China Charity Law Guidebook – Chapter 9: Charitable Trusts & Chapter 10: Information Disclosure (Pt. 8)

We continue with Part 8 of our series on the China Charity Law and other regulations in China in partnership with Shanghai Legal Center for NGO (ForNGO) with Chapters 9 and 10 of the China Charity Guidebook with an overview of charitable trusts and information disclosure, respectively (click the corresponding links to jump to each section). For a full list of articles part of this series, please visit our intro article or sector news page.​​​​​

Chapter 9 Charitable Trusts

1. Charitable Trusts ABC

1.1 Charitable Trusts - A Type of Trust

The Trust Law was released in 2001, prior to the promulgation of the Charity Law. It was intended to deal with “public trustxvi” cases, discussion of which formed the substance of Chapter 6 of the Trust Law. However, since its conception in 2001, until at the least the promulgation of the Charity Law, there have been relatively few such cases. There are two main reasons why. One is that a competent authority had not been confirmed[1], thus making the process of registering public trusts too vague. The other concerned taxes, given that no tax information is stipulated in the Trust Law. These reasons (especially the first one) explain why the past 15 years only saw the creation of a few public trusts.

In Chapter 5, “charitable trusts” as described in the Charity Law are defined, their legal status clarified, and their various models described. Following the promulgation of the Charity Law, the Circular of the Ministry of Civil Affairs and the China Banking Regulatory Commission on Work Related to the Recording of Charitable Trusts (hereinafter referred to as “Circular on the Recording of Charitable Trusts”) were released on August 25, 2016. A little less than a year later, on July 26, 2016, the China Banking Regulatory Commission (CBRC) and the Ministry of Civil Affairs jointly issued their Administrative Measures for Charitable Trusts. These documents helped establish a regulatory system for charitable trusts in China.

(1) Relationship between Charitable Trusts and Public Trusts

A public trust is a trust established for the public interest, according to Article 60 of the Trust Law. Charitable trusts are a way of acting for the public good through trusts.

Article 44 of the Charity Law states that charitable trusts are public trusts in that they involve trustorsxvii entrusting their assets to a trusteexviii for charitable purposes. The trustee, in accordance with the wishes of the trustor, manages the use of assets in the carrying out of charitable activities.

According to the definitions of “public trust” in the Trust Law and “charitable trust” in the Charity Law, the two concepts are substantially the same. The Charity Law only adds that charitable trusts belong to the category of public trusts. The Charity Law states it shall defer to relevant provisions of the Trust Law wherever matters concerning charitable trusts are not covered adequately. The equivocation of charitable trusts with public trusts helps link the Charity Law with the Trust Law and clarify the two concepts.

With regard to the design of the law, charitable trusts in the Charity Law are more specific and operable compared with those in the Trust Law. For example, establishing charitable trusts no longer requires the appointment of supervisors, thus simplifying the process of information disclosure. The Circular on the Recording of Charitable Trusts and the Administrative Measures for Charitable Trusts have clarified both the charitable trust establishment process and the approach to the management of charitable trusts by trustees.

Thus, this Handbook does not differentiate between public trusts and charitable trusts. Unless otherwise specified, the description of charitable trusts is also applicable to public trusts.

(2) Concept of Charitable Trusts

According to provisions of the Trust Law[2], trust refers to an act in which the trustor, based on confidence in the trustee, entrusts certain property rights to the trustee to manage in accordance with the intentions of the trustor and needs of the beneficiariesxix. The general structure of a charitable trust is shown below:

The Trust Law covers civil trusts, business trusts, and public trusts. Business trusts have flourished since the release of the Trust Law. Trust companies mainly use trusts for purposes of assembling fund trust plans. The CBSC issued its Administrative Measures for Trust Companies' Trust Plans of Assembled Funds in 2009, making trust plans an important financial product.

Trusts can be classified into public trusts and private trusts, based on whether they are for the benefit of specific individuals. General trust plans and testamentary trusts for children and families belong to private trusts.

Article 44 of the Charity Law stipulates that, “charitable trusts referred to in the law are public trusts and refer to trustors lawfully entrusting their assets to a trustee for charitable purposes and the trustee, in accordance with the wishes of the trustors, managing and disposing of the assets in its own name for the trustors to carry out charitable activities.” The qualities of charitable trusts that distinguish them from private trusts are as follows:

a. Established for a Charitable Purpose

According to the relevant provision in the Charity Law[3], a charitable purpose refers to public interest activities voluntarily carried out by natural persons, legal persons or organizations through the donation of property, the provision of services, or other means:

  1. Helping the poor and needy;
  2. Assisting the elderly, orphaned, sick, and disabled, and providing special care;
  3. Alleviating losses incurred by natural disasters, accidents, public health incidents, and other emergencies;
  4. Promoting the development of education, science, culture, health, sports, and other causes;
  5. Preventing and alleviating pollution and other public hazards, and protecting and improving the natural environment;
  6. Other public welfare activities as prescribed in the Charity Law.

Article 7 of the Administrative Measures for Charitable Trusts reinforces this point, that a charitable trust shall be established for legit purposes. Trusts established for the purpose of carrying out charitable activities are to be categorized as charitable trusts.

Thus, the setting up of charitable trusts for the purpose of serving public interests is their most important feature. The term “public interest” differs from “private interest” in that it refers to the interests of non-specific groups. As charitable trusts are established for charitable purposes, trust assets and the proceeds thereof must be used for charitable purposes.

b. Beneficiaries of Charitable Trusts Must be Non-specific

Non-specific beneficiaries are another important feature of charitable trusts, a quality that differentiates them from other trusts. Charitable trust contracts only stipulate the qualifications and scope of the beneficiaries, while the beneficiaries themselves shall be determined by the trustee. In this way, all such trusts will operate effectively.

c. All Assets and Proceeds of Charitable Trusts Must be Used for Charitable Purposes

Although self-evident, it is important that charitable trusts be used for the purpose they were created. The Trust Law also states that “the property of a public trust and its proceeds must not be used for non-public purposes”.

d. The Trustee Must be Specified

The Charity Law clearly stipulates that the trustee of a charitable trust can only be a charitable organization or trust company. There are no restrictions on who can serve as trustees in civil trusts; however, in commercial trusts, they are limited to trust companies. Due to the particularities of charitable trusts, trustees can be charitable organizations or trust companies. Currently, charitable organizations and trust companies oftentimes work together for the best interests of the charitable trusts they are charged with managing.

1.2 Operation of a Charitable Trust

(1) Composition of a Charitable Trust

Charitable trusts are comprised of trustors, trustees, and beneficiaries. They sometimes also include supervisors, custodians, public welfare project executors, investment managers, and other related parties.

Remarks: A solid arrow standards for a mandatory participant while a dotted arrow indicates a possible related party.

a. Trustor of a Charitable Trust

The trustor of a charitable trust shall be a natural or legal person with full civil capacity, or a legally established organization, according to the Administrative Measures for Charitable Trusts. Neither the Charity Law nor the Administrative Measures for Charitable Trusts, however, imposes limits on the number of trustors or the amount of trust property.

[Statutory rights of a trustor] According to provisions of the Charity Law and the Administrative Measures for Charitable Trusts, the statutory rights of a trustor include:

(i) Selection of a trustee. The trustee of a charitable trust may be a trusted charitable organization or trust company confirmed by the trustor;

(ii) Changing of a trustee. If the trustee of a charitable trust violates their fiduciary duty, or is incapable of performing their duties (for example, due to the trustee disbanding, losing their legal qualifications, being lawfully revoked, or declaring bankruptcy), the trustor may change the trustee;

(iii) Remain informed about their trust. The trustee of a charitable trust shall, in accordance with trust documents and upon request, report to the trustor in a timely manner the status of the trust and how the trust’s property is being managed and used;

(iv) Selection of a trust supervisor. The trustor of a charitable trust may choose a trust supervisor. Any such supervisor must report to the trustor as needed;

(v) Confidentiality. The personal details, such as the name, designation, address, and contact method, of a trustor shall not be made public if the trustor does not consent to its disclosure.

[Statutory obligations of the trustor] According to provisions of the Charity Law and the Administrative Measures for Charitable Trusts, the statutory obligations of the trustor include:

  • Guarantee that the sources of its entrusted property are compliant. Institutional trustors shall entrust trust property only with the approval of a relevant authority and with the assurance that their property was obtained lawfully. Individual trustors shall ensure the legality of the sources of their entrusted trust property.
  • Transfer the ownership of trust property to the trustee in accordance with a trust contract. Such contracts are necessary for the operation of a trust;
  • Never use their association to harm the interests of charitable trusts or public interests. Relevant transactions shall be made public and the trustor is not to designate as a beneficiary any whose interests are related to the trustor or trustee.

In addition to the above statutory rights and obligations, the trustor of a charitable trust may specify other rights and obligations as needed in the trust contract.

b. Trustee of a Charitable Trust

Trustees play an important role in charitable trusts. A trustee of can only be a charitable organization or trust company. The former is a legal person registered or recognized as a charitable organization in accordance with the provisions of the Charity Law and the Measures for the Accreditation of Charitable Organizations. The latter is a professional financial institution that is approved by the CBRC and currently working with trusts.

[Difference between charitable organizations and trust companies] Charitable organizations and trust companies differ from each other in their role as trustees:

  • As mentioned above, these two types of institutions are legal persons with different legal standing;
  • They are managed by different regulators. If a trust company acts as the trustee of a charitable trust, it is supervised by the Civil Affairs Department and the CBRC. If a charitable organization acts as the trustee of a charitable trust, it is likewise supervised by the Civil Affairs Department, but under a different division;
  • Both have their own advantages. Charitable organizations are superior in the implementation of charitable projects and accruing social influence, while trust companies perform better in asset management. Therefore, trust companies are usually employed as investment managers for charitable trusts, whereas charitable organizations typically serve as trustees. Non-profit organizations are generally employed as project executors in situations where trust companies are serving as trustees.

[Rights of a trustee] The quintessential right of a trustee is the ownership of trust property, transferred to them by the trustee. Neither the Charity Law nor the Administrative Measures for Charitable Trusts explicitly state that trustees can obtain trust management fees; however, in practice trust management fees are usually specified in trust contracts.

[Obligations of a trustee] According to the Charity Law and the Administrative Measures for Charitable Trusts, the statutory obligations of the trustee include:

  • Applying for the recording of charitable trusts. The trustee shall, within seven days from the date of signing a charitable trust document, report to the Civil Affairs Department of the people’s government at or above the county level where the trustee resides for recording;
  • Fulfill all trustee-related duties. Trustees, in managing the property of charitable trusts, shall carry out their responsibilities honestly and in alignment with the purpose of the trust. They shall manage trust property in accordance with the stipulations of the trust contract and implement agreed-upon trust property management methods. Trustees shall handle all trust affairs in-person. However, if there are extraordinary circumstances or if allowances are made in the trust contract, a trustee may entrust others to handle such affairs on their behalf.
  • Be faithful. The trustee of a charitable trust shall be loyal to the trustor’s requirements and carry out their duties in the trust’s best interest. The Administrative Measures for Charitable Trusts stipulates that trustees must not take advantage of trust property (e.g. by using it to generate profits for themselves); they are, however, allowed to obtain remuneration as applicable. The property of a charitable trust differs from the property owned by a trustee (inherent property), who shall not seek to possess it as such. Trustees may not conduct transactions that involve inherent property or the property of the trust they are managing, nor can they facilitate transactions involving the trust property assets of different trustors. The only exception is in circumstances when trust documents prescribe otherwise or the trustor approves such transactions insofar as they are made at fair market prices.
  • Manage trust property. A trustee must separately manage and record both charitable trust property and their own inherent property. They shall also separately manage the property of different charitable trusts by keeping separate accounts. For money trusts, commercial banks should be employed as custodians, and special accounts should be opened for charitable trust funds. For non-money trusts, concerned parties may ask third-parties to keep trust property;
  • Information disclosure. The trustee of a charitable trust is obligated to disclose all necessary information to the trustor, beneficiaries, trust supervisor (if applicable), Civil Affairs Department, and the public;
  • Liquidation. When a charitable trust terminates, the trustee is obliged to oversee the trust’s liquidation and issue a liquidation report.

[Joint trustee] There is no provision on the number of trustees for charitable trusts in the Charity Law. The Trust Law, however, stipulates that “if there are more than two trustees for the same trust, they are joint trustees. The joint trustees shall handle trust affairs together, but if trust documents prescribe that some specific affairs shall be handled by the trustees separately, those provisions shall be followed.” The Administrative Measures for Charitable Trusts states the obligation of joint trustees to record their trust as follows: “Where the same charitable trust has two or more trustees, the trustor shall ask one of the trustees that are primarily responsible for the management of the trust to undergo recording formalities under the chapter. The Civil Affairs Department where the recording formalities are undergone shall share the recorded information with the Civil Affairs Departments of the people’s governments at or above the county level in the places where other trustees are located.”

c. Non-specific Beneficiaries of Charitable Trusts

A beneficiary may be a natural person, a legal person or organization. As mentioned above, the biggest difference between charitable trusts and other trusts concerns the uncertainty of beneficiaries. The Administrative Measures for Charitable Trusts stipulates that a trustor must not designate as a beneficiary any whose interests are related to the trustor or trustee.

Since beneficiaries are non-specific, their rights cannot be protected by trust contracts. The Charity Law and the Administrative Measures for Charitable Trusts prescribe the rights and interests of beneficiaries:

  • Allow the appointment of a supervisor to protect the rights and interests of beneficiaries: “The trust supervisor oversees acts of the trustee, safeguarding the rights and interests of the trustor and beneficiaries in accordance with the law.”
  • Require the incorporation of beneficiaries in trust documents to include “the scope of beneficiaries and procedures and methods for selecting beneficiaries” and the “ways and methods by which beneficiaries obtain trust proceeds.”
  • Allow changes to the beneficiaries only with agreement from the original trustor or through trust documents. The scope of beneficiaries and the procedures and methods for selecting beneficiaries may be changed only as agreed in trust documents or with the consent of the original trustor.

d. Optional Appointment of Charitable Trust Supervisors

Article 49 (1) of the Charity Law provides that trustors of charitable trusts may appoint trust supervisors as needed. The Charity Law makes the appointment of a trust supervisor no longer a mandatory requirement.

[Duties of supervisors] According to the Administrative Measures for Charitable Trusts, a supervisor oversees the behavior of a trust’s trustee to safeguard the rights and interests of the trustor and its beneficiaries. If supervisors discover that trustees have violated their obligations or are having difficulty performing their duties, they shall report such situations to the trustor, who can choose to take legal action as deemed necessary.

In addition to the statutory duties of supervisors, the parties to a charitable trust may agree on other supervisory powers in trust documents.

e. Banks as Custodians of Trust Property

Since the property of a charitable trust needs to be separated from the trustee’s inherent property, the Administrative Measures for Charitable Trusts specifies that “a certificate on the opening of a special fund account for a charitable trust and a funds custody agreement of a commercial bank (except for non-money trusts)” should be submitted for recording. Therefore, if a trust’s property is money, a special fund account shall be opened at the bank serving as the trust’s custodian. If such property is not money, a bank shall act as a general custodian and create an account to ensure the trust property’s independence.

f. Professional Charitable Trust Investment Manager

The investment manager of a charitable trust is usually a financial institution with asset management capabilities. An investment manager invests the trust’s property or offers advice on how to do so according to the trust documents. If a trust company acts as the trustee, it is not necessary to hire an investment manager. If a charitable organization with insufficient investment experience acts as the trustee, an investment manager can be hired to help preserve and increase the value of trust property.

g. Non-profit Organizations as Project Executors of Charitable Trusts

The project executor of a charitable trust is oftentimes a professional non-profit organization responsible for designing and implementing public welfare projects or offering advice on the implementation.

(2) Establishment, Management, and Operation of a Charitable Trust

a. Establishment of a Charitable Trust

The establishment of a charitable trust requires qualified trust parties, a charitable purpose, lawful sources of trust property, written trust documents, and a lawful recording. The process of establishing a charitable trust includes the initiation of charitable trusts, conclusion of charitable trust contracts, transfer of trust property ownership, and the trust’s recording.

[Elements of charitable trust documents] Charitable trusts may be established through trust contracts, wills, or other written documents prescribed by laws and administrative regulations. The Administrative Measures for Charitable Trusts and the Circular on the Recording of Charitable Trusts stipulate the content of a trust document: (1) The name of the charitable trust; (2) The purpose of the charitable trust; (3) The names, designations, and domiciles of the trustor and the trustee, along with the name, designation, and domicile of the supervisor, if any; (4) The scope of beneficiaries and the procedures and methods for their selection; (5) The scope, type, status, and management methods of trust property; (6) The proportion or amount of annual expenses; (7) The content and method of information disclosure; (8) The form and means in which beneficiaries obtain the trust’s interests; (9) The rates and methods for the collection of trust compensation.[4]

[Recording of a charitable trust] The Charity Law stipulates that “the trustee shall, within seven days from the date of signing a charitable trust document, report to the Civil Affairs Department of the people’s government at or above the county level where the trustee resides for recording. Those who fail to submit relevant documents to the Civil Affairs Department for recording shall not enjoy any tax preferences.” According to statements in the Charity Law, the recording of charitable trusts is a condition for enjoying tax preferences. Charitable trusts do not have to be recorded, but tax preferences are unavailable if they are not recorded. The recording of charitable trusts should be a requirement for establishing and standardizing them, according to statements in the Administrative Measures for Charitable Trusts.

[Regulation on the recording of charitable trusts] The Administrative Measures for Charitable Trusts specifies the departments responsible for recording. When a trust company serves as the trustee, the Civil Affairs Department in the city of registration shall be responsible for recording. When a charitable organization serves as the trustee, the Civil Affairs Department that approved its registration and accredited it shall be responsible for recording.

b. Changes in a Charitable Trust

Changes in charitable trusts include the changing of trustees and changing of a trust’s terms.

The Trust Law stipulates that “the regulatory agency of public undertakings shall change the trustee if the trustee of a public trust violates trust obligations or does not have the capacity to perform its duties”. That means the law authorizes the regulatory agency to change the trustee. The Charity Law, however, states that “where the trustee of a charitable trust violates trust obligations or has difficulty performing its duties, the trustor may change the trustee. Within seven days of the change, the trustee shall report the change to the Civil Affairs Department where the trust was originally recorded to make a new record.” The Charity Law grants the trustor the right to change the trustee. The Administrative Measures for Charitable Trusts further describes the circumstances in which the trustee can be changed: “Where the trustee of a charitable trust violates its duties set out in trust documents or disbands unlawfully, loses legal qualifications, is revoked or declared bankrupt (or there are other circumstances where the trustee finds it hard to perform its duties), the trustor may change the trustee.”

The trustor and trustee may agree to change the terms of trust contracts. In addition, the following items may be changed in accordance with the stipulations of the trust documents or with the consent of the original trustor: (1) Adding trustors; (2) Adding trust property; (3) Changing the scope of trust beneficiaries and the procedures and methods for their selection; (4) Other circumstances required by the Ministry of Civil Affairs and the Banking Supervision Institution of the State Council. Changes shall be reported to the Civil Affairs Department where the trust was originally recorded.

c. Termination of a Charitable Trust

[Causes for termination of a charitable trust] A charitable trust shall terminate under one of the following circumstances: (1) One of the causes prescribed in the trust documents is fulfilled; (2) The trust violates its original purpose; (3) The purpose of the trust has been fulfilled and there is no more reason for it existing; (4) The parties of the trust agree to do so after negotiation; (5) The trust is withdrawn; (6) The trust is rescinded.

[Notice on the termination of a charitable trust] When a charitable trust terminates, the trustee shall prepare a liquidation report and submit it to the Civil Affairs Department where the trust was recorded within 30 days. After submission, the trustee shall make a public announcement. If a trust supervisor is being used, a liquidation report shall be approved by the supervisor in advance.

[Principle of similar purposes] If no person or non-specific public entity has the right to own a trust’s property when it is terminated, the trustee shall continue to use such property in accordance with its original purpose or transfer the property to another trust or organization with a similar purpose. This behavior requires the approval of the Civil Affairs Department where the charitable trust was recorded.

1.3 Current Tax Policy for Charitable Trusts

China’s lacks a tax system for trusts. The Trust Law, Administrative Measures for Trust and Investment Companies, and Interim Measures for the Management of Money of Trust and Investment Companies contain no provisions on trust taxes. The Charity Law and the Administrative Measures for Charitable Trusts likewise have not made any specific tax provisions for charitable trusts. Thus, there are really no legal provisions on tax policies for charitable trusts. Moreover, charitable trusts are neither legal persons nor organizations as such. Under the current tax system, charitable trusts are not subject to taxation and are simply considered accounting subjects.

Concerning tax incentives, the Charity Law stipulates that charitable trusts shall be entitled to tax preferences. The Charity Law prescribes that “the trustee shall, within seven days from the date of signing a charitable trust document, report to the Civil Affairs Department of the people’s government at or above the county level where the trustee resides for recording. Those who fail to submit relevant documents for recording shall not enjoy any tax preferences.” The “Promotion Measures” chapter in the Charity Law stipulates that, “where natural persons, legal persons and other organizations donate property for use in charitable activities, they receive tax benefits in accordance with the law.”

The tax system of charitable trusts primarily involves the establishment, continuation, and termination of trusts.

a. Establishment of a Trust

When a trustor transfers property to a trustee for use in charity work, a charitable trust has been established. In the establishment of a trust, the plan of a business trust does not involve taxes, such as the capital gains tax. In charitable trusts, trustors donate property for charitable purposes, and so should be entitled to tax preferences in accordance with provisions of the Charity Law. That means trust property can be “tax deductible”. No corresponding tax incentives are provided in the existing tax policy.

b. Continuation of a Trust

During the continuation of a trust, the trustee manages property in accordance with the corresponding trust contract and legal provisions, in order to preserve and increase its value. Income from the investment of such property is not subject to taxation, given that neither trust plans nor charitable trusts are subject to tax payments. When investing in trust property as part of a trust plan or charitable trust, the trustee shall pay value-added tax and income tax[5]. The method payment is based on the type of investment and the relevant taxation regulations.

During project execution, when trust property is allocated to beneficiaries or non-profit organizations, tax incentives are not put in place for recipients, despite regulations to the contrary in the Charity Law. Thus, if institutional beneficiaries are entitled to tax exemptions targeted at non-profit organizations, their donation income is subject to tax incentives and can thus be exempted from paying corporate income taxes. Institutional beneficiaries that do not qualify for tax exemptions targeted at non-profit organizations should pay corporate income tax. For individual beneficiaries, the trustee shall withhold and pay personal income taxes.

c. Termination of a Trust

After the termination of a charitable trust, the trustee may continue to use the trust’s property for its original purpose or transfer the trust property to another trust or organization with a similar purpose, pending approval from the Civil Affairs Department where the trust was recorded.[6] This section also deals with the collection of income tax from beneficiaries, which is consistent with the implementation of the charitable trust project described above.

2. Practical Guide

2.1 Advantages and Disadvantages of Charitable Organizations and Trust Companies as Trustees

 

Charitable Organization as the Trustee

Trust Company as the Trustee

Establishment

The Civil Affairs Department which approved its registration and accredited it shall be responsible for recording

The Civil Affairs Department in the city of the trust’s registration shall be responsible for recording

Project Operation

Experienced in the operation of charitable projects

Inexperienced in the operation of charitable projects

Overall Strength of the Institution That Operates a Trust Business

Weak and lacks the experience and talent needed to operate a trust business

 

Strong

Brand and Credibility

High credibility with strong influence as a charitable brand

Low credibility and low social recognition

(Trust companies are for-profit organizations, so their ability to run charitable trusts is questionable)

Clients

Limited clients, mainly from the charity sector

Many clients who have high interest in charity

Asset Management Capability

Inexperienced in preserving and increasing the value of assets

 

Strong asset management capabilities; has ability to increase the value of charitable trust property

Tax

No preferential tax policy in place; despite the policy problems regarding tax incentives for charitable trusts, foundations and civil society groups that meet relevant conditions among charitable organizations are still entitled to tax deductions for charitable donations, while charitable organizations as trustees are more likely to enjoy tax incentives

No preferential tax policy in place; the trustors and donors of charitable trusts cannot enjoy the same tax benefits as donors of non-profit organizations, since preferential tax policies for charitable trusts have not been put in place

2.2 Comparison Between Charitable Trusts, Foundations, and Special Funds

A trustor can contribute to the public welfare by establishing charitable trusts, foundations, or special funds. These three ways of doing charity work are compared as follows:

 

Foundation

Special Fund

Charitable Trust

Establishment Method

Established through complicated procedures with the approval of the Civil Affairs Department [7]and the registration authority

Signing of a special fund establishment agreement with a foundation

Recording by the Civil Affairs Department[8]. The recording system is adopted for the establishment of charitable trusts

Start-up Capital

The minimum start-up capital for a national public-raising foundation, local public-raising foundation, and private foundation is RMB 8 million, RMB 4 million, and RMB 2 million respectively[9]

Specific regulations of the foundation shall apply

There is no limit on the size of a trust or the amount of trust property

Supervision Mechanism

  • Civil Affairs Department and professional supervisory unit (in the case of dual management)
  • Information disclosure and annual reporting
  • Donors
  • Civil Affairs Department
  • Foundation that set up the special fund
  • Other supervision mechanisms as stipulated in a special fund establishment agreement
  • Trustor
  • Trust company as the trustee: Civil Affairs Department in the city of the registration location and the CBRC
  • Charitable organization as the trustee: Civil Affairs Department which approved its registration and accredited it, and the trust supervisor (if needed)
  • Information disclosure

Donated Property Account Management

A foundation has only one bank account and its funds are differentiated based on the range of charitable projects and special funds

A special fund does not have a separate account, and its income and expenses should be fully included in the account of the foundation that it belongs to

For money trusts, a commercial bank should be employed as a custodian; for non-money trusts, a third party should be asked for safekeeping[10]

Preservation and Increase of Donated Property

1) Legitimate process (council resolution + report on important matters)

2) Government-funded property and property that is not allowed for investment in a donation agreement shall not be used for investment;

3) Responsible persons and staff may not work part-time for or receive remuneration from companies in which charitable organizations invest

The value of a special fund shall be preserved and increased in accordance with the legal provisions on foundations, the foundation’s rules, and the special fund establishment agreement

Applicable to low-risk assets such as bank deposits, government bonds, central bank bills, financial bonds, and money market funds, unless otherwise agreed by the trustors or trust companies[11]

Taxes in Donated Property Management

Income from investment is subject to income tax

Taxes from special funds are handled by foundations

Trust plans are contractual products and unincorporated organizations do not need to pay income tax

Donation Receipts

Donation receipts can be issued after being claimed

Donation receipts are issued by foundations

Donation receipts cannot be issued directly; foundations often help charitable trusts issue donation receipts designed for public welfare undertakings

Operating Costs

High operating costs;

high housing and human costs[12], in which human costs are a major contributor to operating costs.

Low operating costs

 

Low operating costs;

for a charitable trust, its trustee’s management fees and supervisor’s remuneration shall not exceed eight one- thousandths of the total amount of charitable trust property each year.[13]

Restrictions on Spending and Costs

The salaries and benefits of staff and the administrative expenses of a foundation shall not exceed 10% of the total expenditure of the current year[14];

other spending and costs shall comply with the Regulations on Annual Expenditures and Administrative Expenses of Charitable Organizations in Carrying Out Charitable Activities

The spending and costs generally do not exceed 10% of the total annual expenditure of a special fund according to a special fund establishment agreement

No restrictions

Minimum Amount for Operation

The Civil Affairs Department requires that the net assets of a foundation at the end of the year should not be less than its registered capital

This is generally stipulated by the internal rules of a foundation and a special fund establishment agreement

There are no relevant provisions

Donors’ Control

Donors can serve as members of the council and responsible persons in a foundation, thereby controlling the foundation to some degree.

The rights of the sponsors of special funds are specified in a special fund establishment agreement; sponsors, along with foundations, determine the development direction and public welfare projects of special funds

As trustors of a charitable trust, donors have the right to choose the trustee, change the rights of the trustee, remain informed about the operation of the trust, choose a trust supervisor, and obtain the reports by supervisors on the progress of charitable activities.

 

Chapter 10 Information Disclosure

1. Information Disclosure ABC

1.1 Systems for Gathering and Releasing Charity Information

Article 69 (1) of the Charity Law stipulates that government bodies at or above the county level shall establish a system for collecting and releasing charity information. The Civil Affairs Departments of such governments shall disclose charity informationxx to the public in a timely manner by way of a unified information platform, as well as provide charity information release services for free. Charitable organizations and the trustees of charitable trusts shall release reliable charity information on the platform stipulated above. The article confirms that these governments are responsible for collecting and releasing charity information. All duties shall be performed by the corresponding Civil Affairs Department, who will also, along with charitable organizations and the trustees of charitable trusts, release charity information.

Systems for gathering and releasing charity information involve coordination among Civil Affairs Departments, statistical departments, and other relevant government departments. These systems not only help regulate and guide information disclosure by charitable organizations, but also ensure their transparency. Once the systems for collecting and releasing charity information are in place, Civil Affairs Departments will begin building the platform needed to publish charity information. They have already built information disclosure platforms with different functions to make charity information and statistics public. Unfortunately, these platforms release scattered information and cannot ensure the integrity, professionalism, authoritativeness, nor timeliness of the released information. Thus, it was necessary to build a single, combined information disclosure platform to allow the public to more easily search for charity information, and to enable governments to collect and analyze data, conduct investigations, and develop charity sector policies. On September 4, 2017, “Charity China” (cszg365.com), a nationwide charity information disclosure platform, was officially launched. This platform was built by the Ministry of Civil Affairs. It reflects the requirement in the Charity Law that participants in charitable activities, charitable organizations, and the trustees of charitable trusts disclose charity information to the public.

1.2 Information Disclosure Obligation of Civil Affairs Departments and Other Relevant Departments

a) The Charity Law Requires Civil Affairs Departments and Other Departments to Publicize Charity Information.

According to Article 70 of the Charity Law, Civil Affairs Departments and other relevant governmental departments shall ensure the timely publication of the following charity information:

(1) Registration information of charitable organizations;

(2) Records of charitable trusts;

(3) The list of charitable organizations with public fund-raising qualifications;

(4) The list of charitable organizations qualified to receive pre-tax deduction receipts for their public interest donations;

(5) Details of preferential tax rates, financial aid, subsidies and other promotional measures for charitable activities;

(6) Information regarding purchasing services from charitable organizations;

(7) Result of any inspections or evaluations of charitable organizations or trusts;

(8) Result of any commendations or penalties of charitable organizations or other organizations and individuals;

(9) Any other information required by other laws and regulations.

The above charity information is important to the management and supervision of charitable activities. In addition, Civil Affairs Departments are obliged to make a public announcement if they revoke the registration certificates of charitable organizations due to violations. To urge such Departments and others to perform their supervisory duties, Article 108 of the Charity Law stipulates that if they or other departmental staff fail to disclose the required information, they will be ordered to make corrections or be punished in accordance with the Civil Servant Law.

b) The Regulations on the Disclosure of Government Information[15] Stipulate That Government Departments Shall Fulfill the Obligation of Information Disclosure.

Charity information is considered government information if relevant governmental departments prepare or obtain it during the performance of their duties and record it accordingly. Based on the Regulations on the Disclosure of Government Information, such information—e.g. basic information about charitable organizations and data on charitable activities—should be made public. Civil Affairs Departments are departments for the registration, accreditation, and supervision of charitable organizations and the recording of charitable trusts and public donation projects, and are thus responsible for publicizing charity information. In addition to these departments, those managing matters concerning finance, tax, and statistics also have access to charity information and must publicize charity information within the scope of their respective duties.

c) Rules on the Disclosure of Credit Information of Social Organizations.

According to Article 6 of the Administrative Measures for Credit Information of Social Organizations[16], the credit information of social organizations includes information on organization details, annual reports, administrative inspections, administrative penalties, and more. The details of an organization include its registration, accreditation, approval, and recording. Annual report information is the annual work report that a social organization prepares and makes public. Administrative inspection information refers to information that Civil Affairs Departments and other relevant government departments develop when inspecting and supervising social organizations. Administrative punishment information includes the types and results of administrative penalties imposed on social organizations, records of illegal acts, the basis for and time of punishments, and the information of departments that impose administrative punishments. Other forms of information not mentioned include the assessment levels and validity periods of social organizations, commendations and rewards obtained from relevant government departments, matters regarding the undertaking of government procurement services or other entrusted services, qualifications for the collection of public donations, tax deductions for charitable donations, and other information related to the credit of social organizations. The above social organization credit information is collected and recorded into social organization information management systems by Civil Affairs Departments, which compile lists of social organizations involved in abnormal activities and which have violated laws and broken trust.

To expedite the establishment of a credit system in the charity sector, 40 government departments and public institutions, including the National Development and Reform Commission (NDRC), People’s Bank of China, Ministry of Civil Affairs, and Central Civilization Office, signed the Memorandum of Cooperation on Encouraging Faithful Acts and Punishing Unfaithful Acts Jointly for Entities Receiving Charitable Donations[17] on February 11, 2018. The Memorandum explicitly requires all parties to provide lists of entities to be encouraged and rewarded for their faithful acts and lists of those to be punished for their unfaithful acts. They must also update their information in accordance with relevant provisions and release it on “Credit China” (creditchina.gov.cn), “Charity China” (cszg365.com), National Enterprise Credit Information Publicity System (gsxt.gov.cn), and the portal website of the Ministry of Civil Affairs. The following types of charity participants are entitled to joint incentives: charitable organizations that have been registered or accredited by a Civil Affairs Department and are rated 4A or above, and donors (natural persons, legal persons, and unincorporated organizations) with good donation track records who have made exceptional contributions to poverty alleviation. Charity participants subject to joint punishment are natural persons, legal persons, and unincorporated organizations that have committed dishonest acts. These include: (1) Charitable organizations added by Civil Affairs Departments to lists of social organizations that have seriously violated laws and broken trust; (2) Legal representatives and persons directly in charge of the aforementioned organizations; (3) Donors who are dishonest in their donation activities and who have been held accountable by the people’s courts; (4) Beneficiaries who are dishonest in accepting donations from charitable organizations and who have been held accountable by the people’s courts.

1.3 Information Disclosure Obligation of Charitable Organizations and Trustees of Charitable Trusts

a. General Information That Charitable Organizations Make Public

According to Article 72 of the Charity Law, charitable organizations shall publicly disclose their Articles of Association, information about the members of decision-making parties, implementation and oversight bodies, annual work reports, financial accounting reports, and other information that the Civil Affairs Department under the State Council requires. This kind of information is called “general information”, as it must be made public by all charitable organizations. The Measures for Information Disclosure by Charitable Organizations (Draft for Soliciting Opinions) detail the disclosure of general information and put emphasis on the information disclosure obligations of charitable organizations. For example, Article 4 of the Draft for Soliciting Opinions stipulates that charitable organizations shall disclose information about their founders, major donors, institutional directors, managerial personnel, investees, and other individuals or organizations with control over them on information disclosure platforms within 30 days of it becoming available. While the Charity Law does present a general description of the obligations of charitable organizations to disclose general information, it also omits many of the specific provisions governing this legal area. To ensure the implementation of relevant legal provisions, it is necessary to develop administrative measures for information disclosure by charitable organizations. In preparing the Draft for Soliciting Opinions, stricter requirements for information disclosure by charitable organizations are more likely to increase the burden on them.

b. Disclosure of Information to Specific Individuals or Entities

Charitable organizations may disclose information in the following circumstances: 1) When charitable organizations carry out targeted donations, the organizations shall inform donors of their management and use in a timely manner. Though Article 74 of the Charity Law does not specify how or when charitable organizations should make such notifications, those organizing targeted donations shall maintain effective communication with donors to ensure effectiveness; 2) Charitable organizations should inform beneficiaries of funding standards, work processes, and work regulations. As this kind of information is closely related to the interests of beneficiaries, Article 75 of the Charity Law grants beneficiaries the right to know about it. Therefore, charitable organizations shall not decline to disclose or hide such information.

c. Information Disclosure by Charitable Organizations Qualified for Public Fund-raising

According to Article 73 (1) of the Charity Law, charitable organizations qualified for public fund-raising shall make public information about donations and the implementation of charitable projects. When public donations last for more than six months, information about donations should be publicized at least once every three months, and all relevant information shall be disclosed within three months after the donations have ceased. When charitable projects last for more than six months, information about the implementation of the projects shall be publicized at least once every three months, and all information about the implementation and use of donations shall be disclosed within three months after the projects are concluded.

When charitable organizations carry out public fund-raising through the Internet, they shall publish their fund-raising information on the information disclosure platform required by the Ministry of Civil Affairs, or on a designated charity information disclosure platform. The unified information disclosure platform required by the Ministry of Civil Affairs refers to a special donation information disclosure platform, not the “unified information platform" mentioned in Article 69 of the Charity Law. In addition, charitable organizations are allowed to use their own web portals, official micro-blogs, official WeChat accounts, mobile clients, and other network platforms to publish fund-raising information, according to Article 16 of the Administrative Measures for Public Donations by Charitable Organizations.

2. Practical Guide

According to the Charity Law, different entities have varied information disclosure obligations, as detailed in the table below:

Entity

Target

Content to Be Disclosed

Channel

Charitable Organization Without Qualifications for Public Fund-raising

 

Donors in targeted fund-raising

Information about targeted fund-raising and the management and use of donations.

Self-built official website or offline notification.

Beneficiary

Information such as funding standards, work processes, and work regulations.

Self-built official website or offline notification.

The public

(1) Articles of Association and information about the members of decision-making parties, as well as implementation and oversight bodies;

(2) Annual work report and financial accounting report;

(3) Significant changes to the aforesaid information.

Unified information disclosure platform required by the local government, “Charity China” (cszg365.com), and self-built official websites.

Charitable Organization with Qualification for Public Fund-raising

Donors in targeted fund-raising

Information about targeted fund-raising and the management and use of donations.

Self-built official website or offline notification.

Beneficiary

Information such as funding standards, work processes, and work regulations.

Self-built official website or offline notification.

The public

(1) Articles of Association and information about the members of decision-making parties, as well as implementation and oversight bodies;

(2) Annual work report and financial accounting report;

(3) Significant changes to the aforesaid information;

(4) Information about fund-raising and the implementation of charitable projects.

Unified information disclosure platform required by the local government, “Charity China” (cszg365.com), internet public donation information platforms, and self-built official websites.

Civil Affairs Department and Other Relevant Departments

The public

(1) Registration of charitable organizations;

(2) Record of charitable trusts;

(3) A list of charitable organizations qualified for the collection of public donations;

(4) A list of charitable organizations qualified to issue tax deduction receipts for public welfare donations;

(5) Measures for promoting charitable activities, such as tax preferences and subsidies;

(6) Information on the purchase of services from charitable organizations;

(7) Result of investigations into and the assessment of charitable organizations and trusts;

(8) Commendations and punishments of charitable organizations, other organizations, and individuals;

(9) Other information that should be disclosed as prescribed by laws and regulations.

“Charity China” (cszg365.com) and unified information disclosure platforms required by Civil Affairs Departments at all levels.

Below is a comparison of different information disclosure requirements for charitable organizations and foundations, social service organizations, and civil society groups that do not have the attributes of a charitable organization.

Entity Content to Be Disclosed Relevant Legal Provisions

Charitable Organization

(1) Articles of Association and information about the members of decision-making parties, as well as implementation and oversight bodies;

(2) Annual work report and financial accounting report;

(3) Significant changes to the aforesaid information;

(4) Information about targeted fund-raising and the management and use of donations;

(5) Information such as funding standards, work processes, and work regulations;

(6) Information about fund-raising and the implementation of charitable projects (for charitable organizations qualified for public fund-raising).

Articles 72, 73, 74, and 75 of the Charity Law

Foundation That Does Not Have Attributes of a Charitable Organization

(1) Annual work report and financial accounting report;

(2) Information on public welfare funding projects, including types, applications, assessment procedures, and the assessment results of public welfare projects; this also includes assessment results (if any) concerning the use of funds after the conclusion of the projects;

Articles 4, 7, and 12 of the Foundation Information Disclosure Methods[18]

(3) Information such as the establishment and termination of a special fund, management framework, and personnel information, all of which should be disclosed promptly in accordance with relevant laws and regulations;

Article 4 of the Circular of the Ministry of Civil Affairs on Further Strengthening the Management of Special Funds of Foundations[19]

(4) Detailed information about the income and expenditures of public donations received in the case of emergencies, such as natural disasters, which should be published on an organization’s official website and in other media. Such information includes: donation income, donations directly used by recipients, and direct operating expenses related to public welfare projects. If a staff’s remuneration, benefits, and administrative expenses are itemized under donated income, such information shall also be published. Where public welfare projects last for more than three months, relevant information should be publicized once every three months and all relevant items shall be disclosed after the projects are concluded;

(5) A foundation should make public the following information: 1) Founders; 2) Major donors; 3) Institutional directors; 4) Investees of the foundation; 5) Individuals or organizations that have control over foundations; 6) Transactions between the foundation and the aforesaid individuals or organizations;

(6) Internal rules of the foundation, which shall be made public on the media designated by the registration authority, a self-built website, or other media easily accessible to the public.

Items 3, 6, and 7 of Article 3 of Several Provisions on Regulating Actions of Foundations (for Trial Implementation)[20]

Social Service Agency That Does Not Have Attributes of Charitable Organizations

(1) Information about the acceptance and use of donations and subsidies, which should be made public;

Article 22 of the Interim Regulations on Registration Administration of Private Non-enterprise Units

(2) Registration certificate, organization code certificate, and other information such as the Articles of Association (or their summary), service items, and fee standards, which should be made public by hanging them on walls at a conspicuous location in the domicile (or service site);

(3) Annual work report, which shall be made public on the website (media) designated by the registration and administration authority.

Item 3 of Article 2 of the Opinions of the Ministry of Civil Affairs on Deepening Information Disclosure and Commitment Service Activities of Private Non-enterprise Units[21]

Civil Society Group That Does Not Have Attributes of Charitable Organizations

(1) Information about the acceptance and use of donations and subsidies, which should be reported to the relevant professional supervisory unit and made public promptly;

(2) Report on the previous year’s work, which shall be submitted to a professional supervisory unit prior to March 31 each year; the report also needs preliminary approval from a professional supervisory unit, which can be obtained by submitting the report to one prior to May 31 for annual inspection.

Articles 26 and 28 of the Administrative Regulations on the Registration of Social Organizations


[1]The Trust Law stipulates that “The establishment of a public trust and the appointment of trustees shall be subject to the approval of the regulatory agency of relevant public undertakings (hereinafter referred to as regulatory agency of public undertakings). One must not conduct activities in the name of public trust without the approval of the regulatory agency of public undertakings.” However, no document has explained the “regulatory agency of public undertakings”.

[2]Article 2 of the Trust Law

[3]Article 3 of the Charity Law

[4]The elements of a charitable trust set out in the Administrative Measures for Charitable Trusts and the Circular on the Recording of Charitable Trusts are basically the same. This manual uses expressions in the Administrative Measures for Charitable Trusts.

[6]Article 43 of the Administrative Measures for Charitable Trusts

[7]Articles 6, 7, 8, and 9 of the Regulations for the Management of Foundations

[8]Article 45 of the Charity Law

[9]Article 8 of the Regulations for the Management of Foundations

[10]Article 28 of the Administrative Measures for Charitable Trusts

[11]Article 30 of the Administrative Measures for Charitable Trusts

[12]Article 8 of the Charity Law

[13]Article 3 of the Circular on Encouraging Trust Companies to Conduct Public Trust Business to Support Post-disaster Reconstruction (2008)

[14]Article 29 of the Regulations for the Management of Foundations

[15]Regulations on the Disclosure of Government Information, which was adopted at the 165th executive meeting of the State Council on January 17, 2007 and which came into force on May 1, 2008.

[16]Regulation on Social Organization Credit Information Management, which was adopted at the ministerial affairs meeting of the Ministry of Civil Affairs on January 12, 2018 and entered into force on January 24, 2018.

[17]Memorandum of Cooperation on Encouraging Faithful Acts and Punishing Unfaithful Acts Jointly for Entities Receiving Charitable Donations, released on February 11, 2018 and which took effect on the same day.

[18]Foundation Information Disclosure Methods, which was released by the Ministry of Civil Affairs on January 12, 2006 and which became effective on the same day.

[19]Circular of the Ministry of Civil Affairs on Further Strengthening the Management of Special Funds of Foundations, which was released by the Ministry of Civil Affairs and became effective on December 24, 2015.

[20]Several Provisions on Regulating Actions of Foundations (for Trial Implementation), which were issued by the Ministry of Civil Affairs on July 10, 2012 and took effect on the same day.

[21]Opinions of the Ministry of Civil Affairs on Deepening Information Disclosure and Commitment Service Activities of Private Non-enterprise Units, which was released by the Ministry of Civil Affairs on September 30, 2007 and became effective on the same day.


xvi Public Trust - A type of trust that is specifically provided by the trust law and corresponds to a private trust, and refers generally to a trust that is established for public interest. According to Article 60 of the Trust Law, “A trust established for any of the following purposes of public interests is a public trust: (1) Helping poor people; (2) Helping disaster victims; (3) Assisting the disabled; (4) Developing education, technology, culture, art and physical education undertakings; (5) Developing medical and sanitation undertakings; (6) Developing environment protection undertakings and maintaining the environment; and (7) Developing other public undertakings of the society.”

xvii Trustor - the person who entrusts certain property rights it owns to the trustee to establish a trust.

xviii Trustee - the person who promises to accept the trust, holds trust property, and manages or disposes of trust property.

xix Trust Beneficiary - the person who enjoys the beneficial right and trust interests.

xx Charity Information - According to Article 70 of the Charity Law, the civil affairs departments and other relevant departments shall first make public the following charity information:

(1) Registration information of charitable organizations;

(2) Records of charitable trusts;

(3) The list of charitable organizations with public fund-raising qualification;

(4) The list of charitable organizations qualified for pre-tax deduction receipts for public interest donations;

(5) Details of preferential tax rates, financial aid, subsidies and other promotional measures for charitable activities;

(6) Information regarding purchasing services from charitable organizations;

(7) Results of any inspections and evaluations of charitable organizations and charitable trusts;

(8) Results of any commendations or penalties of charitable organizations or other organizations and individuals;

(9) Any other information required by other laws and regulations.