China's new offshore trust tax rules: what families and trustees should do now

On 24 July 2026 the Ministry of Finance and the State Taxation Administration issued Announcement No. 21 of 2026, setting out how individual income tax applies to offshore trusts. A companion announcement, No. 15, covers filing and payment. Both took effect on the date of promulgation.

This is the clearest statement China has made of its intention to tax offshore trusts. The rules reach back to transfers made from 1 January 2023, income accumulated before 1 January 2026 must also be declared, and a 90-day window closing on 22 October 2026 allows historical positions to be regularised without late-payment surcharges.

The shape of the regime

Individual income tax applies at 20 per cent, the rate attaching to the two categories the announcement uses: income from property transfer, and income from interest, dividends and bonuses. It follows the whole life of a structure, from putting assets in, through income arising while the trust runs, to distributions and the events that end it.

An offshore trust is any trust, or other arrangement with trust functions, established under foreign law. Arrangements not set up in the name of a trust but performing the same function are caught.

Four provisions that change what families should do

• Income is taxed whether or not it is distributed. Income arising in a resident individual's trust, and in the overseas entities it holds or controls, is declared and paid annually by that individual. Retaining profits below trust level does not defer the charge, and trustee, management, legal and advisory fees are not deductible against it.

• Leaving and dying both trigger a charge. A resident who becomes a non-resident while the trust runs is taxed on the market value of the trust assets at that date. On death, where the trust passes to a non-resident or is not succeeded, tax falls due on market value at the date of death, and the trustee must declare and pay it, together with the deceased's unpaid tax for earlier years.

• Trusts settled by non-residents are not outside the regime. Distributions to a Chinese resident are taxable in that resident's hands, as are loans, guarantees, expense payments and free or low-price use of trust property that benefit a resident and are left outstanding at 31 December.

• Mixed contributions are attributed entirely to the residents. Where two or more residents contribute, each is taxed on a share fixed at the time of contribution. But where residents and non-residents contribute to the same trust, the whole fund is deemed to have come from the residents.

The look-through

An entity beneath the trust is caught where passive income exceeds 50 per cent of profit for the preceding year, where it lacks substance in employees, registered address and accounting, where its funds meet personal expenditure, or where operating decisions are not actually taken by it. Control includes holding more than 25 per cent of equity, voting rights or rights to earnings, directly or indirectly and in aggregate, and extends to substantive control with no percentage at all.

The 90-day window, and what it is not

The transitional provision closes on 22 October 2026. It covers unpaid tax on transfers into offshore trusts from 1 January 2023, and income arising during the life of a resident's trust. Those who come forward in time avoid late-payment surcharges. Those who do not are dealt with under the Tax Collection Administration Law, and where evasion is established a fine follows.

It is worth being precise about what this is. The window waives surcharges on historical positions. It is not an amnesty, and it does not waive the tax.

One point of relief is easily missed. Overseas tax of the nature of individual income tax, paid in respect of the trust, is credited against the Chinese tax for the period. Where a structure already bears tax elsewhere that changes the arithmetic, so it should be computed rather than assumed.

What to do before October

• Establish the residence position of everyone involved. Foreign nationality or residence rights abroad do not settle it where a person's primary economic interests remain in China.

• Reconstruct the establishment record: what was settled, when, at what value, and what evidence supports it. This is the hardest information to assemble and the most useful to have.

• Map the entities beneath the trust against the passive income, substance and control tests.

• Review loans, guarantees and expense payments benefiting a resident, and clear anything outstanding before the year end.

• Quantify foreign tax already paid that may be creditable, then decide on advice whether to use the window.

How Alpadis can help

None of this means trusts have stopped working. They remain a well-established answer to succession, asset protection and governance. What has changed is that the record behind a structure now has to stand up to scrutiny.

Alpadis works with international families and their advisers across Asia, the Middle East, Europe and Latin America. Our Hong Kong office provides trust and fiduciary services, and our Zurich office covers private client and fiduciary work. We can review a structure against the new rules, assemble the records and valuations behind a filing position, and coordinate with PRC and international tax counsel.

This article is general information current at the date of publication. It is not legal or tax advice, individual circumstances vary, and positions should be confirmed with independent professional advisers.