CHINA Law and Practice Contributed by: Chengchen Gan (Mark), Commerce & Finance Law Offices
on “emergency charity” to accommodate latest news and events. The newly added section allows national charitable organisations to react quickly when faced with emergency events. On the other hand, charitable donation is promoted in the PRC through various incentive mechanisms including preferential tax policies for both the charita - ble organisation and donors. Based on the Corporate Income Tax Law and the Individual Income Tax Law: • the part of expenditure on public welfare donations incurred by an enterprise within 12% of the total annual profit may be deducted when calculating the taxable income amount; • where individuals donate their income to pub - lic welfare and charitable undertakings such as education, poverty alleviation, etc, the part of the donation that does not exceed 30% of the taxable income declared by the taxpayer may be deducted when calculating the taxable income amount; and • any part exceeding the legal limit is subject to a grace period of deduction within three years. The strength of the above policies indicates that dona - tion is not a common phenomenon in China. In fact, generally speaking, only a small percentage of dona - tion occurs during one’s life and the majority occurs after death. As donations can only be made based on the donor’s subjective wishes, based on current laws and legisla - tion, intended inheritance is currently the only way that public welfare organisations can accept inheritance donations. At the same time, the PRC also encour - ages inheritance donation, by policies including tax incentives to individuals or enterprises that donate their inheritance into charitable funds. 10.2 Common Charitable Structures The most commonly used structures for charitable planning in China are as follows. Foundation This is a non-profitable legal entity that uses donated assets to promote and develop public welfare under - takings.
Overall, foundations are subject to stricter require - ments on organisational structure, integrity norms and governance, which makes their establishment rather challenging. Accordingly, the number of foundations is the least among the three commonly used structures. From another perspective, stricter requirements facili - tate the building of public confidence and trust that foundations have the highest credibility, reliability, and relatively low corruption rate. This makes foundations a trustworthy choice, with the ability to attract more and higher amounts of public funds for different fields of welfare undertakings. Social Organisation This is formed voluntarily by citizens to realise the common wishes of members and carry out non-prof - itable activities in accordance with its by-laws. The threshold for the establishment of social organi - sations is relatively high, as these are incorporated dependent on the unity of their members, and this structure is good at mobilising “like-minded” individu - als in society to form a group. A common example of a social group is a public welfare volunteer organisation. The drawback of this structure is when major conflicts or trust crises arise within the organisation, and due to a lack in stringent organisational structure in social organisations and governance, major internal conflicts could materially impair its normal operation. Social Service Organisations These organisations are formed mainly to utilise non- state-owned assets and to engage in non-profitable social service activities. Social service organisations are more loosely regu - lated and may be set up on an ad hoc basis with specific short-term goals. This form of structure is usually formed with high degree of professionalism and concrete goals, making it easier for social service workers to initiate public welfare projects for charity and assistance.
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