China’s New Tax Rules for Offshore Trusts

China has introduced a specific individual income-tax framework for offshore trusts, bringing greater clarity to how offshore trust arrangements involving Chinese tax-resident individuals are taxed.

The rules were issued on 24 July 2026 through Ministry of Finance and State Taxation Administration Announcement No. 21 of 2026, together with implementing tax-administration rules.

The new framework addresses taxation at three key stages:

When assets are transferred into the offshore trust.

While the trust continues to hold and generate income.

When the trust eventually terminates or is liquidated.

1. Funding an Offshore Trust Can Trigger Tax

Under the new rules, when a Chinese tax-resident individual transfers property into an offshore trust, the transfer can itself create a taxable event.

The rules cover transfers of assets to the offshore trust or trustee, as well as certain transfers to foreign entities that are held, controlled, managed, or operated by the trust.

They also contain an anti-avoidance provision where an individual uses another person or organisation to transfer property but remains the person who actually funded, bore the cost of, or controlled the property.

2. The Transfer Is Taxed by Reference to Market Value

For a Chinese tax-resident individual transferring property into an offshore trust, the taxable amount is generally calculated by taking the market value of the property at the time of transfer, less its original cost and reasonable expenses.

The resulting amount is treated as property-transfer income and is subject to the applicable individual income tax rate.

The official tax-authority explanation confirms that the relevant rate is 20% for this category of income.

Importantly, after the individual pays tax under this rule, the property's tax basis is adjusted to its market value at the time of contribution.

3. Tax Can Apply to Trust Income Every Year

The new rules do not stop at the initial transfer.

Where a Chinese tax-resident individual has established an offshore trust by contributing property, income generated by the trust and by certain foreign entities held or controlled by the trust is attributed to the individual for tax purposes.

The key point is that actual distribution is not necessarily required before tax applies.

The individual must generally report the relevant income annually, with the treatment depending on its character—for example, property-transfer income or interest, dividend, and bonus income. The applicable individual income tax rate is generally 20%.

4. Undistributed Income Can Still Be Taxed

This is one of the most significant features of the new framework.

The rules expressly bring undistributed trust income within the annual tax framework for the relevant Chinese tax-resident settlor.

Therefore, an offshore trust cannot simply defer Chinese individual income tax indefinitely by retaining investment returns inside the structure.

The tax authorities also address income accumulated in foreign entities controlled or managed by the offshore trust.

5. Trust Expenses Do Not Automatically Reduce the Taxable Amount

The rules also address expenses incurred in establishing and administering the offshore trust.

Trustee remuneration, trust-management fees, legal fees, and investment-advisory fees are not generally deductible from the taxable income under the specified calculations.

This makes the calculation materially different from simply taking the trust's accounting profit and applying a 20% rate.

6. There Is Also a Tax Point When the Trust Ends

The framework includes a separat