whether incorporated or unincorporated, or body of persons’.

Under section 2(1) of the Ordinance, ‘trade’ is defined to include ‘every trade and manufacture, and every adventure and concern in the nature of trade’, and ‘business’ is defined to include, among other things, ‘the letting or sub-letting by any corporation to any person of any premises or portion thereof, and the sub-letting by any other person of any premises or portion of any premises held by him under a lease or tenancy other than from the Government’. The definitions of ‘trade’ and ‘business’ in the Ordinance are not exhaustive. It is well-established that whether a person is carrying on a trade or business depends on the facts of the particular case. It is essentially a question of fact and degree.

A charity, or the trustee of a charity that is in the form of trust, falls within the definition of ‘person’ for the purpose of section 14(1) of the Ordinance.
Accordingly, the carrying on of a trade or business by a charity in Hong Kong will render the charity liable to profits tax under section 14(1) of the Ordinance, unless the charity can fulfill the conditions under the proviso to section 88 of the Ordinance.