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Emma Ma

For Sarah Wang, a Shanghai-based tax lawyer who specialises in structuring offshore trusts, most of her high-net-worth (HNW) and ultra-high-net-worth clients have hit pause on their arrangements.
“Some clients were midway through establishing offshore trusts, but now they have put their plans on hold following the new regulatory developments,” she said. “Others weighing up similar structures are also shelving their plans for the time being.”
The “new developments” in question were rules unveiled by the Ministry of Finance on July 24, which for the first time set out clear provisions governing individual income tax levies on offshore trusts.
With China’s wealthiest individuals increasingly targeted in the country’s tax enforcement drive, tightening scrutiny of offshore trusts comes as another sign of Beijing’s long-term institutional resolve rather than a means of generating short-term liquidity.
“Mounting fiscal pressure makes it necessary for the central government to broaden the tax base,” said Ge Yuyu, a professor at the Shanghai National Accounting Institute. “Targeting HNW individuals also aligns with the country’s goal of common prosperity.”
The enactment of the new rules follows months of intensified tax enforcement actions, mainly targeting tax avoidance among the ultra-rich – including undeclared offshore revenue – as well as top online influencers.
For the wealthy, the new policy means that there is even less room for grey-zone tax avoidance. It imposes a uniform 20 per cent rate across every stage of a trust’s life cycle: the transfer of assets into the trust, annual gains stemming from asset appreciation and its eventual wind-up.
And as long as most of their income is generated within the mainland, even those who have changed their nationality remain subject to the regulations.
“Previously, the law merely required that anyone who has offshore trusts should pay tax, but it lacked detailed implementing provisions. This update fills the regulatory void,” Ge said.
I don’t expect to see any new offshore trust formations over the coming months
Sarah Wang, Shanghai tax lawyer
Are offshore trusts still trustworthy?
The three primary offshore hubs traditionally favoured by Chinese investors are the British Virgin Islands, the Cayman Islands and Bermuda, according to an article written in 2023 by He Yingxin, an official at the Sichuan branch of the State Administration of Foreign Exchange (Safe).
“That’s because those jurisdictions enjoy strong international recognition, boast a well-established legal framework and offer innovative iterations of traditional trust structures – all of which greatly facilitate offshore trust formation,” He said.
There are no official statistics tracking the total volume of offshore trusts set up by Chinese investors. However, multiple lawyers and financial industry practitioners said that setting up offshore trusts has remained popular among wealthy individuals over the past two years for three reasons: asset protection, wealth succession and – last but not least – tax planning.
An inheritance dispute within the family of the late Zong Qinghou, the billionaire founder of Chinese soft-drink giant Wahaha Group who died in 2024, shed light on the amount of wealth tycoons were able to transfer to overseas accounts. In the court case, Zong’s three children born out of wedlock sought to freeze an offshore trust worth US$1.8 billion set up in Hong Kong.
According to Hong Kong court filings, Zong Qinghou signed a letter of entrustment dated February 2, 2024, appointing his daughter Kelly Zong Fuli to act as settlor to establish three offshore family trusts for the children.
If a court ultimately validates the existence of the trusts, the finance ministry’s new rules stipulate individual income tax liabilities when transferring assets into them – with the potential bill reaching US$360 million, according to estimates from Wang, the tax lawyer. Where the trust holds financial assets, annual gains generated by such assets will also carry a 20 per cent levy.
“The regulations are stringent, perhaps too stringent,” Wang said, adding the ministry’s announcement has delivered a heavy blow to the industry, with offshore trusts losing their appeal as a vehicle for tax planning. Many of the overseas trustees she has spoken with are now taking a wait-and-see stance, she said.
“Some trustees are now considering rolling out stricter Know-Your-Client procedures for Chinese clients, especially on source of funds. It is expected that establishing offshore trusts will become more complicated for mainland individuals, with substantially more paperwork required,” Wang said. “I don’t expect to see any new offshore trust formations over the coming months.”
The central government also appears to be encouraging affluent individuals to settle their tax liabilities voluntarily.
Under the new rules, individuals who transferred assets into offshore trusts between 2023 and 2025 will receive a 90-day window to make the relevant declarations to the tax authorities and settle any outstanding liabilities without incurring late-payment penalties.


Why personal income tax?
The finance ministry’s announcement came as a jolt to players in the trust sector. But to those versed in China’s tax system, the move was widely anticipated. A common sentiment among analysts: First tighter rules for cross-border stock trading, and now this.
Since last year, authorities have called on mainland citizens to self-declare their overseas capital income dating back to 2022. Offshore earnings from stocks are subject to a 20 per cent tax on capital gains and dividends, alongside potential late fees. Official data shows taxpayers reporting overseas income settled roughly 13 billion yuan (US$1.93 billion) in additional taxes during the first five months of 2026.
The Common Reporting Standard (CRS) – an information-sharing agreement among countries’ tax authorities designed to prevent tax evasion – also facilitated the exchange of data not only on stock trading but also offshore trusts, Ge said. China committed to adopting the CRS in 2014 and began its first round of CRS exchanges in September 2018.
“In recent years, a growing number of affluent individuals have set up offshore trusts, with tax reduction being one of the prime drivers. Considering the strained fiscal situation, the policy moves by the government were inevitable,” he added.
In fact, targeting the wealthy may long have been on Beijing’s radar. He Yingxin of Safe wrote that “domestic entrepreneurs accumulate wealth with the backing of national resources – including banking loans, preferential policies from local authorities and domestic market demand. If they ‘cash out’ on the mainland and then move their wealth offshore to avoid tax obligations, it will trigger severe losses of domestic capital.”
He also singled out the Haidilao hotpot brand. Though the globally popular chain restaurant was founded in southwest China’s Sichuan province in 1994, it has essentially become Singaporean on paper.
“Even though 87.6 per cent of Haidilao’s revenue [in 2022] came from the mainland, the company’s owner and his wife are already Singaporean nationals and their assets have already been moved offshore … The company’s owner has evaded substantial personal income tax liabilities.”
Oversight has continued to intensify and expand over the past year. Jason Zhao, an insurance agent at Shanghai-based Manulife-Sinochem Life Insurance, said that several of his clients have received calls from tax authorities asking them to declare dividends from overseas insurance policies.




“Tax officials didn’t ask my clients to pay back taxes – it was just a declaration requirement for now,” Zhao added.
One professor with close ties to the State Taxation Administration (STA), who requested anonymity due to the sensitivity of the matter, said that prioritising individual income tax was a natural policy choice for the central government.
“There are essentially no other levers left for Beijing to raise additional tax revenue,” the professor said.
“The sluggish economy has ruled out bigger increases in the value-added tax (VAT), while soft auto demand is weighing on consumption tax receipts. And amid the prolonged property market slump, expanding property tax pilot programmes to more cities is off the table – that leaves only individual income tax.”
Compared with developed economies, Chinese authorities are heavily reliant on indirect methods of taxation – such as VAT – for revenue rather than direct ones such as income taxes. The country’s personal income tax, meanwhile, has a narrower taxpayer base and a lower collection compliance rate, while also imposing a heavy tax burden on income from labour and a much lighter one on capital.
But thanks to Beijing’s recent policy push, individual income tax has reclaimed its position as China’s third-largest tax category out of a total of 18 after four years, overtaking consumption tax. In the first half of 2026, personal income tax revenues topped 898 billion yuan, marking an increase of 13.1 per cent year on year.
At a press briefing on July 28, Wang Shiyu, an official at the STA, attributed this shift to three factors: a buyout capital market, fast-growing sectors such as technology, and stepped-up tax oversight targeting high-income individuals.
“We have continued to strengthen tax compliance and set up supervision,” Wang said. “For taxpayers who need to settle outstanding tax liabilities, we provide full-cycle follow-up and guidance. At the same time, we are also standardising the tax oversight of offshore gains.”
Tax administration data shows that since 2024, the top 10 per cent of earners by annual income contributed just over 90 per cent of all personal income tax declared and paid.
If your wealth fails to contribute to the domestic economy, then the government expects you to pay tax
Jason Zhao, Shanghai
How stringent is too stringent?
Nevertheless, questions remain about whether policymakers can refine the rules and make them more equitable.
For instance, suppose an individual transfers stocks worth 100 million yuan into an offshore trust. One year later, the value of those stocks doubles. But even if no action is taken with respect to the shares, the trust owner would still be liable for personal income tax on gains that exist only on paper.
“Under China’s Individual Income Tax Law, taxation on income from asset transfers hinges on two conditions: transfer of asset ownership and realisation of proceeds,” Li Xin, a lawyer at Shenzhen-based DeHeng Law Offices, wrote in a report released in late July. “Yet the new finance ministry regulations mandate levying tax on paper gains … This clearly exceeds the scope of its legal mandate.”
Currently on the mainland, both on-paper and actual capital gains from freely tradeable shares are exempt from taxation. Only the profits from selling lock-up shares and dividend income are subject to tax. For cross-border trading, however, investment gains are subject to annual tax levies.
“Onshore and offshore investments are subject to differential tax treatment. I don’t think that’s fair,” said Wang, the Shanghai-based tax lawyer.
“It appears clear that the central government aims to keep capital within the country, either to shore up the capital market or bolster consumption,” said Zhao, the insurance agent. “If your wealth fails to contribute to the domestic economy, then the government expects you to pay tax. I believe that is the underlying logic at play here.”
Lawyers and finance practitioners said HNW individuals have yet to settle on alternatives to offshore trusts and are employing a cautious approach for now.
Meanwhile, their stance on tax avoidance appears to have shifted amid the widening crackdown that has closed an increasing number of regulatory loopholes.
Wang Shiyu of the STA revealed that 99.95 per cent of taxpayers ordered to settle outstanding tax liabilities have filed their declarations, adding that “taxpayers have shown markedly stronger awareness of tax compliance.”
“There is no legitimate tax avoidance. Any tax avoidance constitutes tax evasion,” said Ge of the Shanghai National Accounting Institute.
His views were shared by a domestic entrepreneur who wished not to be identified, and whose firm is awaiting its listing on the tech-focused ChiNext board.
“There appears to be little room for tax avoidance. Any attempt may lead to retroactive tax collection later. I want to stay out of the headlines, so law-abiding tax payment makes the most sense for me,” he said.


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Once a reliable vehicle for tax avoidance, offshore trusts are being reconsidered as enforcement bodies step up their efforts, backed by new regulations


Once a reliable vehicle for tax avoidance, offshore trusts are being reconsidered as enforcement bodies step up their efforts, backed by new regulations.


.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Once a reliable vehicle for tax avoidance, offshore trusts are being reconsidered as enforcement bodies step up their efforts, backed by new regulations

Once a reliable vehicle for tax avoidance, offshore trusts are being reconsidered as enforcement bodies step up their efforts, backed by new regulations