China's new offshore trust

IIT rules (July 24, 2026)

China closed the loophole. Two new rules (Public Notice 21 & 15) now tax offshore trusts in real time—not just when money comes back to China, but as wealth grows inside the trust.

Who are affected

When settlors are resident individuals	When settlors are non-resident individuals
Transferring property into an offshore trust. All trust income during its existence (whether or not distributed) Upon trust termination. If the individual becomes a non-resident, dies and the trust passes to a non-resident or has no inheritor.	Transferring domestic property into an offshore trust. Income distributed to a resident individual (or a non-resident, but where another resident individual actually receives, uses, controls, or disposes of it). Upon trust termination, a resident individual receives trust property.
Special rules
Two or more residents contributing to the same trust: Each person's share of trust property and income is based on the market value of what they put in at the time of contribution. Joint contributions by resident and non-resident: Treated as if the property is contributed wholly by the resident individual, so resident tax rules apply in full. Domicile status: An individual who acquires foreign nationality or PR, but whose primary economic interests originate from within China, he may still be treated as domiciled in China and subject to resident tax rules. Deemed distribution: Even without a formal payout, loans, paying bills, or free or below-market use of non-resident trust property etc. shall be treated as a deemed distribution to resident who benefits. Foreign entity test: Centered on lack of substantial business operations or the passive nature of income. Control: Direct or indirect shareholding ≥25% or substantive control.

Three taxable moments (All at 20% flat rate)

Putting property in

Taxed on

Gain (value minus cost)

Income category

Property transfer income

Trust earns income

Taxed on

All accrued income—tax yearly whether distributed or not

Income category

Property transfer or interest/dividends/bonuses income (no cross-offsetting, fees not deductible)

Trust terminates

Taxed on

Total return (tax upon termination or 60th days if not completed)

Income category

Interest/dividends/bonuses income

What you must do now

Conduct an assessment: Review all historical exposures to determine the scope of potential issues. This is the single most critical step.
Gather documentation: Collect trust deeds, financial statements, and property lists. Tax authorities will require substantiation, and they may appoint their own appraisers if your records are insufficient.
File within 90 days: If historical exposures are identified, ensure filings are completed within the 90-day window.
Plan all future trusts: Make compliance the starting point, not an afterthought.

Urgent—The 90-day grace period (October 22)

For historical unpaid taxes on property contributions made during the following periods:

Resident individuals: January 1, 2023 – December 31, 2025
Non-resident individuals: January 1, 2023 – July 24, 2026 (effective date of the announcement)

For resident individuals, trust income accrued before January 1, 2026 is also covered (taxed as "interest, dividends, bonus income")

Contact us

Reach out to our team for assistance or to learn more.

vialto.com

Grace Huang

APAC Employment Tax Leader

Jacky Chu

China Leader

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