CHINA Law and Practice Contributed by: Chengchen Gan (Mark), Commerce & Finance Law Offices
Information Protection Law. Generally, the inheritance of digital assets is implemented through agreements and wills. It is important to note a specific concern regard - ing cryptocurrencies. The notice issued by Chinese authorities including the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security, and the China Securities Regulatory Commission explicitly states that activities related to virtual currencies constitute illegal financial activities. Moreover, civil legal actions related to natural per - sons investing in cryptocurrencies and related deriva - tives that violate public order and good customs are deemed invalid. This regulatory stance introduces legal risks, potentially rendering inheritance of cryp - tocurrencies invalid under civil law in China. 3. Trusts, Foundations and Similar Entities 3.1 Types of Trusts, Foundations or Similar Entities In China, foundations are often used for tax planning purposes, while trusts are primarily used for estate planning. • Individuals and businesses can reduce their income tax by making charitable donations to foundations. • According to the “Enterprise Income Tax Law” and the Notice [2018] No 15 on Finance and Taxation, enterprises are allowed to deduct donations made to public welfare organisations, county-level peo - ple’s governments, their departments, and directly affiliated institutions for charity activities and public welfare undertakings. • Donations within 12% of annual total profits are deductible when calculating taxable income; any excess can be carried forward and deducted within the next three years. • According to Announcement No 99 of the Ministry of Finance and the State Taxation Administration in 2019, individuals can deduct charitable donations made through public welfare organisations within the territory of the People’s Republic of China, county-level or higher people’s governments,
their departments, and other national agencies for education, poverty alleviation, and other charitable activities when calculating taxable income, accord - ing to relevant provisions of the individual income tax law. • The deduction limit for deductions from compre - hensive income and business income is 30% of the taxable income for the current year; for deductions from categorised income, it is 30% of the taxable income for the current month. Article 1133, paragraph 4 of the Chinese Civil Code stipulates: “Natural persons may establish testamen - tary trusts in accordance with the law.” • Testamentary trusts have gained widespread atten - tion since the release of the “Notice on Standard - izing the Classification of Trust Business of Trust Companies” by the China Banking and Insurance Regulatory Commission (now the National Finan - cial Regulatory Authority) in 2023, due to their strong confidentiality, simplicity, low establishment costs, high flexibility, and the advantage that the settlor’s control over assets is unaffected during their lifetime. • However, there are no established systems or rules for property transfer (registration) based on trusts. When non-monetary assets such as equity and real estate are used to establish testamentary trusts, they may face double taxation issues (paying taxes twice consecutively upon transfer of property to trustees and distribution of trust property to benefi - ciaries, such as income tax, stamp duty, and deed tax). 3.2 Recognition of Trusts Trusts are widely recognised and legally protected in China, with the Trust Law formally enacted as early as 2001. According to Article 8 of the Trust Law, the establish - ment of a trust must be in written form, which includes a trust deed, a will, or other written documents speci - fied by laws, administrative regulations, or rulings. The trust industry is an integral part of China’s financial system, and the issuance of documents such as the “Notice on Standardizing the Classification of Trust Business of Trust Companies” indicates that the gov -
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