context: PRC residents have long owed individual income tax on worldwide income, but offshore trusts exposed a gap between liability and collection. No dedicated rules said whose income arose inside a trust, when retained earnings became taxable, or how settlement and exit were treated. Common Reporting Standard exchanges since 2018 and stronger offshore-income enforcement have made assets and controlling relationships visible. The new regime extends existing 20 percent taxes on property transfers, interest and dividends through trust structures, without creating a wealth or inheritance tax.
The Ministry of Finance and State Taxation Administration issued a dedicated offshore-trust individual income tax regime on 24 Jul 2026, effective on release, covering settlement, annual income and exit
- assets settled into a trust are deemed sold at market value, gains over original cost and reasonable expenses taxed at 20 percent, and the cost basis then resets
- trust income and income retained in controlled offshore entities are attributed annually to the resident who settled the assets, whether distributed or retained
- property transfer gains cannot offset interest and dividends, losses cannot be carried forward, and management, legal and advisory fees are not deductible
- nominee ownership, indirect transfers and passive offshore entities are subject to look-through rules
- where a non-resident funds the trust, loans, guarantees, expense payments and below-market use of trust property can be treated as distributions to related residents
- trust termination, a resident becoming non-resident and some succession events trigger tax on unrealised appreciation
Annual attribution of undistributed income is the central change, removing the deferral from retaining returns inside a trust or underlying offshore company.
The regime clarifies existing individual income tax law rather than introducing a new tax, notes Shi Zhengwen 施正文 China University of Political Science Centre for Fiscal and Tax Law director. Information asymmetry and unspecified rules previously prevented widespread collection, and stronger international tax cooperation has made enforcement feasible, says Shi.
Existing trusts must reconstruct historical income. Tax on assets settled during 2023–25 and all pre-2026 retained income falls due within 90 days, late-payment charges waived, while trusts funded more than three years ago escape the settlement charge, a split Shi reads as tempering severity with leniency.