Editor's Note: On July 24, 2026, the Ministry of Finance and the State Taxation Administration issued the "Announcement of the Ministry of Finance and the State Taxation Administration on Individual Income Tax Matters Concerning Offshore Trusts" (Announcement No. 21 [2026] of the Ministry of Finance and the State Taxation Administration), together with the supporting "Announcement of the State Taxation Administration on Collection and Administration Matters Concerning Individual Income Tax on Offshore Trusts" (Announcement No. 15 [2026] of the State Taxation Administration). Based on the principle of substance over form, these announcements establish that the settlor of an offshore trust is, in principle, the taxpayer liable for individual income tax, that the trustee bears the ancillary obligation to assist in tax return filing, and establish four major anti-avoidance rules, marking a new stage in individual income tax supervision. This article aims to analyze the core concepts established by the new rules, remind high-net-worth individuals to seize the 90-day compliance window period, and, in light of practical analysis, discuss potential disputes and impacts of the rules for readers' reference.

I. Three Core Concepts Established by the Offshore Trust Individual Income Tax Rules

(I) The Look-Through Rule: Establishing the Resident Settlor as the Taxpayer in Principle

In the past, there was a long-standing ambiguity in determining the taxpayer for individual income tax collection and administration on offshore trusts in China. Constrained by the legal form of the trust, the isolation of the offshore structure, and other factors, tax authorities found it difficult to look through the offshore trust, offshore intermediate shareholding entities, and nominee arrangements to identify the actual taxpayer, resulting in a long-term gap in tax collection and administration. Based on the principle of substantive taxation, and in conjunction with the standards for distinguishing resident individuals and non-resident individuals under the Individual Income Tax Law, Announcement No. 21 formally establishes, for the three stages of trust establishment, existence, and termination, a look-through collection and administration rule with the resident settlor as the core taxpayer. Specifically:

For resident individuals, China applies the principle of worldwide taxation, meaning resident individuals bear unlimited tax liability, and the settlor is the taxpayer. The resident settlor is required to bear tax liability for income generated throughout all stages of the trust, covering income from property transfers when property is contributed to the offshore trust, various types of income generated during the existence of the trust, and liquidation income generated upon termination of the trust. Regardless of whether trust income during the existence of the trust is actually distributed to beneficiaries, tax must be paid in accordance with the law. When already-taxed trust income is subsequently distributed to beneficiaries, no additional tax will be imposed. At the same time, the new rules clarify the look-through of nominal shareholding and nominee structures – where an individual transfers property through other individuals or organizations, and such property is actually contributed, borne, or controlled by that individual, it shall be deemed as property contributed by that individual. This rule uses the criteria of actual contribution, bearing, and control to identify the true taxpayer, clarifying the resident settlor's status as the taxpayer throughout all stages of the trust, effectively reinforcing the resident settlor's tax responsibilities.

For non-resident individuals, tax liability is subject to differentiated collection and administration by stage. At the establishment stage, the non-resident settlor is the taxpayer, and is only liable for individual income tax on income from the transfer of property sourced within China. The rules also include a further look-through provision – where the property contributed by a non-resident individual is actually controlled by a resident individual, it shall be deemed as property contributed to the offshore trust by the resident individual, and the resident individual shall file and pay individual income tax in accordance with the provisions. At the existence stage and termination stage, the taxpayer shall be the resident individual who actually receives distributed income or property (i.e., the beneficiary); where income or property distribution is actually received, used, controlled, or disposed of by other resident individuals, it shall be deemed as distribution of income from the offshore trust to such resident individuals, and they shall file and pay individual income tax in accordance with the provisions. Overall, for non-resident offshore trusts, taxation is limited to income sourced within China, with no taxation on income sourced outside China. Through precise look-through, the rules target the tax liability at the stage of resident benefit receipt, balancing China's tax sovereignty with the principle of cross-border tax fairness.

(II) The Ancillary Obligation Rule: Clarifying that the Trustee Assists Individuals in Completing Declarations and Submitting Information, and Does Not Bear Tax Liability

In traditional practice of collection and administration on offshore trusts, there was controversy over whether an offshore trustee bears tax liability. Announcement No. 21 clarifies that a trustee, being an organization or individual that holds, manages, uses, and disposes of trust property in accordance with the trust deed and legal provisions, is not the taxpayer for income related to the offshore trust and does not need to bear tax liability.

The new rules stipulate that the trustee's primary role is to bear ancillary tax obligations——it shall accurately calculate various types of income and distributions generated during the operation and management of the offshore trust in accordance with provisions, calculate "income from interest, dividends and bonuses" and "income from property transfer" on a tax-year basis, and assist resident individuals and non-resident individuals in completing declaration, tax payment, and information submission formalities. It should be clarified that the ancillary obligations of information submission and assistance in declaration are not equivalent to statutory tax liability. Even if an individual underpays tax due to errors in the trustee's calculations or information submission, the individual's liability for supplementary tax payment is not affected, and related civil risks are to be resolved between the settlor and the trustee according to civil contract provisions. This rule both leverages the trustee's access to underlying trust information to fill gaps in cross-border collection and administration information, which benefits tax collection and administration, and avoids the problem of the trustee lacking actual tax-paying capacity because it does not enjoy the trust income.

(III) Anti-Avoidance Rules: Offshore Trusts Return to Their Wealth Inheritance Roots, and Structuring-Based Tax Avoidance Paths Have Become Invalid

Announcement No. 21 establishes a comprehensive anti-avoidance rule system for offshore trusts, specifically targeting the use of offshore trusts to conceal assets or change identity to evade domestic tax obligations. The positioning of offshore trusts is undergoing a fundamental reshaping – the inherent value of the trust system is intergenerational family wealth inheritance, risk isolation, and integrated cross-border asset arrangements. The past model of offshore trust planning centered on tax avoidance has been fully blocked, specifically:

First, comprehensive taxation of retained earnings blocks the deferral tax loophole. Undistributed income of offshore trusts and income retained in overseas entities controlled by them are all brought within the scope of taxation. Regardless of whether offshore trust income is actually distributed to beneficiaries or is retained and accumulated in overseas intermediate entities controlled by the settlor, individual income tax must be paid, effectively regulating the past practice of using offshore structures to avoid tax liability by not distributing profits for extended periods.

Second, a deemed distribution rule is established for non-resident trusts. For non-resident offshore trusts that have an关联 relationship with resident individuals, if any of the following circumstances exist: using trust property to provide guarantees, mortgages, or loans for resident individuals' debts, and such guarantees, mortgages, or loans are not released or repaid before December 31 of the current year; paying or reimbursing expenses for resident individuals, or allowing resident individuals to use trust property for free or at a significantly below-market price; indirectly transferring economic benefits to resident individuals through third parties; or transferring benefits to related parties of resident individuals, or entities controlled by or actually benefitting them; such circumstances shall be deemed as distribution of income to the resident individual, and the resident individual shall file and pay individual income tax in accordance with the provisions. This rule effectively regulates tax avoidance through the indirect transfer of benefits to resident individuals via non-resident trusts.

Third, the rules regulate tax avoidance through identity conversion and mixed establishment. First, where a resident individual becomes a non-resident individual, a tax liquidation of their trust property shall be conducted, and tax shall be imposed on the potential appreciation in value of the property; second, where a resident individual and a non-resident individual contribute property to the same offshore trust, it shall be deemed as property contributed to the offshore trust entirely by the resident individual, and the resident individual shall file and pay individual income tax in accordance with the provisions; third, for individuals who have emigrated overseas (including obtaining foreign nationality, overseas long-term or permanent residency, etc.) but whose primary economic interests originate from within China, they may be determined as Chinese tax residents and continue to be taxed on their income derived from both within and outside China.

Fourth, the rules introduce the arm's-length principle from transfer pricing. For resident individuals' offshore trusts and overseas entities controlled by them, if trust property is transferred through means such as distribution, gift, transfer, or below-market-price sale, the taxable income shall be determined based on the fair market value of the property minus the original cost and reasonable expenses. At the same time, it is clarified that losses arising from the transfer of property to related parties shall not be offset against taxable income, effectively regulating tax avoidance through non-arm's-length related-party transactions.

II. Only a 90-Day Window Period: Completing Tax Declarations in Accordance with the Rules Is Urgent

In order to achieve a smooth transition between the old and new tax systems, Announcement No. 21 provides transitional declaration rules for tax matters related to existing offshore trusts established before the new rules took effect, specifically:

(I) Declarations Made Within the 90-Day Window Period Are Subject to a Maximum Five-Year Statute of Limitations, Without Surcharges for Overdue Payment

Article 52, paragraph 1 of the Law on the Administration of Tax Collection stipulates: "Where taxpayers fail to pay or underpay taxes due to the fault of the tax authorities, the tax authorities may, within three years, require the taxpayers to make up the unpaid taxes, but shall not impose a surcharge for overdue payment. Where taxpayers fail to pay or underpay taxes due to errors such as miscalculations, the tax authorities may, within three years, recover the unpaid taxes and surcharges; under special circumstances, the statute of limitations for recovery may be extended to five years." Article 80 of the Implementing Rules of the Law on the Administration of Tax Collection stipulates: "The term 'fault of the tax authorities' as used in Article 52 of the Law on the Administration of Tax Collection refers to the tax authorities' improper application of tax laws and administrative regulations or unlawful enforcement actions." The transitional arrangement under Announcement No. 21, which does not impose surcharges for overdue payment, is consistent in legal principle with the principles reflected in the above provisions. However, the application of the statute of limitations for recovery still follows the original rules of the Collection and Administration Law. If the amount of tax payable is relatively large, the tax authorities may extend the recovery period to five years in accordance with the law.

At the establishment stage, taxes not paid are in principle subject to a three-year recovery period, extendable to five years for larger amounts – individuals who contributed property to offshore trusts during the period from January 1, 2023 to December 31, 2025 shall file and pay taxes within 90 days from July 24, 2026, without surcharges for overdue payment.

At the existence stage, for income from distribution of income in 2025 and prior years where tax was not paid, Announcement No. 21 does not directly limit the recovery period to three years. In light of the Collection and Administration Law rules, it can be reasonably inferred that the tax authorities may apply a five-year recovery period in accordance with the law. For undistributed income from such years, without distinguishing between types of income, the total amount shall be calculated in one lump sum and declared and taxed in full as "income from interest, dividends and bonuses". If declared and paid within the above 90-day transitional period, no surcharges for overdue payment will be imposed.

(II) Missing the 90-Day Window Period May Not Only Require Supplementary Tax Payment and Surcharges but Also Convert into Tax Evasion

It is particularly important to remind that if a taxpayer fails to pay the above individual income tax within the prescribed period, the tax authorities will recover the tax and impose surcharges for overdue payment in accordance with the law. A mere failure to file a return constitutes a tax omission (non-declaration). If the tax authorities notify the taxpayer to file a return and the taxpayer still fails to do so, such tax omission will be converted into tax evasion. The tax authorities may then recover the tax indefinitely, impose surcharges for overdue payment, and impose fines, resulting in a sharp increase in tax risks.

(III) Taxpayers Should Pay Attention to Both the Window Period and Subsequent Compliance Management

On the one hand, Announcement No. 21 provides a 90-day window period for tax liabilities arising from existing offshore trusts – completing supplementary declarations within 90 days from July 24, 2026 will not incur surcharges for overdue payment or administrative penalties, offering an important opportunity to resolve historical tax risks. It is recommended that taxpayers pay full attention to the window period, promptly compile complete tax-related data for the establishment and existence period of their offshore trusts, and complete supplementary declarations in a timely manner; for complex structures and cases with difficult tax determinations, taxpayers may seek assistance from tax professionals to complete compliant tax declarations. Missing this window period will make the payment of surcharges for overdue payment inevitable, leaving no room for flexibility. This is similar in regulatory logic to the single investment fund accounting method for venture capital enterprises. Specifically: in order to optimize the tax environment and reduce investors' burdens, in 2019, the Ministry of Finance, the State Taxation Administration, the National Development and Reform Commission, and the China Securities Regulatory Commission jointly issued the "Notice on Individual Income Tax Policy Issues for Individual Partners of Venture Capital Enterprises" (Cai Shui [2019] No. 8), allowing eligible venture capital enterprises to choose a single investment fund accounting method, under which individual partners' investment income from the fund may be subject to individual income tax at a flat rate of 20%. Article 6 of the Notice sets forth the time limit for filing the accounting method, requiring that venture capital enterprises that choose the single investment fund accounting method shall complete the filing of their accounting method with the competent tax authorities within the prescribed time limit; those that fail to file as required shall be deemed to have chosen the overall accounting method for annual income of venture capital enterprises and cannot benefit from the 20% preferential tax rate. In practice, a large number of venture capital enterprises have been subject to recovery of tax and imposition of surcharges for overdue payment for failing to fulfill their filing obligations as required by the policy. These cases serve as a warning to taxpayers of offshore trusts and should be taken as a lesson, with timely declarations completed within the window period.

On the other hand, the new rules stipulate that from January 1, 2026, resident individuals contributing property to offshore trusts and income generated during the existence of offshore trusts shall be declared and individual income tax paid in accordance with the provisions of Announcement No. 21. This means that tax-related matters concerning offshore trusts for 2026 and onwards will be subject to regular declarations under the new rules, and the 90-day window period will no longer apply. In this context, taxpayers need to comprehensively and prudently review the overall tax impact and compliance risks of their existing offshore trust structures. For trusts that are to be retained, a long-term compliance management system should be established, with routine and ongoing mechanisms for the collection and declaration of tax-related information, fulfilling tax obligations in accordance with the law and achieving regular compliance tax reporting; for trusts that are to be optimized or adjusted, a holistic approach should be taken, taking into consideration tax compliance, overseas trust legal requirements, foreign exchange supervision, family cross-border wealth inheritance, and other factors, to plan comprehensively and avoid tax risks and cross-border compliance risks arising from hasty actions.

III. Potentially Controversial Issues and Impacts of the New Rules

Upon studying Announcement No. 21, Announcement No. 15, and their respective Q&A with journalists, we have found that three issues may potentially give rise to subsequent disputes and impacts. Specifically:

First, the issue of determining tax residency status. The Individual Income Tax Law adopts dual criteria of "domicile" and "length of residence" to determine tax residency status. An individual satisfying either criterion constitutes a Chinese tax resident. The Implementing Rules of the Individual Income Tax Law further clarify that having a domicile in China means habitual residence in China due to reasons of household registration, family, or economic interests. Announcement No. 21 further strengthens the determination factor of domicile, providing in Article 11: "An individual who has obtained foreign nationality or overseas long-term or permanent residency, but whose primary economic interests originate from within China, may be determined as a resident individual with a domicile." This means that, in the first step of determination under domestic law, even if the entire family has no Chinese household registration, an individual may still be determined as a Chinese tax resident if their primary economic interests originate from within China. However, it should be noted that the above rule applies only to determinations at the domestic law level. In cases where a tax treaty exists, and the other country also determines the individual as its tax resident under its domestic law, giving rise to a dual residency conflict, the tie-breaker rules in the treaty should be invoked for comprehensive determination. It remains to be observed whether this determination standard based on "primary economic interests" will subsequently be widely extended and applied in other individual income tax matters.

Second, the issue of whether tax paid by beneficiaries overseas can be credited by resident settlors. Under Announcement No. 21, resident settlors are subject to taxation throughout all stages. Even if income is earned at the trust level and the settlor does not actually receive any benefits, they are still required to file and pay tax on such income. At the same time, if a beneficiary subsequently pays individual income tax in their jurisdiction due to actually receiving trust distributions overseas, whether such tax can be credited by the settlor remains unclear. Currently, Article 10 of Announcement No. 21 only provides that when a resident individual files and pays individual income tax in accordance with the provisions, tax of an individual income tax nature paid on the offshore trust overseas in accordance with local law may be credited against the current tax liability, but does not specify whether tax paid by beneficiaries can be credited. This issue awaits further clarification.

Third, the issue of connecting the concept of succession under tax law with trust law provisions. Announcement No. 21 provides that where a resident individual dies and other resident individuals succeed to the offshore trust, it shall be deemed as a resident individual's offshore trust, and the other resident individuals shall file and pay individual income tax in accordance with the provisions. It further explains the concept of succession as referring to the situation where, after an individual contributes property to an offshore trust, other individuals take over that individual's relevant rights and interests in the offshore trust. However, in trust law principles, the settlor enjoys control rights, while beneficiaries enjoy beneficial rights – the two are separate. Announcement No. 21 uses the general term "relevant rights and interests" without distinguishing between control rights and beneficial rights, which may give rise to subsequent disputes. For example, if other individuals only succeed to the settlor's control rights while the actual benefits are still obtained by beneficiaries, then requiring the successor of control rights to bear tax liability directly may lack the necessary funds for tax payment and may also be inconsistent with tax fairness. Further observation in practice is needed.

IV. Conclusion

The issuance of Announcement No. 21 and Announcement No. 15 marks that China's individual income tax supervision over offshore trusts has officially left behind the stage of blank and ambiguous unregulated growth. The new rules, centered on substantive taxation and supported by look-through supervision, ancillary obligations, and anti-avoidance regulations, have blocked the space for tax avoidance through offshore structures, and are driving offshore trusts back to their fundamental functions of wealth inheritance, risk isolation, and integrated cross-border asset arrangements. In the long run, the normalization of tax supervision over offshore trusts is an inevitable trend. High-net-worth individuals need to abandon the mindset of using offshore trust structures for tax avoidance. On the one hand, they should seize the short-term window period to accurately complete tax declarations; on the other hand, while balancing multiple factors of wealth inheritance, risk isolation, and tax compliance, they should comprehensively consider their offshore trust structures and establish long-term tax compliance management mechanisms.