Amid increasing financial constraints in the Chinese Communist Party (CCP), authorities have intensified efforts to levy taxes on assets held by citizens overseas. Beijing has recently stepped up taxation on offshore trusts holding shares in Hong Kong-listed companies, targeting the ultra-rich elite who have long been transferring wealth abroad for investment.
According to sources cited by Bloomberg on Tuesday (March 31), several provinces and cities have successively required relevant individuals to declare their income, with some cases facing retroactive taxes and fines.
Since early 2025, Shanghai was the first to demand that trustees declare income information for the past three years. Subsequently, provinces and cities such as Jiangsu and Shenzhen followed suit, requiring trustees to submit detailed financial information, including dividend income and investment returns from selling shares.
In at least one case, local tax authorities are seeking to impose a 20% tax on investment returns and additional fines. Other provinces require declarants to disclose all income received from offshore trusts in the past two years. The National Taxation Administration of China has not responded to these reports.
Offshore trusts are legal structures established outside the jurisdiction of the person involved, with common locations including the Cayman Islands, British Virgin Islands, and Jersey.
The basic operation involves the transfer of assets owned by the settlor (often a wealthy individual or entrepreneur) — such as company shares, real estate, or cash — to the trust, managed by a trustee on behalf of the beneficiaries, typically the settlor’s family members. As the assets no longer belong to the settlor in legal terms, they could theoretically evade some tax obligations and legal liabilities in their home country. This field is considered a gray area in tax enforcement.
Offshore trusts have been favored by Chinese billionaires because mainland tax authorities have had difficulty monitoring the income from overseas trusts, creating a regulatory blind spot. Before Chinese companies list in Hong Kong, founders often use offshore trusts to hold shares, making it easier to manage ownership structures.
Clifford Ng, Joint Managing Partner of Zhong Lun Law Firm in Hong Kong, revealed that many founders of listed companies establish trusts for wealth succession, but those with tax avoidance motives must now reconsider their arrangements. He stated, “Many people hold shares of listed companies through trusts worth billions of dollars.”
Facing tighter scrutiny from authorities, some Chinese business owners are hesitating to use offshore trusts for initial public offerings (IPOs) in Hong Kong.
This crackdown also affects the red-chip stock listing model, where Chinese companies use offshore-registered firms to hold mainland businesses and list in Hong Kong. Companies such as China Mobile and CNOOC have previously employed this model for listing in Hong Kong.
The China Securities Regulatory Commission has tightened approval for red-chip stock listings in Hong Kong this year, requiring increased transparency and compliance. Some companies are restructuring their models or even applying for listings directly through mainland entities.
These actions are part of Beijing’s broader efforts to crack down on citizens who fail to declare overseas assets for tax purposes. The CCP is currently facing the dual pressures of slowing economic growth and expanding fiscal deficits, necessitating the exploration of new sources of revenue.
Official CCP data shows that individual income tax revenue in 2025 increased by 11.5% compared to 2024, reaching a record-breaking 1.62 trillion Chinese yuan.
Simultaneously, authorities are taking measures to tighten capital outflows, including removing two major cross-border online brokers from mainland app stores.
According to Bloomberg data, an estimated $1.04 trillion flowed out of China in 2025, marking the highest annual outflow since records began in 2006.
For the ultra-rich elite, the biggest uncertainty currently lies in how far back authorities will trace income and how extensive the range of fines will be; there are no official regulations in place, with everything relying on verbal explanations from enforcement personnel.