Introduction
On July 24, 2026, the Ministry of Finance and the State Taxation Administration jointly issued the Announcement of the Ministry of Finance and the State Taxation Administration on Issues Concerning Individual Income Tax on Offshore Trusts (Announcement [2026] No. 21 of the Ministry of Finance and the State Taxation Administration, Announcement No. 21). This announcement formally introduces China’s Individual Income Tax (IIT) rules for offshore trusts. The State Taxation Administration also issued the Announcement of the State Administration of Taxation on Issues Concerning the Administration of Individual Income Tax on Offshore Trusts (Announcement [2026] No. 15 of the State Taxation Administration, Announcement No. 15), setting out new detailed tax administration procedures and filing requirements.
These new rules reshape the IIT administration framework for offshore trusts by systematically prescribing the tax treatment applicable throughout the entire life cycle of a trust—from its establishment and ongoing operation to its termination and liquidation. Rather than introducing a new type of tax, these rules build upon the statutory principle (under the Individual Income Tax Law of the PRC), that Chinese tax resident individuals are subject to tax on their worldwide income. Through these new tax policies, the authorities have provided a unified framework that addresses the regulatory gaps and disputed issues concerning the tax treatment of offshore trusts.
For a clear understanding of the new rules, JunHe’s tax team has provided an interpretation of the key provisions in a question-and-answer format.
Q1: Who Will Be Most Affected by the New Rules?
The new rules impose obligations on settlors of offshore trusts, with settlors who are Chinese tax residents being the most significantly affected. Particular attention should be paid to the following two key issues:
(I) Criteria for Identifying an Offshore Trust
Announcement No. 21 adopts a ‘substance-over-form’ approach to determining what constitutes an offshore trust. The term encompasses not only trusts established under foreign laws but also other legal arrangements with trust functions. A legal arrangement that is not nominally structured as a trust but substantively performs core trust functions – such as asset segregation, nominee holding or wealth succession – may nevertheless fall within the scope of the new rules. The commercial substance, contractual terms and other relevant details of an arrangement should be assessed to determine whether it falls within the regulatory scope of Announcement No. 21. The Announcement also specifies that certain exemptions, i.e., financial products issued by banks, insurance companies, securities companies, fund management companies and similar institutions that are regulated by the financial regulatory authorities of the relevant country or jurisdiction, independently conduct business with customers generally and assume the associated risks, are excluded from the scope of Announcement No. 21.
(II) Rules for Determining Chinese Tax Residents
Announcement No. 21 applies to both Chinese tax residents and non-tax resident individuals. In determining whether an individual qualifies as a Chinese tax resident, the Announcement reiterates the ‘principal source of economic interests’ criterion. Under the existing tax rules , an individual is regarded as domiciled in China if they habitually reside in China due to household registration, family ties or economic interests. Historically, in tax administration practice, the tax authorities have generally treated factors such as an individual’s household-registration status, the habitual residence of the individual’s family members and the individual’s source of income within China as important indicators when determining the tax resident status. Announcement No. 21 reaffirms this standard by providing that ‘an individual who has acquired foreign nationality or long-term or permanent residence overseas, but whose principal economic interests are sourced from within China, may be regarded as a resident individual domiciled in China’. In other words, even if an individual has acquired foreign nationality or holds a long-term or permanent residence permit overseas, the individual may still be regarded as a Chinese tax resident individual domiciled in China if the individual’s principal economic interests – such as employment remuneration or business income – are derived from China. In this case, an individual would be required to file and pay PRC IIT on worldwide income derived from sources both within and outside China.
Extracts from the Relevant Laws and Regulations
Announcement No. 21
Article 1 For the purposes of this Announcement, an offshore trust refers to a trust established in accordance with overseas Laws or other overseas legal arrangements with trust functions. Other legal arrangements with trust functions refer to overseas legal arrangements that are not established in the name of a trust but in substance have functions similar to those of a trust, excluding financial products issued by banks, insurance companies, securities companies, fund companies and other institutions that are supervised by the financial regulatory authorities of the relevant country or region, that conduct business independently, and that bear risks for non-specific customers.
Article 11 An individual who has acquired foreign nationality or long-term or permanent residency abroad, but whose primary economic interests are derived from within the territory of China, may be determined to be a resident individual with domicile.
Q2: Which Stages of a Trust’s Life Cycle Will be subject to Chinese IIT?
(I) Establishment Stage: Contribution of Assets Deemed Taxable Transfers
When a resident individual contributes assets to an offshore trust, the ‘taxation upon contribution’ rule applies. The taxable income is calculated as the market value of the assets at the time of contribution, less their original cost basis and reasonable expenses. IIT would be imposed at a rate of 20% under the category of ‘income from the transfer of property’.
According to Article 2 of Announcement No. 21, the contribution of assets encompasses two types of circumstances: First, when an individual directly transfers assets to an offshore trust, the trustee of an offshore trust, or an offshore entity controlled or managed by the trust, to be held, managed, used or disposed of. Second, when assets are transferred through a third party – whether through another organization or individual – but are effectively funded, borne or controlled by the individual, in which case the individual is deemed to have acquired and contributed those assets. Once tax has been paid on the transfer, the tax basis of the assets is reset to their market value at the time of contribution. This reset directly determines the tax base applicable to subsequent transactions involving the assets.
Announcement No. 21 formally establishes several core tax administration rules, including taxation upon the contribution of assets, the resetting of the tax basis and the look-through treatment of assets held through third-party nominees. These provisions fill a long-standing gap in the previous regulatory framework. The new rules elevate the previously fragmented and case-specific enforcement practices adopted in different regions into nationally applicable statutory tax obligations, thereby eliminating the uncertainty surrounding the tax administration of asset contributions to offshore trusts.
(II) Ongoing Stage: Undistributed Income Deemed Distributed and Taxed Annually on a Look-Through Basis
According to Announcement No. 21, income generated during the existence of an offshore trust established by a Chinese resident individual, or by any offshore entity controlled by that trust, must be attributed to the resident individual on a look-through basis, regardless of whether the income is actually distributed. The individual must file and pay IIT annually under either ‘income from the transfer of property’ or ‘income from interest, dividends and profit distributions’. This core provision of the new rules has the most significant impact on offshore trust structures. Unlike the IIT rules applicable to Controlled Foreign Corporations , the rule does not require any threshold conditions to be satisfied, such as the absence of reasonable business needs or a significantly lower effective tax rate in foreign jurisdiction. Instead, it directly subjects the underlying income of the trust to tax on a look-through basis, thereby imposing more stringent regulatory constraints.
This taxation mechanism is broadly comparable to the ‘allocation first, taxation thereafter’ approach applicable to IIT administration for domestic partnerships. It closes off opportunities to retain income offshore through a trust and to defer taxation over an extended period. Therefore, the rules will directly affect the design of income-distribution arrangements and the structural planning of offshore trusts established by individuals.
The Announcement also specifies the following three tax administration requirements: First, annual losses arising under ‘income from the transfer of property’ may only be offset against income of the same category for the relevant year (income from the transfer of property and interest, dividends and bonuses cannot be offset against each other), and any remaining losses may not be carried forward to subsequent years. Second, expenses incurred in the operation of the trust – including trustee remuneration, trust administration fees, legal service fees and investment advisory fees – are not deducted in calculating taxable income. Third, trust income on which IIT has already been paid will not be subject to IIT again when it is subsequently distributed.
(III) Termination Stage: Taxation upon Liquidation
Upon termination of a trust, the entire liquidation proceeds of the trust property are treated as taxable income and subject to IIT under ‘income from interest, dividends and profit distributions’.
Liquidation and the corresponding tax payment obligations are triggered in certain special circumstances, including where a resident individual becomes a non-resident individual or where, following the death of a resident individual, the trust is succeeded by a non-resident individual or another resident individual, or no successor exists.
Extracts from the Laws and Regulations
Announcement No. 21
Article 3 Where a resident individual settles assets and property into an offshore trust, the taxable income amount shall be the balance of the fair market value of the assets and property at the time of settlement minus the original asset cost and allowable expenses, and the individual shall declare and pay individual income tax as ‘income from property transfer’.
Article 4 For an offshore trust into which assets and property are settled by a resident individual (hereinafter referred to as a resident individual offshore trust) and any overseas entity held, controlled or managed by such an offshore trust, the income generated during the term of existence, whether actually distributed or not, shall be taxed with such resident individual as the taxpayer, and individual income tax shall be declared and paid on an annual basis as ‘income from property transfer’ or ‘income from interest, dividends and bonuses’. Regarding trust income in which the resident individual has declared and paid individual income tax in accordance with the provisions, no further individual income tax shall be declared and paid upon actual distribution.
Article 5 When a resident individual offshore trust is terminated, such resident individual shall be the taxpayer, and the liquidation income of all offshore trust assets and property shall be taken as the taxable income amount, and individual income tax shall be declared and paid as ‘income from interest, dividends and bonuses’. The liquidation income of trust assets and property shall be the balance of the fair market value of the trust assets and property at the time of termination of the trust minus the original asset cost and allowable expenses.
Article 6 During the term of existence of a resident individual offshore trust, where the resident individual becomes a non-resident taxpayer, the taxable income amount shall be the balance of the fair market value of the offshore trust assets and property on the date on which the resident individual becomes a non-resident taxpayer minus the original asset cost, and such resident individual shall declare and pay individual income tax as ‘income from interest, dividends and bonuses’; the individual income tax payable but unpaid for the period from 1 January of the year in which the resident individual becomes a non-resident taxpayer to the date on which they become a non-resident taxpayer, and for previous years, shall be declared and paid by such resident individual in accordance with the provisions of this Announcement.
Article 7 During the term of existence of a resident individual offshore trust, where the resident individual dies and the offshore trust is succeeded by another non-resident taxpayer or is not succeeded by any person, the taxable income amount shall be the balance of the fair market value of the trust assets and property on the date of death minus the original asset cost, and the trustee or its designated domestic institution shall, on behalf of the taxpayer, declare and pay individual income tax as ‘income from interest, dividends and bonuses’; the individual income tax payable but unpaid for the period from 1 January of the year of death of the resident individual to the date of death, and for previous years, shall be declared and paid on behalf of the taxpayer by the trustee or its designated domestic institution in accordance with the provisions of this Announcement.
Where, after the death of a resident individual, the offshore trust is succeeded by another resident individual, such offshore trust shall be regarded as a resident individual offshore trust, and such other resident individual shall declare and pay individual income tax in accordance with the provisions of this Announcement.
Q3: How Should the Tax Be Declared and Paid?
(I) Filing Timeframe
Stage of the TrustResident IndividualNon-Resident Individual
EstablishmentFrom March 1 to June 30 of the following yearWithin 15 days after the end of the month
Ongoing OperationFrom March 1 to June 30 each year (for income derived in the preceding year)Not applicable (filing is required only in respect of income distributed to a resident individual)
Termination/change in tax-resident statusWithin 15 days after the end of the month in which the liquidation is completed or the change in tax resident status occurs
(II) In-Charge Tax Authority
The in-charge tax authority shall be determined in the following order of priority: the place of registration of the principal domestic business enterprise associated with the trust property; the location of the trust-related property within China; or the habitual residence within China.
(III) Filing Documents
A resident individual must complete and submit the Annual Individual Income Tax Self-Declaration Form (Form B), together with the following documents: the Detailed Individual Income Tax Statement for Offshore Trusts; the Annual Individual Income Tax Report for Offshore Trusts; and the trust’s financial statements and information concerning its operating income, income distributions and other relevant matters.
A non-resident individual must complete and submit the Individual Income Tax Self-Declaration Form (Form A), together with the Detailed Individual Income Tax Statement for Offshore Trusts and the Annual Individual Income Tax Report for Offshore Trusts.
When making their first tax filing, both resident and non-resident individuals must submit the offshore trust agreement or other documents having equivalent legal effect, a detailed list of the assets contributed to the offshore trust, information concerning the offshore trust’s organizational structure and other information relating to the offshore trust.
Extracts from the Relevant Laws and Regulations
Announcement No. 21
Article 17 Where, during the period from 1 January 2023 to 31 December 2025, a resident individual settles assets and property into an offshore trust and thereby generates individual income tax payable but unpaid, and where, during the period from 1 January 2023 to the date of implementation of this Announcement, a non-resident taxpayer settles assets and property into an offshore trust and thereby generates individual income tax payable but unpaid, such taxes shall be declared and paid within 90 days from the date of implementation of this Announcement, and no late payment interest shall be charged. Where the amount of individual income tax payable but unpaid is relatively large, the tax authority may, in accordance with the provisions of the Law of the People’s Republic of China on the Administration of Tax Collection, extend the time limit for recovery.
Before 1 January 2026, for income generated during the term of existence of a resident individual offshore trust, no distinction shall be made between income items, and the resident individual shall, as ‘income from interest, dividends and bonuses’, declare and pay individual income tax within 90 days from the date of implementation of this Announcement, and no late payment interest shall be charged; for income distributed to a resident individual during the term of existence of an offshore trust into which assets and property are settled by a non-resident taxpayer, the resident individual shall declare and pay individual income tax within 90 days from the date of implementation of this Announcement, and no late payment interest shall be charged.
From 1 January 2026, where a resident individual settles assets and property into an offshore trust and for income generated during the term of existence of the offshore trust, individual income tax shall be declared and paid in accordance with the provisions of this Announcement.
Announcement No. 15
Article 1 The administration of individual income tax on offshore trusts shall be under the jurisdiction of the tax authority at the place of registration of the main domestic production and business enterprise related to the property settled into the offshore trust; where the property settled into the offshore trust is not related to any domestic production and business enterprise, the tax authority at the location of the taxpayer’s domestic property or habitual residence shall be the competent tax authority.
Where a taxpayer has an objection to the competent tax authority, the tax authorities shall determine the competent tax authority for the taxpayer.
Article 2 Resident individuals shall, during the period from March 1 to June 30 of the year following the year in which the property is settled into an offshore trust, file a return with and pay individual income tax to the competent tax authority on the income from the property transfer at the time of settlement of the property; non-resident individuals shall, within 15 days of the month following the month in which the property is settled, file a return with and pay individual income tax to the competent tax authority on income from the property transfer derived from property located within the territory of China at the time of settlement of the property.
Article 3 Resident individuals who settle property into offshore trusts shall, from March 1 to June 30 of each year, file a return and pay individual income tax to the competent tax authority on the income generated by the offshore trust in the preceding year under ‘Income from Property Transfer’ and ‘Interest, Dividend and Bonus Income’.
Where a non-resident individual settles property into an offshore trust and the agreed beneficiaries include resident individuals, the resident individuals shall, during the period from March 1 to June 30 of the year following the year in which they obtain distribution income from the offshore trust, file a return with and pay individual income tax to the competent tax authority.
Q4: What Legal Liabilities May Arise from a Failure to File and Pay Tax by the Deadline?
(I) Recovery of Underpaid Tax and Imposition of Late Payment Interest
For outstanding historical tax liabilities, the Announcement provides a remedial filing and payment time window, i.e., Where IIT remains unpaid as a result of assets contributed to an offshore trust from January 1, 2023 to December 31, 2025 for resident individuals, or from January 1, 2023 to the effective date of the Announcement (July 24, 2026) for non-resident individuals, the outstanding tax may be filed and paid within 90 days from the effective date of the Announcement. No late payment interest will be imposed on tax paid within this 90-day time window.
If the taxpayer fails to pay the IIT within the 90-day period, the tax authorities will handle the matter in accordance with the Law of the PRC on the Administration of Tax Collection (the Tax Collection and Administration Law) and impose late payment interest. The interest accrues from the date on which the tax becomes overdue at a daily rate of 0.05% of the outstanding tax, equivalent to an annualized rate of approximately 18%. Where the amount of unpaid IIT is substantial, the tax authorities may extend the statutory tax-recovery period in accordance with the Tax Collection and Administration Law.
(II) Potential Liabilities for Tax Evasion
Where a taxpayer is determined to have committed tax evasion, the tax authorities are entitled to recover the unpaid or underpaid tax, impose late payment interest and levy a fine. Under Article 63 of the Tax Collection and Administration Law, tax evasion may be subject to a fine ranging from 50% to five times the amount of tax unpaid or underpaid. Where the conduct constitutes a criminal offence, criminal liability will be pursued in accordance with the law.
Extracts from the Relevant Laws and Regulations
Announcement No. 21
Article 17 Where the taxpayer fails to pay the aforesaid individual income tax within the prescribed time limit, the tax authority shall handle the matter in accordance with the provisions of the Law of the People’s Republic of China on the Administration of Tax Collection and shall collect late payment interest. Where tax evasion is involved, the tax authority shall, in accordance with the provisions of the Law of the People’s Republic of China on the Administration of Tax Collection, recover the taxes and late payment interest that have not been paid or have been underpaid and impose fines.
Tax Collection and Administration Law
Article 63 Tax evasion means a taxpayer forges, alters, conceals or, without authorization, destroys accounting books or vouchers for the accounts, or overstates expenses or omits or understates incomes in the accounting books, or, after being notified by the taxation authorities to make tax declaration, refuses to do so or makes a false tax declaration, or fails to pay or underpays the amount of tax payable. Where a taxpayer evades tax, the taxation authorities shall recover the payment of the amount of tax the taxpayer fails to pay or underpays and the penalties for late payment, and the taxpayer shall also be fined not less than 50 percent but not more than five times the amount of tax the taxpayer fails to pay or underpays; if a crime is constituted, the taxpayer shall be investigated for criminal liability in accordance with law.
Q5: What are the Other Key Policy Developments in the New Rules?
Announcement No. 21 also introduces several anti-avoidance provisions aimed at strengthening the regulation and supervision of offshore tax-avoidance arrangements set up by related entities or individuals.
First, where an offshore trust is funded by a non-resident individual, even if the assets are contributed by that non-resident individual, the trust will be deemed to have distributed income to a resident individual if it is effectively controlled by the resident individual or provides substantive economic benefits to that resident individual through loans, the free use of assets, the payment of expenses on the individual’s behalf or similar arrangements. The resident individual will consequently incur an IIT liability.
Second, for the establishment of a trust through mixed funding: where an offshore trust is funded by both resident and non-resident individuals, Announcement No. 21 provides that all assets contributed to the trust will be deemed to have been contributed by the resident individual. The resident individual therefore must file and pay tax in accordance with the provisions of the Announcement.
Both anti-avoidance rules apply an economic-substance standard and may involve complex determinations. Parties are therefore advised to consult tax advisers and conduct a comprehensive review of their existing structures – including their trust instruments, fund-flow arrangements and beneficiary distribution – to determine whether the look-through taxation requirements are triggered and to implement any necessary compliance adjustments in a timely manner.
Extracts from the Relevant Laws and Regulations
Announcement No. 21
Article 9 Where a resident individual and a non-resident taxpayer settle assets and property into the same offshore trust, it shall be deemed that all assets and property are settled into the offshore trust by the resident individual, and individual income tax shall be declared and paid in accordance with the provisions of this Announcement.
Article 12 Where an offshore trust into which assets and property are settled by a non-resident taxpayer has any of the following attributes, it shall be deemed to distribute income to a related resident individual, and such resident individual shall declare and pay individual income tax in accordance with the provisions of this Announcement:
(1) Using trust assets and property directly or indirectly to provide mortgages or guarantees for the debts of a resident individual, or providing loans, which are not released or repaid before 31 December of that year;
(2) Paying or reimbursing expenses on behalf of a resident individual, or allowing such individual to use trust assets and property free of charge or at an obviously low price;
(3) Transferring assets and property, paying expenses or providing other economic benefits to a resident individual through a third party;
(4) Providing the aforesaid economic benefits to related parties of a resident individual and to organizations controlled or actually benefited by such resident individual.
The amount of deemed distributed income shall be determined based on the fair market value of the assets and property actually obtained, used or enjoyed, the amount of expenses, the amount already repaid on behalf of the individual, or other economic benefits.
Q6: What Compliance Measures Should Be Taken?
(I) Conduct a Review of Existing Offshore Trust Arrangements
Parties are advised to conduct a comprehensive review of their existing offshore trust arrangements and carefully assess whether such arrangements fall within the scope of the new rules. The documents and information to be reviewed should include the legal documents governing the establishment of the trust; detailed lists of contributed assets, including the dates of the trust establishment and asset contribution, asset categories, original costs and appraised values; the trust’s financial statements for previous years; records of income payments and distributions; information concerning the trustee and details of any offshore entities effectively controlled by the trust. Structures established in non-trust legal forms, such as foundations, but which substantively perform trust-like functions should also be reviewed against the criteria prescribed under the new rules.
(II) Review Individual Tax-Resident Status
Pursuant to the ‘principal source of economic interests’ criterion reiterated in Announcement No. 21, individuals should reassess and determine their own tax-resident status and that of the beneficiaries. Based on the outcome of this assessment, the potential tax implications of the new rules should be considered, both for the ongoing operation of existing trusts and for any offshore trust arrangements proposed to be established in the future.
(III) Estimate Tax-Risk Exposure or Tax Costs
For historical trust arrangements, parties should carefully assess and quantify their potential tax risk exposure pursuant to the key provisions of the new rules. Where possible, the outstanding tax should be filed and paid within the 90-day time window to minimize tax costs and avoid legal risks. For proposed offshore trust arrangements, the potential PRC IIT cost should be incorporated into the overall tax cost assessment from the structuring stage. The mechanisms governing future distributions to beneficiaries should also be planned and adjusted in advance.
Conclusion
The implementation of Announcement No. 21 and its supporting rules marks China’s transition from a regulatory landscape characterized by gaps and uncertainty to a new regime featuring the comprehensive, life cycle and look-through IIT regulation of offshore trusts. The combined application of substance-based taxation and anti-avoidance rules has significantly narrowed the scope for tax planning through traditional offshore trust structures. For holders of existing trusts, the 90-day remedial filing and payment window provided under the new rules represents a critical opportunity to address historical tax risks and make the necessary compliance adjustments. For newly proposed trust arrangements, the PRC IIT cost will become a key constraint affecting the structuring of offshore trusts, the distribution of income and a trust’s long-term operation. Against a broader trend toward greater global tax transparency and stricter compliance requirements, the establishment and operation of offshore trusts is expected to progressively shed tax avoidance and return to their fundamental purpose, i.e., asset management, risk segregation and wealth succession, thereby promoting sound development within a more compliant and standardized framework.
JunHe’s taxation team will continue to monitor policy developments and share its observations with readers. We also welcome discussions with readers regarding any issues encountered in tax practice.
For further information, please contact:
ZHANG, Qing (Atlas), Partner, JunHe
zhangq@junhe.com
