New Individual Income Tax Regulations Regarding Offshore Trust Assets
In recent years, establishing offshore trusts has gradually become a new trend among Chinese Mainland residents for wealth management and asset allocation. Through this approach, high-net-worth individuals can not only effectively achieve risk isolation, asset protection, and tax planning, but also provide more flexible, private, and professional arrangements for the long-term security and succession of family members. However, in light of the Announcement on Matters Concerning Individual Income Tax on Offshore Trusts (Announcement No. 21 of 2026) (the “Announcement”) issued by the Ministry of Finance and the State Taxation Administration on July 24, 2026, individuals who transfer property into offshore trusts or receive income through offshore trusts are deemed to have obtained income prescribed under the Individual Income Tax Law of the People’s Republic of China, and are therefore required to declare and pay individual income tax in accordance with the provisions of the Announcement.
(1) Scope of the Announcement
Offshore Trusts
Offshore trusts refer to trusts established under foreign laws or other legal arrangements with trust-like functions, including foreign legal arrangements that are not established in the name of a trust but substantially perform functions similar to those of a trust. However, financial products issued by certain banks, insurance companies, securities firms, fund companies, etc., are excluded.
Resident Individuals
Individuals who have acquired foreign nationality or long-term or permanent residency abroad, but whose primary economic interests originate from within China, may also be determined to be resident individuals with domicile. The following rules apply to resident individuals:
(a) Where a resident individual transfers property into an offshore trust, the individual shall take the balance after deducting the original cost of the property and reasonable expenses from the market value at the time of transfer as the taxable income, and declare and pay individual income tax under the category of “income from transfer of property”;
(b) Income generated during the existence of an offshore trust into which a resident individual has transferred property, regardless of whether it is actually distributed, shall be subject to annual individual income tax declaration and payment by the resident individual as the taxpayer under the category of “income from transfer of property” or “interest, dividends, and bonuses”; and
(c) A resident individual shall also declare and pay individual income tax on distributed income received from an offshore trust into which property has been transferred by a non-resident individual.
Non-Resident Individuals
Where a non-resident individual transfers property into an offshore trust, it shall be deemed as a transfer of property by an individual. The individual shall take the balance after deducting the original cost of the property and reasonable expenses from the market value of the property as the taxable income in respect of income from transfer of property derived from within China, and declare and pay individual income tax under the category of income from transfer of property.
However, if a resident individual and a non-resident individual transfer property into the same offshore trust, it shall be treated as if the entire transfer was made by the resident individual, regardless of whether the property is sourced from within China.
(2) Statute of Limitations for Tax Recovery
The Announcement takes effect from the date of issuance (i.e., July 24, 2026). Nevertheless, the Announcement also explicitly states that there are recovery periods for taxes arising from the transfer of property into offshore trusts and from income generated during the existence of offshore trusts.
With respect to the transfer of property into offshore trusts, effective from January 1, 2026, resident individuals are required to declare and pay individual income tax. Moreover, for the period from January 1, 2023, to December 31, 2025, any individual income tax payable but unpaid by resident individuals arising from the transfer of property into offshore trusts, as well as any individual income tax payable but unpaid by non-resident individuals arising from the transfer of property into offshore trusts during the period from January 1, 2023, to July 24, 2026, shall also be declared and paid within 90 days from July 24, 2026. However, it should be noted that the Announcement explicitly states that if the amount of unpaid individual income tax is relatively large, the tax authorities may extend the statute of limitations for recovery in accordance with the provisions of the Law of the People’s Republic of China on the Administration of Tax Collection.
With respect to income generated during the existence of offshore trusts, effective from January 1, 2026, resident individuals are required to declare and pay individual income tax. For income derived from offshore trusts of resident individuals prior to January 1, 2026, regardless of the income category, resident individuals are also required to declare and pay individual income tax within 90 days from July 24, 2026, under the category of “interest, dividends, and bonuses”. In addition, resident individuals are required to declare and pay individual income tax within 90 days from July 24, 2026, on income distributed to resident individuals during the existence of an offshore trust into which property has been transferred by non-resident individuals.
Late payment surcharges could be avoided if the declaration and payment are completed within the above 90-day window. If any person fails to pay individual income tax within the prescribed time limit, the tax authorities will impose a late payment surcharge, which is at a high annual rate of approximately 18.25%.
(3) Impact of the Announcement
Immediate Declaration and Payment, and Recovery Periods
As the Announcement takes effect immediately from the date of issuance, it requires that any individual income tax payable but unpaid within the recovery periods be declared and paid within the 90-day window. For offshore trusts into which property was transferred on or after January 1, 2023, and for offshore trusts that generated income prior to January 1, 2026, the relevant individuals and management teams need to promptly sort through and clarify the trust assets and income, so as to declare and pay individual income tax in a timely manner and avoid tax recovery, late-payment surcharges, or the imposition of penalties by the tax authorities. If the amount of unpaid individual income tax is substantial, the tax authorities may also extend the period for tax recovery.
Installment Payment of Tax
The tax authorities may allow applications for installment payment of tax. Given that the new rules carry retroactive recovery periods, the amount of unpaid individual income tax may be substantial. Where taxpayers face difficulties in paying the tax after making a declaration in accordance with tax laws, they may, upon filing a record with the competent tax authority, pay the tax in equal installments over a period of five years.
New Offshore Trusts to Be Established
In summary, with the formal implementation of the Chinese Mainland’s new individual income tax rules on offshore trusts, any newly established offshore trust structure must take individual income tax into core consideration. Whether it is the income from transfer of property arising from the transfer of assets into the trust or the various types of income generated during the existence of the trust, tax compliance and the corresponding tax cost have become key factors in determining the feasibility of cross-border wealth management structures.
Reported New Levy of Tax on Gains from Offshore Insurance Policies
Hong Kong has been a primary offshore wealth management gateway for Chinese Mainland residents seeking global asset diversification and financial protection, providing a wide range of wealth management products such as insurance. However, according to a report from Caixin and other news sources, Chinese Mainland tax authorities have also begun levying individual income taxes on gains from offshore insurance policies, including those in Hong Kong.
It is reported that Beijing and Hangzhou authorities have started to apply personal income tax rates of 20% on returns from Hong Kong insurance policies, including dividend and interest earned on prepaid premiums. The tax collection is feasible due to the implementation of Common Reporting Standard and the sharing of ownership details. Such tax measures may adversely affect both Mainland residents who have placed offshore insurance policies and insurers who have heavy on these residents purchasing policies, since the relevant income will clearly be subject to 20% tax and yield advantage of such offshore policies will be diminished.
Although the new levy is less of a threat than a total ban on buying offshore insurance which is also a concern, together with the recent tax regulations regarding offshore trust assets, the reported new levy of tax on gains from offshore insurance policies shows the tightening scrutiny of offshore capital and investments by the Chinese Mainland government and the increasing effect of tax on their gains. As such, all parties involved in wealth management exercise need to closely monitor other actions which may be taken by the government in the future and consider the impacts of such measures before conducting any wealth management or investment activities.
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