A Zhihu Answer on Charity Foundations (Full Translation)

The following is a complete direct translation of the answer by Zhihu user 鸡脚芝士. The translated text follows the original answer's paragraph order and preserves its claims and figures without independent amendment.

Those who know me know that I speak plainly and get straight to it. I do not use that kind of jargon.

What exactly is this thing called a charitable foundation, and what is it for?

Does it do charity? Yes, it does, but that is the least important part.

Foundations are basically divided into two categories: non-public-fundraising foundations and public-fundraising foundations.

It means exactly what it says on the surface. One cannot solicit donations publicly from society, while the other can.

Let us start with non-public-fundraising foundations. The predecessor of the Han Hong Foundation was also a non-public-fundraising foundation. It has only had public-fundraising qualifications for a few years; it obtained them in 2019, and before that it was a non-public-fundraising foundation.

Non-public-fundraising foundations can be divided into many more categories if one gets into the details. I will not go into that, since I am not a professional lawyer and cannot make it that precise. Let us just talk about why these tycoons and entrepreneurs all set up foundations.

The first reason is reputation: use money you put in yourself for public welfare, such as student aid, medical care, scientific research, and disaster relief; receive tax exemptions; build a name; establish political and business connections and reputation. It is the equivalent of a top-tier calling card.

The second reason is that the money cannot be kept if it is not donated, because taxes have to be paid. After donating it to a charitable organization, however, it can be tax-exempt. Money donated into a foundation fully offsets corporate income tax and individual income tax.

Under normal circumstances, distributing company profits as dividends requires paying 45% in individual income tax. If the money is donated directly into a foundation, not a cent of tax is paid, which is equivalent to legally moving pre-tax profits out.

What does that mean? Let us give an example:

Suppose a company has a net profit of 10 million yuan this year.

First it pays 25% corporate income tax, or 2.5 million yuan, leaving 7.5 million yuan after tax.

If all 7.5 million yuan is paid into the shareholder's bank account as dividends, another 20% dividend tax of 1.5 million yuan is deducted. The owner ultimately pockets 6 million yuan, while the state takes a total of 4 million yuan in tax.

If this entrepreneur has a private foundation, then in an extreme case they can transfer 10 million yuan directly from the company into their own foundation as a donation and obtain a public-welfare donation receipt.

That 10 million yuan is removed directly from total profit, reducing taxable income to zero. There is no need to pay the 25% corporate income tax. With no dividend distribution, there is naturally no 20% dividend tax either.

This is also what many people do not understand. Is the entrepreneur's money not gone if they do this? Money donated to a foundation is no longer theirs personally in legal terms!

That is right. Legally, this 10 million yuan no longer belongs to them; it belongs to the foundation. But the money has not disappeared. Only its ownership has changed.

When one reaches the level of a capitalist—oh, no, an entrepreneur—who owns the money is not important. What matters is who has the power to direct it, who is the distributor under socialism with Chinese characteristics.

An entrepreneur only needs to control the foundation's board of directors to control this money.

Under the law, only 8% needs to be used for charity each year, while the remaining 92% can be used for financial investment.

The entrepreneur can then use the remaining 92% for financial investment, which, plainly speaking, means investing it back into their own company. This is completely legal, so 9.2 million yuan of capital flows back into their own company.

Of course, the profits and principal from investing that 9.8 million yuan still do not legally belong to the entrepreneur; they still belong to the foundation. But that no longer matters. As long as the entrepreneur can direct it, it will keep investing in that enterprise. In essence, that is no different from the money being theirs.

If you still cannot understand it very well, then keep reading.

Third, asset isolation.

Once money is injected into a registered charitable foundation, the law immediately classifies it as public-welfare property. It belongs neither to an individual, a family, nor a company; it is not included in bankruptcy liquidation, debt recovery, divorce division, or inheritance.

If the enterprise collapses, incurs debts, faces lawsuits, or runs into marital disputes, no creditor can touch this block of assets because it belongs to no one. This is the primary purpose for entrepreneurs and tycoons.

By controlling the foundation's board, a tycoon exercises absolute control over this money. They can freely run charitable projects and investment projects, and can completely control the money to do what they want. Even if they owe banks 80 billion yuan, the banks cannot freeze money in their foundation.

Another example:

Your project needs an investor. I may be a deadbeat who owes banks 80 billion yuan, but you still dare not look down on me and must treat me with great respect. Because you know I still have a foundation. Although the money in the foundation is not mine and I cannot personally misappropriate it, I can control the foundation's board. The board members are all my family and friends, so my personal will can become the board's collective will. I can therefore decide where that money goes. In other words, although I am in debt, I still have the ability to invest in you. I still have social standing before you and can still be your financier.

Fourth, it can achieve the perpetual inheritance of a family business. This is the real top-level game played with private foundations.

The founder controls the foundation's board for life, then passes it on to their children.

The principal can be used by the foundation's dedicated account for financial management, equity investment, and real-estate investment. The earnings remain inside the foundation's cycle forever and never need to be taxed a second time.

It is equivalent to creating a hereditary, permanently tax-free family vault. Descendants are responsible only for directing expenditures; wealth is passed down forever, perfectly bypassing high inheritance tax.

Let us give a direct example:

The foundation's board has seven directors. The family permanently occupies four of the seven seats. Voting follows majority rule, so as long as the family has four people, it has absolute control over the foundation.

When the foundation is established, terms can be set so that the direct adult members of the donor family have the sole perpetual right to nominate new directors. This guarantees that the family can control the board forever.

By controlling the board, foundation funds can be invested in the family's own company and used to buy stock.

In that way, the foundation becomes the company's largest shareholder. The company's major decisions, or in other words its control, are then in the hands of the foundation board members.

When we watch Hong Kong dramas, the key point when the sons of a wealthy tycoon fight over property is not their positions inside the company. Even if one son becomes chairman, another can turn the situation around by obtaining the support of the elders on the board.

While the foundation founder is alive, the founder, spouse, and two confidants occupy four seats.

When the founder grows old and retires, the eldest son is nominated directly to take the founder's seat; the eldest son then nominates the second son, permanently locking down voting power.

China's civil affairs authorities are responsible for regulating foundations, but they only care whether you are a nonprofit and whether you spend 8% each year on public welfare. The civil affairs authorities do not concern themselves with which people in your family are directors, and they do not interfere with internal personnel elections.

That is why old European financial conglomerates can remain in family hands with hundreds of billions in assets for one or two hundred years, with no outsider able to penetrate them.

That is a simple account of non-public-fundraising foundations. Next, let us talk about public-fundraising foundations.

Public-fundraising foundations also have many categories: nationwide ones, local ones, state ones, private ones, corporate ones, and so on.

The difference from non-public-fundraising foundations is that public-fundraising foundations may solicit donations publicly from society. Their funding sources are broad, but their regulatory requirements and transparency standards are much higher than for non-public-fundraising foundations.

But in essence, this thing is about the same. It is all that same thing.

The founder can control 100% of the flow of funds inside. That is absolutely certain, because the founding board members are selected by the founder at the beginning and the founder keeps nomination rights. In that way, the founder can keep the board full of their own people forever. Their own will becomes the collective will, and they thereby control where funds go.

Enough talk. There is no use in saying all this. Let us give an example.

Suppose I establish the Chicken Feet Cheese Charity Foundation and raise 100 million yuan from the public.

Under the law, I can take 10%, or 10 million yuan, for administrative operations. Plainly speaking, that means paying salaries to members of my board. There are legal rules for these salaries too, of course, but there is a great deal of room: annual salaries from tens of thousands to hundreds of thousands are possible. A senior member of the Han Hong Foundation's board can earn 600,000 yuan a year.

The remaining money has to be used for charity. Under the law, that is 70% of income, which is much higher than for a private foundation.

Seventy percent is 70 million yuan. I want to run a project. Because my eldest nephew is a senior official in a city's education bureau, I decide to make the charitable project assistance for poor rural primary schools.

Before providing assistance, I need to go out into the countryside for inspection.

I take my foundation employees around different places, including five-A scenic sites. We travel back and forth by plane and high-speed rail, ride in luxury cars, and all the costs of food, lodging, travel, and everything else come out of the foundation. That is not money entering my own pocket, and it is not illegal. As long as everything stays within a reasonable range, it all counts as charitable expenses.

After one round of inspection, I set the focus of the aid in the place where my eldest nephew works. Of course, this is not because of connections; it is because I inspected it carefully. I will not let down the many donors. I will certainly spend the money where it matters and accept the supervision of all society.

I am not afraid of however you supervise me, because the money really does not enter my personal pocket. Corruption has no meaning for me. I have absolute power to direct the money, and I receive so many donations every year. I have to rack my brains over where to spend it. Why would I need corruption?

And in the process of allocating assets, all the respect, status, power, and worship you seek come with it.

For example, when I go to a primary school in the countryside to inspect it, the principal will certainly line everyone up in advance to welcome me. First-graders will salute me with Young Pioneer salutes, third-graders will play military music, and sixth-grade girls will hold flowers and smile. The principal will bow and scrape to me with two young female teachers at their side. Local reporters will point their long cameras at me and set off flashes.

I pull my broad mouth into a smile, tears in my eyes, and wave to the children: you are the flowers of the motherland's future! It means nothing for me to suffer a little or be tired! As long as you can grow up strong and serve the motherland, that is the best return for me!

The principals of all the primary schools, hoping to receive aid money, flatter me and secretly give gifts. Because local education developed so greatly during my eldest nephew's term, he gets an exceptional promotion. My family finally has someone inside the system.

Later I hear that a child at a school I inspected is about to drop out because the family is too poor to afford it. But I can only say that I am powerless. My charitable money belongs to donations for school institutions; one thing is one thing. Under the law, I cannot use this money to help an individual.

I never argue with anyone. I simply devote myself in silence. My conscience is clear, because I have indeed done charity. I have indeed supported poor primary schools, indeed donated ambulances, indeed gone to plant trees in the desert.

Under the supervision of all society, I have no flaws at all. My conscience is clear. I am a philanthropist! A living Buddha!

What do we common people know? When we come across a temple, we go in; when we see a Buddha, we bow.

Supplement:

I am neither a lawyer nor an economist. I am talking in ordinary people's terms. The examples are not that precise, but that is roughly what I mean.

Let us start from the simplest and most basic feelings of the people: what is charity?

There may be many kinds of charity, but ordinary people recognize only one: spending your own money to help people who really need help. It could be a lonely elderly person, a poor student, or someone seriously ill. That is charity.

Let us talk about Han Hong's ambulance donations. From an ordinary person's point of view, this is a charitable project that is hard to understand.

Who benefits from this project?

First, Han Hong herself. She gains fame, status, and worship, all of which can feed back into her entertainment career.

Second, the suppliers and the people selling the vehicles, because the vehicles are purchased from them. Whether the suppliers have other connections with Han Hong is not important. With or without such connections, they benefit because they sell their vehicles.

Third, the recipient institutions, hospitals, and emergency centers. Whether or not they have connections with Han Hong is not important. With or without such connections, they benefit because the vehicles are donated to them.

Fourth, the government. The government is also a beneficiary because this solves part of a public-welfare problem. Otherwise, if remote areas do not have enough ambulances, the government has to find a solution.

That is all. Ordinary people do not benefit. Do you see it?

Some people ask whether more ambulances will make ambulance rides cheaper. No. An ambulance needs at least one driver and two medical staff. Drivers in particular are often contract workers and have to be paid. Fuel, insurance, and maintenance all cost money, so an ambulance call starts at more than 100 yuan. These are all operating costs and will not become cheaper just because there are more vehicles.

Some people ask whether more ambulances will make rescue response faster. That is possible, but only possible.

Rescue speed is constrained by road conditions, distance, and traffic. It will not necessarily become faster just because more is invested. Besides, the Han Hong Foundation donated only 300 ambulances in total over fourteen years, spread across eleven provinces. A single place gets only a few, so it cannot noticeably improve rescue speed.

And if ordinary people have no money for medical treatment, what is the use of faster rescue? If you get to the hospital and cannot pay, they will not treat you. What is the meaning of faster rescue then?

According to the Han Hong Foundation's projects, by the end of 2025 the ambulance project had cumulatively spent 87 million yuan.

Plainly speaking, in the eyes of ordinary people, this 87 million yuan was not spent in a satisfying way. The people's money is used; you benefit, suppliers benefit, hospitals benefit, the government benefits, and ordinary people benefit very little.

That fits her logic: just go through the motions! Spend everyone's money, and she benefits; producers, investors, directors, screenwriters, actors, and cinemas benefit. Ordinary people pay money to watch a movie.

Source: Zhihu user 鸡脚芝士, the question page, and the specific original answer. This is a direct translation of the original answer, not an independent factual or legal assessment.