CHINA Trends and Developments Contributed by: Jun Zhang, Xiaochu Zhang and Wan Hu, Dacheng Law Offices
property directed to support education aimed at poverty alleviation. • Tax optimisation: Yuhang, Hangzhou piloted a “charitable trust for the right to use real estate”, in which the client donated the right to use a house for ten years (with an appraisal value of CNY46,800), avoiding the tax burden of property rights transfer. • Equity charitable trust: Societe Generale Trust’s “Jianguo Charitable Trust” supports the public welfare with equity dividends. In the future, it may achieve direct shareholding by combining with the registration system to enhance transparency. • Innovative practices: Hangzhou has achieved asset segregation through the annotation of “charitable trust property” on warrants, and simplified the process by eliminating the filing of online signa - tures, and lowering the registration cost, providing a replicable experience for the whole country. Institutional barriers and paths to breakthrough • Dilemma of non-transactional transfer: the cur - rent regulations on non-transactional transfer are only applicable to charitable donations, exclud - ing the placement of equity into charitable trusts. This results in the transfer of equity assets being regarded as a transaction, triggering the burden of taxes and fees that hinder the advancement of the project. • Lack of tax incentives: although the Charity Law amended in 2023 makes it clear that “natural persons, legal persons and unincorporated organi - sations that set up charitable trusts to carry out charitable activities shall enjoy tax incentives in accordance with the law”, specific implementa - tion rules have not yet been issued, and charitable trusts or trust companies are not yet qualified to issue donation notes. In addition, the value-added property of charitable trusts may be subject to income tax, which reduces the amount of funds that can be invested in charitable endeavours and requires further promotion of “tax-neutral” policies. • Cross-sectoral collaboration mechanisms have not been established: charitable trusts, from their establishment to the support of specific charita - ble projects/beneficiaries on the ground, involve a number of departments, such as civil affairs, natural resources, taxation, etc, and require the
establishment of unified implementation standards and co-ordination mechanisms. • Future trend: “Dual Sustainability” Model: stabilis - ing income through rental income and promoting “blood-forming” public welfare through reinvest - ment to extend the life cycle of the trust. • Expansion of property types: in addition to equity and real estate, the rules for registering non-stand - ard property, such as works of art and data assets, also need to be clarified. Path to institutional improvement: synergy between law, taxation and science and technology Over the past ten years, the development of China’s civil trust has followed an extraordinary path, strewn with challenges and rewards. While the legislators, regulators, academics, the industry’s stake holders have played an important role, the essence of the industry’s drive for continuous innovation, evolution and metamorphosis is the increasingly urgent demand from individuals, families and enterprises for, family and corporate wealth management and services. Local governments continue to introduce innova - tions in the trust registration system and charitable trust practices, and banks and trust industry regu - lators have successively issued regulations to clarify the classification of trusts, constantly expanding and clarifying the scope and meaning of civil trusts under the Trust Law, resolving many legacy issues in China’s trust legal system in practice. The trust registration system is opening up more opportunities for the fur - ther development of equity and real estate trusts, and the “asset service trust” is solidifying the position of China’s family trusts in the financial market. The continuous efforts of relevant market practitioners have enabled Chinese family trusts and civil trusts to truly evolve from the theory to practical implemen - tation. This marks not only a return to the essence of trust products to their legal structure, but also a change in consciousness from management to gov - ernance. Together, these have paved a path in the unique development of Chinese family trusts. Despite the above achievements, there are still many imperfections in China’s trust law system which
124 CHAMBERS.COM
Powered by FlippingBook