Introduction

Trusts have long been an important tool for high-net-worth individuals (HNWIs) seeking asset protection, wealth succession and family governance. Under a trust arrangement, the settlor transfers assets to a trustee, who holds and administers the trust assets in accordance with the terms of the trust deed for the benefit of designated beneficiaries. Such arrangements are commonly used to facilitate intergenerational succession, protect family wealth, segregate risk and support broader family governance objectives.

Over the past few decades, many families have established trusts in jurisdictions such as the Cayman Islands, the British Virgin Islands, Jersey and Guernsey, with trustees appointed in these jurisdictions. These are commonly referred to as “offshore trusts”. In addition to wealth succession and asset protection, certain offshore trust structures have historically enabled tax deferral or reduced overall tax costs by relying on offshore confidentiality and differences between legal and tax systems between China and that jurisdiction. These features have made offshore trusts a frequent focus for high-net-worth families and their advisers.

However, as the Common Reporting Standard (CRS) and the automatic exchange of tax-related financial account information have become more widely implemented, global tax transparency has increased significantly. In recent years, the Chinese tax authorities have also continued to strengthen tax administration over offshore trusts and offshore holding structures. Based on our practical observations, tax authorities in regions with a relatively high concentration of HNWIs, including Shanghai, Jiangsu and Shenzhen, had already launched special tax administration initiatives targeting offshore trusts as early as March 2026, requiring Chinese tax residents with substantial control or beneficial interests in offshore trusts to fulfil relevant reporting and tax payment obligations in China.

Against this background, the Ministry of Finance and the State Taxation Administration formally issued the Announcement on Individual Income Tax Matters Relating to Offshore Trusts (MOF and STA Announcement [2026] No. 21) (“Announcement No. 21”) on 24 July 2026. The Announcement establishes; for the first time, a comprehensive individual income tax framework for offshore trusts, covering trust establishment, ongoing operation, income distribution and termination.

For Chinese tax residents, Announcement No. 21 not only clarifies the taxation rules and reporting obligations for income derived through offshore trusts but also signals a clear shift in China’s regulatory focus on cross-border family wealth structures from information collection to ongoing tax compliance management. Family offices, trustees and professional advisers should therefore revisit existing trust structures and related compliance arrangements.

 

Three Key Changes under Announcement No. 21

(1) Establishment: Asset contribution are no longer tax-neutral

Historically, transferring assets into an offshore trust was often treated as part of wealth planning and did not necessarily trigger immediate tax consequences. Announcement No. 21, however, adopts a deemed disposal mechanism. Where a Chinese tax resident contributes assets into an offshore trust, taxable income is calculated by reference to the market value of the assets at the time of contribution, less the original cost of the assets contributed and reasonable expenses, and is taxed as income from the transfer of property.

In other words, even though the relevant assets have not been sold to an external party, any appreciation in value may be crystallised for tax purposes when they are transferred into the trust. For families holding listed shares, private company equity, investment properties or other highly appreciated assets, this rule may materially increase the initial tax cost of establishing an offshore trust.

 

(2) Ongoing operation and distribution: annual income attribution and deemed distribution mechanism

Announcement No. 21 also introduces an ongoing income attribution regime. Although an offshore trust is a separate legal arrangement, for tax purposes, realised income generated by an offshore trust established by a resident individual, and by certain offshore entities held, controlled or managed by the trust, may in certain circumstances be directly attributed to that Chinese tax resident individual for taxation, without actual distribution being the taxing point. 

Fair value movements of trust assets, such as fluctuations in the market value of shares or real estate, are generally reportable information and should not ordinarily give rise to immediate individual income tax before income is realised through an actual disposal.

It is worth noting that where shares, real estate or other assets are not held directly by the trust, but through one or more offshore holding companies owned by the offshore trust lacking business substance, retaining gains within those offshore companies without upstream distribution may historically have achieved tax deferral. Under Announcement No. 21, income realised by such offshore companies in the current period, such as gains from property disposals, dividends or other investment income, may be attributed through to the resident individual for taxation, even if no distribution is made to the trust or beneficiaries.

The Announcement also imposes significant limitations on deductions. For example, trustee fees, legal fees and investment advisory fees are generally not deductible against taxable income, and different categories of income may not be offset against each other. For offshore trusts primarily used for investment management, both tax costs and compliance costs may increase going forward.

In addition, where trust assets directly or indirectly provide economic benefits to a Chinese tax resident individual, including through interest-free loans or guarantees, payment of personal expenses, free or below-market use of residential properties, yachts, artworks or other trust-held assets, or transfers of economic benefits through a third party, such benefits may be treated as deemed distributions and may give rise to individual income tax liabilities, even if no formal cash distribution has been made. Accordingly, when reviewing trust structures, family offices and trustees should consider not only annual income attribution and formal cash distributions, but also loans, related-party arrangements, actual asset usage and other non-cash benefits that may fall within the deemed distribution rules.

 

(3) Termination: introduction of an exit tax mechanism

Announcement No. 21 also introduces a deemed liquidation mechanism for certain situations that could otherwise result in China losing future taxing rights.

For example, where a resident individual becomes a non-resident individual during the life of an offshore trust, or where a resident individual dies and the trust is no longer succeeded by another resident individual, taxable income may need to be calculated based on the market value of the trust assets at the relevant time, less the original cost.

This reflects a clear policy shift. The tax authorities are no longer relying solely on actual disposals or distributions as taxable events. Instead, through deemed liquidation, China seeks to preserve its taxing rights over unrealised gains accrued while the individual was a Chinese tax resident, preventing such gains from leaving China’s tax jurisdiction through migration, change of tax residence or succession arrangements. From a policy perspective, this is broadly similar to exit tax regimes adopted in certain jurisdictions, which are designed to prevent taxpayers from avoiding future taxation by changing tax residence after assets have appreciated in value.

For HNWIs considering emigration, obtaining overseas permanent residence or implementing cross-generational succession arrangements, the potential exit tax cost associated with offshore trust structures should be considered alongside legal and succession planning factors.

 

Interaction between CRS and the New Offshore Trust Tax Rules

CRS primarily addresses the collection and exchange of cross-border financial account information, while Announcement No. 21 establishes the taxation rules and reporting obligations for offshore trust income. Taken together, they provide the tax authorities with both information sources and a specific basis for tax administration. The key question is no longer whether the tax authorities will have access to the information, but whether the relevant structure complies with China’s latest tax rules and reporting requirements.

It is also worth noting that Announcement No. 21 adopts a more substance-based approach to determining Chinese tax residence. Even if an individual has obtained foreign nationality, long-term overseas residence or permanent residence, if the individual’s principal economic interests remain in China, the individual may still be regarded as a resident individual with domicile in China. For HNWIs whose major assets, business operations or income sources remain concentrated in China, relying solely on offshore residency or citizenship planning, such as emigration, obtaining a foreign passport or obtaining permanent residence, may not be sufficient to eliminate Chinese tax residence risk.

 

Transitional Arrangements and Next Steps

(1) Assess transitional arrangements and historical filing risks

The transitional arrangements under Announcement No. 21 distinguish between asset contributions into a trust and income generated during the life of the trust. For unpaid tax arising from assets contributed by a resident individual into an offshore trust since 1 January 2023, no late payment surcharge will be imposed if the taxpayer voluntarily reports and pays the tax within 90 days from the implementation date of the Announcement. 

For income generated during the life of the trust before 1 January 2026 that has not yet been reported, the Announcement adopts a one-off transitional treatment. In principle, such income will be reported and taxed as interest, dividends and bonuses, without further classification by specific income category.
As the transitional treatment for trust income does not expressly specify a starting year, offshore trusts established in earlier years with accumulated undistributed income may also need to be assessed. Existing offshore trust holders should therefore not limit their review to recent asset transfers. They should also examine accumulated income, actual or deemed distributions, asset cost bases and underlying holding structures over prior years in order to assess reporting obligations, historical risks and future restructuring options.

Practical checklist for family offices

For Chinese tax residents, family offices and trustees with existing offshore trusts, the following information and arrangements should be prioritised in order to assess potential reporting obligations and historical tax risks:

  • Trust establishment date, amendment records and details of historical asset contributions;
  • Historical trust income, undistributed income and prior distribution records;
  • Cash or non-cash benefits received by beneficiaries and related persons;
  • Offshore companies, funds or other investment structures held by the trust;
  • Underlying beneficial ownership, control arrangements and business substance;
  • Foreign taxes paid and supporting documents; and
  • Historical CRS reporting information and ultimate beneficial owner disclosures.

After completing the above review, family offices and professional advisers will be better placed to assess whether there may be deemed disposal, income attribution, deemed distribution or historical filing risks, and to formulate subsequent compliance and restructuring plans.

 

(2) Establish an annual tax compliance mechanism

Under the new regime, offshore trust tax management will no longer be a one-off exercise at the time of establishment, but an ongoing annual compliance exercise. Family offices and trustees may need to prepare trust financial statements, income classification information, asset valuation and cost basis support, foreign tax payment records and actual distribution records on a regular basis.

 

(3) Trustees will play an increasingly important role

Trustees usually hold information on trust assets, historical transactions and distribution records. As reporting obligations for Chinese residents increase, settlors, family offices and trustees will need to establish closer information coordination mechanisms to ensure that tax filing information can be provided in a timely manner and that potential tax enquiries or audits can be addressed effectively.

 

Practical Observations and Conclusion

Although Announcement No. 21 has established an overall individual income tax framework for offshore trusts, a number of practical issues remain to be clarified through subsequent implementation practice and case experience. These include the determination of trust asset cost bases, valuation methods for non-listed assets, foreign tax credit treatment, business substance of offshore entities and the application of deemed distribution rules in everyday asset use scenarios.

Overall, Announcement No. 21 does not diminish the legal and commercial functions of offshore trusts. Rather, it further clarifies the tax responsibilities of Chinese tax residents who hold and manage assets through offshore trusts. The rules also strengthen the administration of offshore residency or citizenship planning and non-cash economic benefits through resident status recharacterisation and deemed distribution rules.
Offshore trusts remain valuable for asset protection, family governance and cross-generational succession. However, following the implementation of Announcement No. 21, their tax profile has materially changed. Establishing or maintaining an offshore trust may involve ongoing Chinese tax reporting obligations, higher tax costs and more extensive compliance obligations.

Accordingly, high-net-worth families should reassess the overall cost-benefit proposition of offshore trusts, weighing their asset protection, family governance and succession functions against the associated tax and compliance costs. Where appropriate, other wealth-holding or investment vehicles may need to be considered as alternative structures.

 

Official references: 

Announcement of the Ministry of Finance and the State Taxation Administration on Individual Income Tax Matters Relating to Offshore Trusts (MOF and STA Announcement [2026] No. 21)

Announcement of the State Taxation Administration on the Administration of Individual Income Tax Matters Relating to Offshore Trusts (STA Announcement [2026] No. 15)

Interpretation of the Announcement of the State Taxation Administration on the Administration of Individual Income Tax Matters Relating to Offshore Trusts

 

Disclaimer: This commentary is intended for general professional information only and does not constitute legal or tax advice. The tax treatment and compliance requirements for any specific family trust structure should be assessed based on the relevant trust deed, the specific facts and circumstances, and the latest implementation position of the competent tax authorities.

 

This article was contributed by:

  • Joanna Lam, Managing Partner, Tax & Advisory, RSM Hong Kong Advisory
  • Scott Szeto, Director, Tax & Advisory, RSM Hong Kong Advisory
  • Anthony Fung, Director, Tax & Advisory, RSM Hong Kong Advisory

This article was originally published on 31 July 2026

Learn how these developments could impact your family wealth structure. Get in touch with our specialists:

Law Wei Lin
Partner, International Tax
+65 6715 1164
LawWeiLin@rsmsingapore.sg
Candisce Teo
Senior Manager, International Tax
+65 6715 1162
CandisceTeoYL@rsmsingapore.sg