Mainland China's offshore trust tax rules: 20% on settlement, income and termination

Context

Offshore trusts, often established in Hong Kong, Singapore, the British Virgin Islands, the Cayman Islands or Jersey, have become a common tool for wealthy mainland families. They are used for succession planning, cross-border asset allocation and protection against business or family risk. Until this year, however, there was no specific mainland rule on how such trusts should be taxed for individual income tax purposes.

The Individual Income Tax Law already taxes residents on worldwide income, and the Common Reporting Standard gives the authorities data on many offshore accounts, including those held by trusts. In its explanation of the new rules, the Ministry of Finance noted that some individuals had used offshore trusts in low-transparency, low-tax jurisdictions to move assets, hide wealth and evade tax.

What changed

On 24 July 2026, the Ministry of Finance and the STA issued the Announcement on Individual Income Tax Matters Relating to Offshore Trusts, with an explanatory Q&A from the two authorities' tax policy departments. The main rules are as follows.

Settlement. When a resident individual places company equity, shares, property or other assets into an offshore trust, the resident is the taxpayer. The taxable amount is the market value of the assets less their original cost and reasonable expenses, taxed as income from the transfer of property at 20%. Where a non-resident settles assets that are in substance controlled by a resident, the resident is treated as the settlor.

Existence. For a trust settled by a resident, income arising during the trust's life is taxed on the resident each year at 20%, as either income from the transfer of property or interest, dividends and bonuses, according to its nature. Gains and losses on property transfers can be offset within a year, but losses cannot be carried forward. Undistributed trust income and income accumulated in offshore entities controlled by the trust are both within scope. For a trust settled by a non-resident, residents are taxed on amounts actually distributed to them, as interest, dividends and bonuses.

Termination. When a resident-settled trust terminates, the resident is taxed on all liquidation gains of the trust assets as interest, dividends and bonuses at 20%. Where a non-resident settled the trust, residents receiving assets are taxed on their market value. A resident who becomes non-resident is subject to a tax settlement that captures unrealised gains.

Anti-avoidance. Settlements made through other people or organisations, but funded, borne or controlled by the individual, are attributed to that individual. Individuals who have moved abroad, including those who have obtained foreign nationality or long-term residence, but whose main economic interests remain in the mainland may still be treated as residents.

Relief and filing. Foreign individual income tax related to the trust can be credited under the Individual Income Tax Law, and trust income already taxed is not taxed again on distribution. Residents report settlement and annual income between 1 March and 30 June of the following year; termination must be reported by the 15th of the following month. Taxpayers in genuine difficulty may, after filing a record with the tax authority, pay in equal instalments over up to five years.

Existing trusts. Tax on settlements is generally recovered for three years, meaning those who settled assets from 1 January 2023 must report. For larger amounts, the authorities may extend the look-back period under the Tax Collection and Administration Law. Untaxed income relating to 2025 and earlier years is packaged together and taxed in full as interest, dividends and bonuses. Both had to be paid within 90 days of the announcement.

The October clarifications

On 19 October, the STA reminded taxpayers that the transition period would end on 22 October, and that tax paid within it would not attract late-payment surcharges. According to Caixin, the STA also published Q&As clarifying that "larger amounts" for the purpose of extending the look-back period means unpaid tax of RMB 100,000 or more, that undistributed profits accumulated in an offshore entity before it was placed into the trust should be included in income during the trust's existence, and that employee share incentive trusts are outside the scope of these rules.

Implications for investors, families and businesses

For families who filed within the window, the next step is to set up annual reporting and record-keeping for the trust and its underlying companies, since income will be taxed each year from now on.

For families who did not file, the no-surcharge period has passed. Late-payment surcharges under the Tax Collection and Administration Law are 0.05% per day, and the authorities have warned that cases not dealt with will be handled under the law. Seeking specialist advice promptly is important.

For trustees and offshore service providers, mainland resident settlors and beneficiaries will need information on income, gains and underlying entities to file accurately. The Ministry of Finance has also warned intermediaries that help clients evade tax through offshore trusts.

For families planning new structures, the tax cost of settlement and annual taxation now needs to be weighed against the succession, governance and protection benefits a trust provides. Trusts remain useful tools, but not for tax deferral.

Questions to consider

• When were assets placed into our trust, and does any settlement fall within the look-back period?
• Does our trust hold companies with undistributed profits, and how will these be reported?
• Who is treated as settlor under the substance rules, and is anyone's residence status in doubt?
• Can foreign taxes paid in relation to the trust be credited, and do we have the evidence?
• Do our trustees provide the information we need to file each year?

Closing

The 24 July announcement brings offshore trusts firmly within the mainland's individual income tax system. The message is not that trusts are prohibited, but that they are transparent for tax purposes. For families with offshore structures, the priority is now accurate, ongoing compliance and a clear-eyed reassessment of why each structure exists.