The Ministry of Finance of the People’s Republic of China and the State Administration of Taxation released the “Announcement about Policy on Corporate Tax on Equities Donations to Public Welfare Organizations” (《关于公益股权捐赠企业所得税政策问题的通知》) on the 10th of May. According to this document, corporate equity donations to public welfare organizations should be considered as equity transfers, and the income from the equity transfer should be calculated based on the historical cost of the equities donated. The Announcement’s provisions are valid from January 1st, 2016.
Following the release of the Charity Law, the carrying out of the Announcement remits the taxation on the increment of equity value. The equities in question include equities of other corporations or shares from publicly held companies held by corporations. Public welfare organizations refers to non-profit social groups that are dedicated to public welfare, are registered domestically, and have been confirmed as eligible for donation pre-tax deductions.
The act will avoid situations in which large donations give rise to heavy taxation burdens. According to Wushan Sun, a researcher in the China Philanthropy Research Institute, the act will remove doubts about large donations and encourage corporates to donate equities. Other policies concerning taxes on public welfare are also under consideration.