China Cracks Down on Offshore Trusts, Expanding Tax Net

China has taken a significant step towards tightening its oversight of offshore wealth by introducing new rules that bring assets placed in offshore trusts and income generated through those structures into the country's personal income tax framework.

The new rules, issued on July 24 by China's Ministry of Finance and State Taxation Administration, took effect immediately with tax provisions applying from January 1, 2026. The move could have far-reaching implications for wealthy Chinese families that have traditionally used offshore trusts and other overseas structures to manage investments, succession planning, and family wealth.

Under the new rules, an individual who transfers property into an offshore trust can be subject to personal income tax, with the taxable amount calculated using the property's market value at the time of transfer, minus its original cost and reasonable expenses. The rules also cover income generated by an offshore trust established with property from a Chinese resident, as well as income generated by overseas entities controlled or managed by that trust.

The new framework places greater emphasis on the underlying economic benefit and ownership structure, making it more difficult to use complex offshore structures to separate economic ownership from tax obligations. China's tax authorities are establishing a broader framework for identifying, reporting, and taxing offshore trust arrangements connected to Chinese individual taxpayers.