The trust business is the second largest financial sector in China, after banking, accounting for a total asset of RMB 10.9 trillion in 2013. According to the Trust Law of the People’s Republic of China, there are specific rules and regulations an investor has to observe in order to open a trust in China. Specific marketing rules apply to trust products in China. Our attorneys in China can give you extensive details about the trust sector in this country.
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Types of trusts in China
Trusts are agreements by virtue between settlers who decide how to transfer parts or all of their assets to trustees. As a group of assets, trusts may vary from loans to property and from stocks to bonds. Any investor interested in opening a trust in China must be aware of the variety of trusts on the local financial market. The main types of trusts in China include the following:
• single unit trusts – a trust company develops a product based on the requirements of the client;
• combined trusts – a company creates a product which later is marketed to potential investors;
• property management trusts – trust products are used for the management of non-monetary assets on behalf of the client. This type of trust in China functions as a form of wealth management.
If you want to open a trust in China, you must note that companies in the trust industry are either state-owned, controlled by the local government or have many shareholders from governed-owned and privately owned businesses. Our law firm in China can guide you through the process of setting up a trust on the local financial market.
Steps for opening a trust in China
The robust development of the Chinese economy has lead to a development of trusts as means of planning and managing the wealth. A trust in China can be established as a bespoke trustee and managed by a board of directors comprising members and business consultants.
In order to open a trust in China, several conditions must be met: the trust has a legitimate purpose, there is a definable property to be managed by the trust, the beneficiaries of the trust are well determined, there is no violation of the trust law and the ownership of the trust property is really transferred. According to the Trust Law, there are two major steps to conclude to start a trust in China:
• The preparation of the trust contract – most trusts in China function as a contractual agreement between the trustee and the settler;
• The preparation of the fund supervision document – it stipulates the legal conditions for the deposit and management of the trust fund.
Since trusts in China work as contractual agreements, they are not considered a legal entity under the Chinese corporate tax law. Therefore, no tax liability arises on the foreign trusts.
Feel free to contact our lawyers in China if you need legal assistance in setting up a trust.