China’s Ministry of Finance and State Administration of Taxation recently announced new regulations that will bring the income generated when Chinese residents place assets in offshore trusts, the profits accrued during the trust’s term, and the liquidation proceeds after the trust’s termination into the taxable scope, with a 20% tax rate applicable to relevant income. Some individuals who have already set up offshore trusts will also need to declare and pay previously unpaid taxes. Analysts believe that facing local fiscal deficits, the Chinese Communist Party has set its sights on the overseas structures used by the affluent for asset isolation and wealth inheritance, directly incorporating them into the scrutiny scope.
The Ministry of Finance and State Administration of Taxation issued the “Announcement on Individual Income Tax Related Issues of Offshore Trusts” on July 24. Offshore trusts, as defined in the announcement, refer to trusts established under foreign laws or other offshore legal arrangements with trust functions. Chinese residents who transfer assets to offshore trusts or obtain income through offshore trusts are required to declare individual income tax.
Feng Ming, a fund manager in the Chinese banking industry, stated in an interview with The Epoch Times, “The CCP’s release of these new regulations was not publicized widely, there were no analyses by experts, and there was no discussion. This is a lifelong commitment of wealth binding for the affluent class. If you have money overseas, you have to pay taxes. It starts with a self-inspection of your assets now, and if you fail to provide a reasonable explanation, punishment follows, with fines potentially exceeding the specified 20%.”
According to the new regulations, mainland residents who place equities, stocks, real estate, and other assets into offshore trusts will pay personal income tax on the portion of the fair market value of the assets exceeding the acquisition cost as “property transfer income” at a 20% tax rate. Interest, dividends, bonuses, and gains from property transfers obtained during the trust term must also be reported under the relevant income categories, with interest, dividends, bonuses, and property transfer income all subject to a 20% tax rate. Upon trust termination, the liquidation proceeds of offshore trust assets are also subject to 20% personal income tax under the category of “interest, dividends, bonuses income.”
Offshore trusts are typically established in jurisdictions such as Hong Kong, Singapore, the Cayman Islands, and the British Virgin Islands. Chinese wealthy families transfer corporate equities, financial assets, and other properties to trusts, which are then managed by trustees according to trust documents and distributed to designated beneficiaries. Such arrangements are used to isolate personal and corporate assets.
Guo Fang, a personal asset management consultant at Bank of Communications, told reporters, “This low-key introduction of offshore trust taxation policy mainly targets the core asset arrangements of China’s affluent class. The entire process from the establishment, continuation, and termination of offshore trusts is now included in the tax net. Currently, there are around 2 million Chinese individuals who have assets exceeding tens of millions of yuan and hold assets overseas. Over the past few decades, they have stored money overseas through offshore trusts without having to pay taxes on the related profits.”
Guo stated that the authorities require relevant taxpayers to declare unpaid taxes within 90 days from the date of the announcement’s implementation. If concealment occurs, individuals may face not only the payment of a 20% tax but also potential back taxes and penalty fees. If corruption is involved, prosecution may also be initiated.
The new regulations do not directly categorize general banking, insurance, securities, and fund products as offshore trusts. The announcement clarifies that financial products issued by banks, insurance companies, securities firms, and fund companies regulated by financial supervisory authorities in their home countries or regions and serving unidentified clients independently while assuming risks do not fall under the definition of offshore trusts in this announcement.
Liu Tao, an insurance consultant at Ping An Insurance Company, mentioned, “Several years ago, wealthy individuals in mainland China purchased high-value savings dividend insurance policies at Hong Kong insurance companies, and mainland tax authorities have not formally taxed them yet. I’ve heard that overseas savings dividend insurance policies may also be subject to taxation by the end of this year. In 2016, it was a period with more significant purchases of long-term insurance policies by mainland wealthy individuals in Hong Kong, and policies purchased in 2016 are gradually maturing this year. If tax authorities see the policies starting to distribute dividends, they may require taxation. This also counts as an investment and may be included in the taxation scope along with trust funds.”
The policy interpretations by the Ministry of Finance and State Administration of Taxation reveal that the principle for retroactively collecting unpaid taxes in the establishment stage of offshore trusts extends up to three years; for larger amounts involved, tax departments may extend the recovery deadline in accordance with tax collection laws.
For income generated during the trust term of offshore trusts in 2025 and previous years that has not been reported, the new regulations require a one-time consolidated calculation and tax payment based on “interest, dividends, bonuses income.” Taxpayers must complete the declaration within 90 days from the date of implementation of the announcement, and no penalty fees will be imposed for tax payments made within the specified period; for overdue payments, tax authorities may recover taxes and penalties, with fines imposed in cases of tax evasion.
The regulations also link tax jurisdiction to Chinese domestic enterprises, domestic properties, and individuals’ habitual residences. If the assets placed in offshore trusts are related to China-based major operating enterprises, they will be managed by the tax department at the enterprise’s place of registration. If no relevant domestic operating enterprises are involved, the tax department at the location of the taxpayer’s domestic property or habitual residence will be responsible for management.
Liu Tao believes that as local fiscal revenues in China decline, tax authorities have expanded their oversight over foreign income in recent years. The new regulations on offshore trusts further extend the taxation scope to the wealth structures used by affluent families for asset isolation and intergenerational inheritance.
He added that offshore trusts are not the end point, and profits generated from Hong Kong insurance and other overseas investment products may also come under the taxation scrutiny of tax authorities in the future.