With Hong Kong competing to be a philanthropy hub in Asia, the city has a unique edge when it comes to supporting philanthropists, Anthony Gao, head of Philanthropy Services, Asia, Pictet Wealth Management, told Asian Private Banker.
“Hong Kong has a long history of giving, and many families in Hong Kong have been working on philanthropy for a long time,” Gao said. “In terms of the regulatory environment, it is also quite enabling, especially that it provides a lot of flexibility for families.”
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When setting up a charitable structure in Hong Kong, there are mainly two options: a company limited by guarantee or a charitable trust. “Both of them could be regarded as a charitable structure as long as they receive recognition of tax exemption under section 88 of the Inland Revenue Ordinance by IRD, [Hong Kong’s] tax bureau,” he noted. There are established and transparent processes for both options, which are uncomplex, according to Gao.
Furthermore, compared to other jurisdictions, Hong Kong does not have as many mandatory requirements in terms of the number of full-time staff, the board structure, and so on. “It gives you the flexibility to design the best governance for you,” he commented. “It also offers flexibility in terms of what are the things you want to do.”
“The main rationale for choosing charitable trust is if you are taking a more hands-off approach, that you are not going to manage it day-to-day. Charitable trusts would be a better structure for families if they just want to have a Board to oversee the operation, [to] provide some directional guidance,” he said.
“But if you want to stay more hands-on, say, to be able to manage grants or choose a team to have a more engaged way to manage the structure, then the company limited by guarantee will be a better option,” he added. “Many people will name the company like a foundation.”
Reasons for giving
In Gao’s experience, there are four main reasons why people in Hong Kong give to charity.
“Firstly, they want to achieve impact. Secondly, they could be thinking about building a family legacy, getting the next generation [and] other family members to get involved,” he said.
The third reason for many families is that philanthropy also helps build a good image for their corporations or helps support some local governments that they work closely with, Gao added.
While the fourth reason is that giving enables ultra-high net-worth individuals to stay close to their peers. “It is part of a circle; when your peers are also giving, you can do things together, you can collaborate,” he remarked.
For most wealthy families, especially in Hong Kong, tax is a minor reason for charitable giving, Gao pointed out. “Tax is part of the planning process, but it is not the reason why they give,” he said. “Tax is only when you want to optimise your giving and take advantage of the policy incentive provided by the government. Tax is part of the compensation, but it is not the driver of giving.”
Areas of focus
Traditionally, education is the most significant area for Asian families to focus on, Gao observed, followed by three growing areas: health, poverty alleviation and the environment.
In the wake of COVID-19, health is an even more critical area for philanthropists, as they want to ensure people can have a decent life, Gao said.
Driven by policy, poverty alleviation helps some poor rural areas develop and support low-income families. “Even [after] poverty alleviation was accomplished in the mainland, there is still rural revitalisation that is still happening – supporting the underprivileged families in rural areas,” he noted.
In the past, environmental issues received a very small portion of philanthropic money, Gao said. In Asia, the data show that in the past, less than 1% of giving focused on the environment, and when it did, it was mostly on ecology, for instance, protecting rare species rather than addressing the big climate issues, he added.
“But right now, as climate change is such a hot topic, everyone thinks that if the planet is at risk in the future, philanthropic capital can play a role in it. This is a topic that people talk about, and they are thinking about how philanthropy can help address the issue,” he noted.
In Hong Kong and mainland China, impact-driven capital is deployed to support achieving climate goals mainly from the investment side, Gao noted, as most NGOs are not yet able to design programmes for philanthropists to use their philanthropic capital to help address climate issues.
Meanwhile, in the West, including Europe and the US, many leading NGOs use philanthropic capital to help address climate goals to reduce emissions, such as adopting new technologies, according to Gao. “So we think this could be an area [in] Hong Kong and Mainland China, where we will see more and more organisations being able to get involved,” he said.