Centuries ago, a 13th-century English nobleman preparing for the Crusades devised a plan to safeguard his family's future. Uncertain of his return, he transferred his land to a trusted friend for management, with the proceeds supporting his wife and children. This arrangement, later revived upon his return, formed the earliest prototype of a trust.
Over the centuries, the trust concept migrated across borders, evolving into sophisticated structures. Today, assets are placed into trusts in the Cayman Islands, shell companies in the BVI, or trust accounts in Singapore. Legally, the assets are no longer owned by the individual, yet the wealth remains under their control. A recent regulatory announcement has once again thrust offshore trusts into the spotlight.
New Regulations
On July 24, 2026, the Ministry of Finance and the State Taxation Administration jointly released a notice outlining the personal income tax implications for offshore trusts. The core rules can be broken down into three stages.
First, at the establishment stage, transferring assets like company equity, stocks, or property into an offshore trust triggers a 20% tax on the "income from property transfer." For example, if you purchased company equity for 10 million yuan, which has since appreciated to 100 million yuan, the 90 million yuan gain would be subject to 18 million yuan in tax, payable even without sufficient cash on hand.
Second, during the operation stage, annual income generated by trust assets, whether distributed or not, must be declared and taxed annually. Dividends are classified as "income from interest, dividends, and bonuses," while asset sales count as "income from property transfers," both taxed at 20%. Trust management fees, legal fees, and investment advisor costs are not deductible.
Third, at the termination stage, proceeds from liquidation will be taxed again at 20%. For existing trusts, a transition period is provided. Trusts established over three years ago will not be taxed on the establishment stage. However, income from the operation period must be paid, regardless of when the trust was set up. Specifically, assets placed into the trust after January 1, 2023, require tax payment on the gains, and income from 2025 and prior years must be reported as a lump sum and taxed at 20%. Crucially, the tax must be paid within 90 days, by October 22, 2026, or daily late payment penalties of 0.05% will apply.
The authorities clarified that offshore trusts are often set up in jurisdictions with low tax and low transparency, used to transfer assets, hide wealth, and evade taxes. These rules aim to enhance tax clarity and fairness. The announcement has primarily impacted the ultra-wealthy circle.
Affected Individuals
Over the past two decades, offshore trusts have become a standard tool for China's wealthy elite. Reports indicate that at least 10 prominent entrepreneurs, including Jack Ma, Richard Liu, Sun Hongbin, and Lei Jun, have placed an estimated 500 billion yuan in assets into such structures. However, the new regulations place the greatest pressure not on tech moguls, but on industrialists with stable dividend incomes.
Tech companies often do not distribute dividends, so their trust accounts mainly hold equity, with limited cash flow. In contrast, industrial enterprises generate substantial cash dividends, which flow directly into trust accounts. The Zhang Yong family of Haidilao is a prime example. Through immigration and offshore trusts, Zhang Yong placed a significant portion of Haidilao shares into Apple Trust and Rose Trust. With Haidilao's stable performance and large annual dividends, estimates suggest the Zhangs may face billions in back taxes.
The Zong Qinghou family also faces significant exposure. Their 1.8 billion dollars in offshore assets could result in a tax bill of 2 billion to 2.5 billion yuan. However, the most dramatic case involves Pan Shiyi. In 2005, Pan Shiyi used BVI companies and trust structures to place 94.78% of SOHO China's shares into a Cayman Islands offshore trust. He later claimed to have no personal stake in the company, which was technically correct, as the shares were held by the trust. Yet, over 20 years, the trust's assets have generated substantial appreciation, dividends, and transfer gains.
Pan Shiyi's strategy was intricate. With Chinese citizenship, he transferred all his SOHO China shares to his US-citizen wife, Zhang Xin, who then placed them into a family trust, leaving Pan with no personal income or management rights. This effectively isolated risk and shifted earnings offshore. One commentator described the couple as "exceedingly clever." However, this 20-year arrangement has been effectively ended by the new regulations. Estimates suggest the Pan Shiyi family may face a historical tax bill of 2 billion to 3 billion yuan. While Pan enjoys his life abroad, a significant tax liability remains in China, symbolizing an era where wealth was moved offshore, leaving debts and taxes behind.
Understanding the Offshore Trust
An offshore trust involves placing assets in a trust located in a foreign jurisdiction, such as the Cayman Islands, BVI, Singapore, or Hong Kong, chosen for their low taxes, high secrecy, and flexible laws. The key functions are asset isolation, tax planning, wealth succession, and confidentiality. By placing assets in a trust, they are legally separated from the individual, protecting them from creditors, divorce, or lawsuits. The trust's non-taxable status in the offshore jurisdiction allows income to be effectively "hidden" from domestic tax authorities.
This model relied on two conditions: information asymmetry and legal gaps. The Common Reporting Standard (CRS), implemented in 2018, has changed the landscape. China now automatically exchanges financial account information with over 120 jurisdictions, allowing tax authorities to see accounts held abroad and even penetrate trust structures to identify beneficial owners. The new 2026 regulations close the legal gaps, effectively ending the "tax avoidance dividend" of offshore trusts.
Global Trend
China is not alone in targeting offshore trusts. The United States taxes global income for its residents, with the IRS strictly regulating foreign trusts. In 2026, a US Tax Court approved a settlement where the estate of a software entrepreneur paid 7.5 billion dollars in back taxes and penalties. More recently, Nvidia CEO Jensen Huang was reported to be using tools like irrevocable trusts to avoid up to 8 billion dollars in inheritance tax. The principle is simple: if you are a US tax resident, all global income must be reported.
The United Kingdom is also tightening its rules. HMRC has increased scrutiny of offshore trusts, requiring trustees to pay up to 45% tax on trust income, with beneficiaries also taxed on distributions. The OECD is also driving a global push for transparency. From 2009 to 2024, member states recovered at least 24 billion euros in additional tax through information exchange. From 2025, the OECD requires financial institutions to identify and report the "controlling persons" of trusts, including settlors, beneficiaries, and trustees. This "transparency principle" means that offshore secrecy is diminishing, and trusts are no longer insulated from tax authorities.
Conclusion
Originally designed for asset protection and succession, offshore trusts have increasingly been used for asset transfer, tax avoidance, and wealth concealment. The new regulations are not creating a new tax but closing a loophole. The direction is clear: offshore trusts can still serve legitimate functions like asset isolation and family succession, but the era of unlimited tax deferral through complex offshore structures has ended. A wave of tax payments has just begun, with authorities in Shanghai, Shenzhen, and Jiangsu already conducting focused interviews with high-net-worth individuals. The Golden Tax System 4.0, fully launched in 2025, enables cross-referencing of CRS data with domestic tax filings and bank records, with automatic alerts for anomalies. While some flexibility is provided, such as installment payment options for those with difficulties, the message is unmistakable: wealth can be globally allocated, but tax obligations cannot be "offshored."