New Chinese Mainland offshore trust tax regime: immediate implications for settlors, beneficiaries and trustees

On 24 July 2026, the PRC Ministry of Finance and State Taxation Administration issued sweeping new regulations governing the taxation of offshore trusts, which represent one of the most significant developments affecting Chinese Mainland-linked offshore wealth structures in recent years (the 'Announcement'). Rather than targeting a single aspect of trust planning, the Announcement creates a comprehensive taxation and reporting framework that applies throughout the life of an offshore trust, from initial funding through to ultimate succession.

The Announcement applies with immediate effect, and affected taxpayers have a 90-day window from 24 July 2026 (i.e. by 22 October 2026) to pay taxes due, failing which late-payment surcharges and penalties may apply.

1. Who the Announcement targets

• Local Contributor: Chinese Mainland residents who have set up offshore trusts, whether directly or indirectly – in such cases, Chinese Mainland taxes are levied at multiple points (as elaborated below). 
• Foreign Contributor: Non-Chinese Mainland residents who contribute Chinese Mainland situs or sourced assets into an offshore trust.
• Local Beneficiary: Chinese Mainland residents who may receive benefits from offshore trusts even if the trust is set up by a non-Chinese Mainland resident. 
• Local Controller: Where a non-Chinese Mainland resident contributes assets into the trust but the trust is controlled by a Chinese Mainland resident individual, such Chinese Mainland controller is deemed to be the contributor of the assets.
• Widened Deemed Tax Residency Concept: Non-Chinese Mainland residents whose primary economic interest originates from the Chinese Mainland and may be deemed to be a Chinese Mainland tax resident under the Announcement.

2. When tax may arise 

The Chinese Mainland imposes a worldwide basis taxation on its residents (which includes individuals domiciled in the Chinese Mainland). This means that ordinarily, offshore income of such Chinese Mainland residents would be reportable and taxable in the Chinese Mainland regardless of remittance. In addition, there are also Controlled Foreign Corporation ('CFC') rules (which would require undistributed profits of a CFC to be included in the individual's taxable income) that would extend the reach of the Chinese Mainland tax net. 

Following the Announcement, Chinese Mainland tax (at the rate of 20%) is triggered at various stages of the offshore trust lifecycle: 

A. Where the settlor of the offshore trust is a Chinese Mainland resident

• Entry into the Trust: On transfer or contribution of property into an offshore trust, the individual transferring or contributing the property into the trust will be taxed as though the property had been sold at its market value when it is transferred into the trust¹  ('Deemed Sale'). 
  
  Where a Chinese Mainland resident contributes assets indirectly through nominees or intermediaries, or where a non-Chinese Mainland resident contributes assets into the trust but the trust is regarded as controlled by a Chinese Mainland resident individual, the trust would be regarded as established by a Chinese Mainland resident.

• Growth within the Trust: Realized income and gains (including realized income and gains derived by non-Chinese Mainland entities controlled and managed by the offshore trust, even if not distributed to the trust) would be taxable in the hands of the resident individual.
  
  The Announcement clearly recognizes the common offshore trust practice of holding assets through one or more layers of companies, and expressly addresses that the layering of corporate structures within the trust which the Chinese Mainland resident still controls would not defer the recognition of taxable income and gains for the purposes of the Announcement. 
• Distributions / Benefits from the Trust: Transfers of trust property (including distributions) would be treated as a transfer at market value, and gains arising therefrom would be taxable.  
• Termination of the Trust: A termination of the trust would be taxed as a Deemed Sale. 
• Change of Chinese Mainland tax residency status of the Settlor of the Trust: A settlor who becomes a non-Chinese Mainland resident would also trigger tax as a Deemed Sale.
• Death of the Settlor of the Trust: If the Chinese Mainland settlor passes away and the trust is "inherited" by a non-resident individual or remains uninherited, this scenario would be taxed as a Deemed Sale. An exception appears to apply if the trust is "inherited" (承继) by another Chinese Mainland resident (who would then be subject to the ongoing compliance obligations described above). 
  
  As the "inheritance of a trust"²  is not a concept ordinarily recognized under common law trusts, if there is ambiguity on this concept, then there is an inherent risk that the death of any Chinese Mainland settlor may trigger a Deemed Sale tax.

Note also that a trustee may incur direct filing and payment obligations (on behalf of the individual taxpayer) where the Chinese Mainland resident settlor has died and the trust is "inherited" by a non-resident or by no-one.

B. Where the Settlor of the Offshore Trust is a Non-Chinese Mainland resident 

The tax points would be more limited and apply at:

• the time of contribution if the assets contributed are Chinese Mainland situs or Chinese Mainland-sourced; and 
• the time of distribution or where benefits (in the circumstances set out in the Announcement) are made available to a Chinese Mainland beneficiary.

Furthermore, the Announcement addresses scenarios where the trust is set up by a non-resident individual, but a resident individual actually retains control over the trust. Such trust contributions shall be deemed to be made by a resident individual.

3. Does the definition of "Chinese Mainland resident" in the Announcement apply beyond trust taxation? 

It is notable that Article 11 of the Announcement specifically states a deeming rule that individuals who have obtained foreign citizenship or overseas permanent residence may nevertheless continue to be regarded as a Chinese Mainland resident, if their primary economic interest originates from Chinese Mainland. 

Read literally, this provision does not appear to be linked to any offshore trust, even though it is part of the Announcement which specifically targets offshore trusts. There would be significant implications if this provision is indeed applied beyond the specific context of offshore trusts. This indicates that individuals who have ceased to be Chinese Mainland citizens and have been living outside the Chinese Mainland for some time and have obtained foreign citizenship or permanent residence, may now still be regarded as Chinese Mainland residents and taxed on worldwide income, beyond the income and gains within any offshore trust structure, as long as they have primary economic interest which originates from Chinese Mainland. 

The regulations do not elaborate on the meaning of having economic interest which originates from the Chinese Mainland. This could potentially cover a wide range of situations (including Chinese Mainland businesses which are listed outside the Chinese Mainland but subsequently sold). Lacking a clear definition creates some ambiguity on how this may be applied, and how far back the authorities look to the origination of economic interests and the transformation of such economic interests over time. 

4. Other issues not explicitly addressed by the regulations 

• Availability of treaty protection: The Announcement sets out the domestic tax position in the Chinese Mainland and for individuals who are residents outside the Chinese Mainland, the impact of these new regulations would be potentially moderated and mitigated by provisions set out in any relevant double tax treaty, which in principle should continue to be available. However, the feasibility of invoking treaty protection in any case ultimately depends on the connectedness of the situation, underlying assets and relevant circumstances to the relevant countries. 
  
  Where it is suitable to invoke treaty protection, it would be important to collate and procure clear evidence of the foreign tax residency status for the key individuals, for instance procuring the appropriate Certificate of Residence ('COR') from the relevant jurisdiction. In practice, applications for a COR may also require the applicant to identify and disclose the nature and amount of income on which the certificate is sought for each relevant year. 
  
  If a treaty-based position is challenged by the Chinese Mainland tax authorities, consideration may also need to be given to pursuing further relief under the applicable Mutual Agreement Procedure. 
• Testamentary trusts: The regulations do not specifically address testamentary trusts (which are trusts created within testamentary instruments i.e. wills, and which only come into effect upon the passing of the testator and do not exist before that). Testamentary trust planning is a common estate planning strategy which can help serve a wide range of legitimate objectives, including providing foreign estate tax protection, asset protection (including managing potential divorce risks) and providing for minor or vulnerable beneficiaries. Families who value these objectives will have to balance the various objectives and the relevant tax exposure in the relevant jurisdictions. 
•  Life insurance: Where founders' stakes were already transferred and held in trust structures set out at the earlier pre-IPO stage, which is common practice in pre-listing structuring, the 20% income tax chargeable on past years' income may be more manageable than the tax chargeable either on the termination of the trust or upon the passing of the settlor (or even on the change in residency status of the settlor). As the value of such Deemed Sale gains, considering the historical low-cost value of the trust assets, could be very significant, the imposition of the 20% tax on such deemed sale gains may in effect be a form of "estate tax" for certain trust-held assets. For settlors in such a position who would not want to be put in a position that the assets must be realized in part to pay for such Deemed Sale taxes, life insurance could be a useful complementary planning tool to provide the family with the necessary liquidity to manage such tax exposure.
  
  While the Announcement specifically provides that financial products issued by banks, insurance companies, securities firms and fund management companies do not fall within the scope of this latest Announcement, specific tax advice should still be obtained as to when income derived from offshore life insurance payments would be taxable or exempt.
• Alternative Non-Trust Estate Planning Strategies: For families who prefer not to rely on offshore trusts, a variety of alternative succession planning strategies may be available, depending on the family's objectives and circumstances. These may include family partnerships, deeds of family arrangement, more tailored ownership structures (such as voting and non-voting share classes), and enhanced family governance mechanisms, including formal family constitutions and succession frameworks which can be designed to facilitate the orderly transfer of wealth and control across generations.
• Cash funding vs funding-in-kind: As mentioned above, funding a trust with assets would potentially trigger Deemed Sale tax on the part of the transferor. In comparison, cash funding of an offshore trust would not give rise to a Deemed Sale. However, if the concept of gift tax should be introduced in the future, then the funding of a trust with cash would then be impacted.
• Practice and administration of the Announcement: The Announcement does not expressly address the applicable statute of limitations for offshore trusts established before 2023. In addition, there remains some uncertainty as to its practical implementation. Different local tax offices may require different supporting documents to accompany the filing, and while the Announcement contemplates that tax payments may be deferred in certain situations, the absence of detailed procedural guidance may leave taxpayers concerned as to whether the tax must nevertheless be fully settled by the filing deadline. It is understood that the State Taxation Administration is currently conducting large-scale training for local tax officers, and further guidance may emerge as the rules are implemented in practice³.

5. 90-day compliance window with lasting consequences

The regulations provide a 90-day window for taxpayers to report and pay personal income tax (with no late payment penalties) in relation to the following:

• transfer of property into an offshore trust by resident or non-resident individuals during the period from 1 January 2023 to 31 December 2025 (for resident asset contributors) or 24 July 2026 (for non-resident asset contributors);
• offshore trust income generated before 1 January 2026; and
• income distributed or deemed distributed by non-resident-settled trusts to Chinese Mainland residents before 1 January 2026.

The 90-day period may present taxpayers with tremendous pressure. For taxpayers whose circumstances are not clear-cut to begin with, the decision is not straightforward: the status quo carries compliance risks, while coming forward may expose them to greater scrutiny going forward.  

As such, clients should immediately seek advice and carefully evaluate whether they fall within the scope of the regulations, compute the exposure if applicable to them, and take the proper course of action within the limited time period. 

Trustees would also have obligations in relation to the preparation of information about the income and gains derived within the trust structure and assist taxpayers with their filings. Trustees should review and verify whether these are aligned with the terms of their existing trust instruments and applicable confidentiality or statutory secrecy laws. Further, it would also be necessary to arrange for translations of documents (e.g. trust instruments) into Mandarin.

Beyond the 90-day transition window, trustees and settlors also have to consider how the Chinese Mainland tax obligations arising under the Announcement would be funded, i.e. by the settlors personally, or from the trusts (if the settlor is a beneficiary). Compliance with the tax reporting regime under the Announcement would also require additional tax computations to be prepared by the trustee to enable and facilitate compliance.

Looking ahead 

The introduction of clearer rules for the taxation of offshore trusts is not in itself a surprising move. The reach of the Announcement will now need to be carefully studied and considered. Balancing the actual impact of the Announcement against the original core objectives for establishing the offshore trust, a decision can then be made on whether the trust should be retained, restructured, migrated, or reformed to a more effective alternative arrangement that can better serve the key objectives of the family. 

A successful planning strategy should also be flexible and factor in appropriate jurisdictional risk diversification, so that the family's overall planning can be more resilient and allow for rebalancing as appropriate as the family circumstances evolve.