China targets offshore trusts in sweeping tax clampdown
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The announcement marks one of Beijing’s most significant efforts to tighten oversight of offshore wealth arrangements and strengthen tax compliance.
PHOTO: REUTERS
BEIJING – China will officially begin taxing offshore trusts established by its citizens, closing a longstanding loophole used by wealthy families for asset protection and succession planning.
Local residents who transfer assets into offshore trusts will be required to report and pay individual income tax on gains generated by those structures, regardless of whether the income is actually distributed, according to a statement by the Ministry of Finance on July 24. The rules take effect immediately.
The announcement formalises a policy shift that has been taking shape since at least 2025, marking one of Beijing’s most significant efforts to tighten oversight of offshore wealth arrangements and strengthen tax compliance.
The changes are reverberating across Hong Kong and other major wealth-management hubs, where offshore trusts have long been a favoured vehicle for Chinese entrepreneurs and ultra-high-net-worth individuals.
At stake is hundreds of billions of dollars of mainland wealth that has bolstered everything from luxury spending and real estate to the stock market in Hong Kong. The surge of Chinese money has been so great that the Asian financial hub recently overtook Switzerland as the world’s biggest offshore wealth hub.
“This is the first time China has released an official offshore trust tax guidance, that means the historical practice of using such structures for tax deferral practice will have no room,” said Oscar Liu, founder of JLT Trust and One Plus Holdings. “There will only be more and more stringent regulations.”
The proposal treats income earned by offshore trusts funded by Chinese tax residents as directly attributable to the settlor. Profits generated by overseas entities held or controlled by such trusts would be taxed annually as either property-transfer income or interest, dividend and bonus income.
The proposed framework forms part of Beijing’s broader effort to strengthen oversight of cross-border wealth and improve tax transparency. By bringing offshore trust arrangements more firmly within the country’s tax net, authorities are signalling that overseas structures will no longer provide a shield from domestic tax obligations.
The proposal includes a transitional arrangement aimed at encouraging voluntary compliance. Individuals with unpaid tax liabilities related to offshore trusts established between Jan 1, 2023 and Dec 31, 2025 would be given a 90-day window to declare and settle their obligations without incurring late-payment surcharges.
Tax authorities reserved the right to pursue larger unpaid amounts over an extended period in accordance with China’s tax collection laws.
For trust income generated before Jan 1, 2026, resident individuals would be allowed to report and pay tax under a simplified treatment, classifying all such income as interest, dividend and bonus income during the 90-day grace period.
China’s tax authorities have grown increasingly aggressive in recent years in extracting money from the country’s wealthy to bolster coffers.
In the past, local governments relied heavily on land sales for income. But China’s housing crisis has sharply reduced this stream, with property-related revenue falling 48 per cent over the five years through 2025.
At the same time, the country has seen a surge in emigration, with 1.3 million people leaving since Covid-19 pandemic restrictions were lifted, according to United Nations data – heightening the need to track offshore wealth. Bloomberg
