In FocusChina’s wealthy used grey zones to avoid taxes. Have new rules painted them into a corner?
Once a reliable vehicle for tax avoidance, offshore trusts are being reconsidered as enforcement bodies step up their efforts, backed by new regulations
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.”
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.
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.