China targets offshore trusts with new tax rules

China is stepping up scrutiny of overseas assets held by its richest families by imposing personal income tax on offshore trusts, the South China Morning Post (SCMP) reported.

The change aims to close a “loophole” long used by the wealthy to avoid tax and to ease fiscal pressures aggravated partly by a prolonged downturn in domestic housing prices.

A recent statement from the Ministry of Finance indicated that the broader crackdown has now reached the enforcement phase.

With immediate effect, personal income tax will be charged on gains in asset values – such as shares and real estate – when these assets are first placed into offshore trusts, the ministry said.

The ministry added that the income generated by the trusts will then be taxed each year.

These changes mark a significant tightening of oversight on China’s wealthiest individuals, the publication added.

The tax overhaul is expected to have major implications for Hong Kong, which has recently overtaken Switzerland as the world’s largest centre for offshore wealth.

It is estimated that hundreds of billions of US dollars are held in the city, supported by a strong rebound in the property market and higher spending on luxury goods.

To encourage voluntary compliance, the Finance Ministry said individuals who transferred assets into offshore trusts between 2023 and 2025 will be granted a 90‑day period to declare these holdings to the tax authorities and settle the tax due.

For income generated by the trusts before 2026, owners will be allowed to report and pay tax under a simplified structure during the same 90‑day grace period.

The revamp of the tax rules comes as both Beijing and local governments face increasing fiscal pressure due to a slowdown in economic growth and a downturn in the housing sector.

Last month, China’s National Audit Office unearthed tax evasion and oversight failures at several state-owned financial institutions.