China's 20% offshore trust tax prompts review of $1.2 trillion wealth
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In late July, China imposed a 20% income tax on offshore trusts and began enforcing taxation on offshore insurance returns in Beijing and Hangzhou. The measures are prompting wealthy Chinese founders to reassess offshore trust structures and investment holdings linked to as much as $1.2 trillion.
Key Facts
- The new rules tax at 20% the appreciation in value at the time of a transfer of shares, property or other assets into offshore trusts.
- Income from offshore trusts and the offshore entities they control will also be taxed annually at 20%.
- Unpaid taxes on assets placed in trusts since January 2023 and on trust income received before 2026 must be reported within 90 days.
- More than half of China's super-rich individuals use offshore family trusts, according to reports from Julius Baer and KPMG.
The New Tax Rules
In late July, Chinese authorities overhauled rules governing the taxation of offshore trusts, which previously operated in a regulatory grey area. The new framework imposes a 20% tax on the appreciation in value at the time of a transfer of shares, property or other assets into offshore trusts. Income from such trusts and the offshore entities they control will also be taxed annually at 20%. Tax offices in Beijing and Hangzhou have started to enforce taxation on returns from offshore insurance policies.
Wealthy Founders' Response
Some founders preparing for listings are considering unwinding trusts, said David Luo, a tax partner at Zhonghua Certified Public Accountants. A Hong Kong-based executive at a state brokerage who declined to be named said some clients were avoiding setting up trusts and investing through smaller offshore asset managers instead. The measures have triggered a scramble among some wealthy individuals to assess their liabilities, raise cash to meet them and revamp investment holdings. Offshore trusts gained popularity as more Chinese companies listed in Hong Kong, unlocking billions of dollars for founders seeking dollar-denominated investment options.
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China's 20% offshore trust tax prompts review of $1.2 trillion wealth
