🇭🇰 The Definitive Guide to Incorporating a Tax-Exempt Company Limited by Guarantee in Hong Kong

🇭🇰 The Definitive Guide to Incorporating a Tax-Exempt Company Limited by Guarantee in Hong Kong | Bestar

Hong Kong Tax-Exempt CLG Incorporation

🇭🇰 The Definitive Guide to Incorporating a Tax-Exempt Company Limited by Guarantee in Hong Kong

The Company Limited by Guarantee (CLG) is the pre-eminent and preferred legal structure for non-profit organizations, charities, and associations seeking tax-exempt status under Section 88 of the Inland Revenue Ordinance (IRO) in Hong Kong. This structure provides a separate legal entity, limited liability for its members, and a pathway to critical charitable recognition.

Here is an article outlining the key steps and requirements for incorporating a tax-exempt CLG in Hong Kong.

What is a Company Limited by Guarantee (CLG)?

A CLG is a public company tailored for non-profit activities. Unlike a company limited by shares, a CLG:

• Has No Share Capital: It has members instead of shareholders.

  
  

• Limited Liability: Members agree to contribute a nominal amount (the "guarantee," often HK$1) if the company is wound up. This limits their personal liability.

  
  

• Non-Profit Focus: All income and assets must be used exclusively to further the company's charitable/non-profit objectives and cannot be distributed to its members or directors.

  
  

This formal structure enhances credibility and is often a prerequisite for securing government grants, public funding, and large-scale donations.

Step-by-Step Incorporation Process for a CLG

The incorporation process is governed by the Companies Ordinance (Cap. 622) and typically takes 4 to 6 weeks for registration, with the tax-exemption application being a subsequent process.

1. Pre-Incorporation Requirements

• Name Search: Conduct a search with the Companies Registry to ensure the proposed name is available and compliant.

  
  

• Mandatory Structure: A Hong Kong CLG must have, at a minimum:

  
  

  • At least 1 Member (individual or corporation, no residency restriction).

  • At least 2 Individual Directors (corporate directors are not allowed).

  • 1 Company Secretary (must be a Hong Kong resident or a corporate secretary with a Hong Kong registered office).

  • A Registered Office Address in Hong Kong.

2. Draft the Articles of Association (AoA)

This is the most critical document, especially when aiming for charitable status. The AoA must include specific clauses to satisfy the Inland Revenue Department (IRD) requirements for Section 88 exemption:

• Exclusive Charitable Objects: The company's purposes must be exclusively charitable (Relief of poverty, Advancement of education, Advancement of religion, or Other purposes beneficial to the community of Hong Kong).

  
  

• Non-Distribution of Profits: A clause explicitly prohibiting the distribution of the company's income and assets to members.

  
  

• Proper Dissolution Clause: A provision ensuring that, upon winding up, any remaining assets are transferred to another approved charity with similar objects.

3. Prepare and File Incorporation Documents

The following must be submitted to the Companies Registry (CR):

• Form NNC1G: Incorporation Form for a company not limited by shares.

  
  

• A Copy of the Articles of Association (AoA).

  
  

• Form IRBR1: Application for Business Registration Certificate (this is submitted simultaneously).

  
  

• Due Diligence Documents: Certified copies of identification (passport/HKID) and residential address proof for all directors, members, and the company secretary.

4. Obtain Certificates

Once approved, the Companies Registry will issue:

• The Certificate of Incorporation.

  
  

• The Business Registration Certificate (issued by the IRD).

Applying for Section 88 Tax Exemption (The Charity Status)

Incorporation as a CLG does not automatically grant tax-exempt status. This requires a separate application to the Inland Revenue Department (IRD) under Section 88 of the IRO. This application can take 6 months or more.

Eligibility Criteria for Section 88 Status

To qualify, the CLG must satisfy the IRD that it is:

• Established exclusively for charitable purposes and for public benefit.

  
  

• Applying its profits and income solely for those charitable purposes.

  
  

• Not expending its profits substantially outside Hong Kong, unless specifically permitted.

  
  

• Profits from trading or business arise only when the trade directly furthers the charitable objects or is mainly carried on by beneficiaries.

Application Submission

The application for Section 88 recognition involves submitting a formal application, along with:

• A certified copy of the Certificate of Incorporation and Articles of Association.

  
  

• A detailed 12-month activity plan and budget (projected income and expenditure).

  
  

• Details of the governing body (directors/trustees).

Key Benefits of Section 88 Status

• Full Exemption from Profits Tax on income used for charitable purposes.

  
  

• Donors can claim tax deductions for approved charitable donations (up to 35% of assessable income).

  
  

• Enhanced Credibility with the public, grant-giving bodies, and government.

Ongoing Compliance Requirements

Maintaining compliance is vital for retaining both CLG status and Section 88 exemption.

Requirement	Authority	Frequency	Details
Annual Return	Companies Registry (CR)	Annually	File Form NAR1 within 42 days of the incorporation anniversary.
Audited Accounts	Companies Registry (CR)	Annually	CLGs must prepare and submit audited financial statements regardless of size.
Business Registration Renewal	Inland Revenue Department (IRD)	Annually or Triennially	The fee is waived if the company is exempt from profits tax under Section 88.
Maintain Charitable Objects	Inland Revenue Department (IRD)	Ongoing	Ensure all activities and use of funds strictly adhere to the stated charitable purposes.

Conclusion

Establishing a tax-exempt Company Limited by Guarantee in Hong Kong is the most strategic path for non-profit organizations seeking formal recognition and financial efficiency. While the process requires meticulous drafting of the Articles of Association and a separate, rigorous application for Section 88 status, the resulting framework provides limited liability, corporate credibility, and invaluable tax exemptions critical for long-term charitable impact.

Fees

The total cost of incorporating a tax-exempt Company Limited by Guarantee (CLG) in Hong Kong involves three main components: Government Fees, Professional Service Fees, and Ongoing Annual Fees.

Here is a breakdown of the typical fees, based on current regulations (all figures are in HKD).

1. Statutory Government Fees (Initial Setup)

These are the non-negotiable fees paid directly to the Hong Kong Government (Companies Registry and Inland Revenue Department).

Fee Item	Authority	Cost	Notes
CLG Incorporation Fee	Companies Registry (CR)	HK$155 – HK$170	For a CLG with 25 members or less. (Electronic submission is cheaper: $155).
Business Registration Fee (BRC)	Inland Revenue Dept. (IRD)	HK$2,200	For a 1-year certificate (as of 2024/2025). The levy is often waived by the government.
Total Mandatory Government Fees		~HK$2,355
Section 88 Application Fee	IRD	HK$0 (No Official Fee)	There is no government fee to apply for tax exemption, but professional costs apply for preparation.

2. Professional Service Fees (Initial Setup)

Use a professional firm (e.g., CPA or Corporate Service Provider) to ensure the Articles of Association (AoA) and application are compliant for Section 88 tax-exempt status.

Service Item	Cost (One-off)	Notes
Company Incorporation Service	HK$3,000 – HK$6,000	Includes name check, document preparation (NNC1G, AoA), and filing.
1-Year Company Secretary	HK$2,000 – HK$4,000	Mandatory by law; typically bundled with the registered office.
1-Year Registered Office Address	HK$1,000 – HK$3,000	Mandatory by law; a local HK address for official use.
Drafting of Section 88 AoA	HK$3,000 – HK$8,000	Crucial fee for ensuring the legal documents meet the IRD's strict charitable requirements.
Section 88 Application Support	HK$5,000 – HK$15,000	Preparation and filing of the formal application letter, activity plan, and financial projections for the IRD.
Total Professional Setup		HK$14,000 – HK$36,000

3. Ongoing Annual Compliance Fees

These are recurring costs necessary to maintain the CLG status and the Section 88 tax exemption.

Fee Item	Authority	Annual Cost	Notes
Annual Return Filing Fee (NAR1)	Companies Registry (CR)	$105	Must be filed within 42 days of the anniversary of incorporation (late fees are substantial).
BRC Renewal Fee	IRD	HK$2,200	CRITICAL NOTE: This fee is typically waived for a company that has successfully obtained Section 88 tax-exempt status.
Company Secretary & Address Renewal	Professional Firm	HK$3,000 – HK$5,000	Renewal of the essential services.
Annual Audit & Accounting	CPA Firm	HK$5,000 – HK$15,000+	CLGs are required to submit audited financial statements annually, regardless of size. The cost depends on the volume and complexity of transactions.
Total Annual Maintenance		HK$8,000 – HK$20,000+	(The main variable here is the complexity of the annual audit.)

🌟 Bestar Hong Kong: Your Expert Partner for Non-Profit CLG Incorporation and Section 88 Application

🇭🇰 The Definitive Guide to Incorporating a Tax-Exempt Company Limited by Guarantee in Hong Kong

Bestar Hong Kong is a recognized professional service provider specializing in corporate services, with a clear focus and experience in establishing Companies Limited by Guarantee (CLG) and navigating the crucial application for Section 88 tax-exempt charitable status in Hong Kong.

Our services are specifically designed to address the unique complexities of the non-profit sector, ensuring your organization achieves both legal compliance and charitable recognition efficiently.

Why Choose Bestar Hong Kong for Non-Profit Setup?

Bestar emphasizes comprehensive support that goes beyond simple registration, focusing on the critical elements required for successful Section 88 approval from the Inland Revenue Department (IRD):

1. Expertise in Articles of Association (AoA) Drafting:

   
   

   • The AoA is the most critical document for a CLG seeking tax exemption. Bestar provides guidance on drafting the mandatory clauses that satisfy the IRD, such as the strict prohibition on profit distribution to members and the proper asset disposal clause upon winding up.

     
     

   • Avoiding Pitfalls: We specifically help clients avoid common reasons for IRD delays or rejections, such as poorly worded charitable objects or inadequate dissolution clauses.

     
     

2. Section 88 Application Support:

   
   

   • Successfully obtaining charitable status requires more than just legal forms; it demands a clear demonstration of genuine charitable intent. Bestar assists in preparing and submitting the formal application, including the crucial detailed 12-month activity plan and budget. This strengthens credibility with the IRD.

     
     

3. End-to-End Corporate Compliance:

   
   

   • As a comprehensive service provider, Bestar handles the full compliance lifecycle, which is essential for maintaining both CLG and charitable status. This includes:

     
     

     • Initial Incorporation (CR Filing): Submitting Form NNC1G and the compliant AoA.

     • Mandatory Company Secretary: Providing the essential service of a local HK company secretary.

     • Annual Audit & Accounting: CLGs require annual audited financial statements. Bestar provides the audit support necessary for both CR and IRD compliance.

     • Annual Return Filing (NAR1): Ensuring timely filing to avoid substantial government late fees.

Key Services Offered by Bestar Relevant to Non-Profits

Service Component	Description	Relevance to CLG & Section 88
CLG Incorporation	Full document preparation and filing with the Companies Registry (CR).	Establishes the necessary legal entity structure.
Statutory Secretary & Address	Provision of a mandatory Hong Kong Company Secretary and Registered Office Address.	Ensures ongoing legal compliance with the Companies Ordinance.
Section 88 Advisory	Consultation, drafting of custom AoA clauses, and full application preparation.	Directly addresses the tax exemption criteria set by the IRD.
Accounting, Tax & Audit	Bookkeeping, preparation of financial statements, and mandatory annual audit.	Necessary for meeting the strict financial reporting requirements for a public company and retaining tax-exempt status.

Next Steps for CLG Incorporation

While specific, up-to-the-minute service fees would be provided directly by Bestar upon consultation, the overall professional service fees for a CLG setup including the crucial Section 88 application support generally range from HK$14,000 to over HK$36,000 for the first year, depending on the complexity of the organization and the level of audit support required.

Would you like to seek our CLG and Section 88 assistance?