China ends tax-free era for offshore trusts as Beijing tightens grip on hidden wealth

For years, wealthy Chinese families have used offshore trusts, many set up in Hong Kong, to move fortunes beyond the reach of domestic tax authorities, insulating assets from scrutiny and passing wealth to the next generation largely untaxed. That era has now come to an end.

China's Ministry of Finance (MoF) and the State Taxation Administration (STA) issued a joint announcement on Friday, 24 July 2026, declaring that resident individuals will be taxed on assets placed into offshore trusts, as well as on income the trusts generate, whether or not that income is actually paid out to beneficiaries.

The change formalises a shift in policy that has been building since at least 2025, and represents one of Beijing's most significant moves yet to bring offshore wealth under domestic tax control, according to Bloomberg.

State media outlet People's Daily quoted officials saying that some individuals had used offshore trusts, often established in jurisdictions with low transparency and light taxation, to transfer assets, conceal wealth and avoid tax altogether.

The new rules were designed to close that gap, promote fairness and protect state revenue, the officials said.

A tool of the ultra-wealthy loses its shelter

Offshore trusts have long served as a discreet vehicle for Chinese entrepreneurs and high-net-worth individuals to manage succession, shield assets from creditors or disputes, and, in practice, defer or avoid domestic tax altogether.

The stakes involved became visible in a very public way following the death of Zong Qinghou, the billionaire founder of Chinese soft-drinks group Wahaha, in 2024.

Three of his children born outside marriage sought to freeze an offshore trust worth billions of US dollars that was at the disposal of their half-sibling, a dispute that laid bare how much wealth the country's richest families had quietly moved offshore, according to the South China Morning Post.

Oscar Liu, founder of trust and wealth advisory firms JLT Trust and One Plus Holdings, said this marked the first time Beijing had issued formal guidance on taxing offshore trusts. He said the practice of using such structures to defer tax indefinitely would no longer have room to operate, predicting that oversight would only tighten from here.

Under the new rules, tax applies at three points in a trust's life.

When assets are placed into a trust, the gain, calculated as market value minus original cost and reasonable expenses, is taxed as property transfer income at 20 per cent. Income the trust generates while it continues to exist, including profits retained in overseas entities it controls, is taxed annually at the same rate. And when a trust is wound up, or when its settlor's residency status changes, any further appreciation is taxed at that point too.

The rules also close off common workarounds. An individual who funds or controls trust property through another person or organisation is treated as having placed the assets into the trust personally, and remains liable for tax on that basis. Individuals who move abroad, including those acquiring foreign nationality or long-term residency elsewhere, can still be treated as Chinese tax residents if their main economic interests remain onshore.

A separate STA implementing announcement sets out how the rules will be enforced in practice, specifying which tax bureau has jurisdiction, filing deadlines that vary depending on whether a trust is being established, generating income, or being liquidated, and the documentation, including trust deeds and lists of assets, that must accompany a first filing. Taxpayers facing difficulty settling large sums at liquidation may apply to pay in instalments over up to five years.

Stakes for Hong Kong

The changes carry significant implications for Hong Kong, which recently overtook Switzerland to become the world's largest hub for offshore wealth.

Hundreds of billions of US dollars in mainland Chinese money are estimated to be stockpiled in the city, underpinning everything from luxury spending and the property market to equities, according to the South China Morning Post.

With that shelter now subject to Chinese tax law, wealthy families face pressure to reconsider how and where they hold assets, whether by restructuring existing trusts, accelerating succession plans, or seeking tax residency elsewhere.

A grace period has been built in to encourage compliance rather than flight. Individuals who placed assets into offshore trusts between 1 January 2023 and 31 December 2025 have 90 days to declare outstanding tax and settle it without incurring late-payment penalties. Authorities have said they generally will not pursue tax on the establishment of trusts set up more than three years ago, though they reserve the right to extend recovery periods for larger sums, according to AASTOCKS.

Why now

The timing points to Beijing's deepening fiscal difficulties.

A slowing economy has prompted cuts to corporate income tax, while a prolonged downturn in the property market has sharply reduced the land sales that local governments have long relied on for revenue.

Chinese state media has reported that land-related revenue is projected to fall by 48 per cent over the five years to 2025.

Against that backdrop, taxing the offshore wealth of the country's richest citizens offers Beijing a politically resonant, and potentially lucrative, alternative source of revenue, even as it tests how far wealthy families are willing to go to keep their assets within reach of Chinese tax authorities.

China's personal income tax rate on investment gains remains set at 20 per cent.