Citing KPMG, one of the Big Four international accounting firms.
Background
Released on 24 July 2026, Announcement 21 sets out tax rules for offshore trusts and reinforces enforcement of individual income tax.
Scope of Application
It applies to trusts established under foreign laws and other legal arrangements with trust‑like functions. Covered scenarios include:
Chinese tax‑resident individuals (including persons with foreign nationality or overseas residency whose main economic interests lie in China) contributing domestic or foreign‑situated assets into offshore trusts;
Non‑resident individuals contributing China‑situated assets into offshore trusts;
Non‑resident individuals contributing assets into offshore trusts where the trust is de‑facto controlled by a Chinese tax‑resident individual.
Tax Consequences
Taxpayers must file and settle outstanding individual income tax within 90 days from the effective date of Announcement 21:
For tax‑resident individuals: outstanding tax arising from asset contributions to offshore trusts between 1 Jan 2023‑31 Dec 2025; and outstanding tax accrued under offshore trusts established before 1 Jan 2026.
For non‑resident individuals: outstanding tax arising from asset contributions to offshore trusts between 1 Jan 2023‑24 Jul 2026.
Penalty surcharges may be waived for compliant filing and settlement within the grace period.
Tax Credits, Grace Period & Filing Rules
‑ Tax credits & grace period: Foreign‑paid individual income tax is creditable. A 90‑day grace period (from 24 Jul 2026) applies to unpaid tax for 2023‑2025 without late‑payment surcharges. For material tax liabilities, tax authorities may extend the recovery period, potentially reaching years before 2023.
‑ Filing deadlines: Tax‑resident individuals file between 1 Mar‑30 Jun of the following year; non‑resident individuals file within 15 days of month‑end upon tax‑event occurrence.
‑ Compliance & penalties: Failure or late filing triggers late‑payment surcharges, tax recovery and corresponding legal liabilities.
‑ Anti‑avoidance rules: An offshore trust de‑facto controlled by a tax‑resident is treated as the resident’s own activity. Economic benefits provided to residents or related parties may be treated as taxable income. Tax authorities may adjust artificial tax‑avoidance arrangements.
KPMG Observations
Announcement 21 implements China’s taxation principle over residents’ worldwide income, improving tax fairness and certainty. Offshore trusts face greater tax transparency and stricter compliance obligations.
For offshore trusts set‑up for asset protection and wealth succession, tax outcomes have become clearer and more rigid. Key points:
Scope clarification pending: Financial products issued by regulated banks, insurers, securities houses and funds for public investors are excluded.
Multi‑stage taxation: Tax may arise on asset contribution, trust duration and distribution, pushing‑up overall tax costs. Professional pre‑assessment is advised. Tax for assets contributed before 1 Jan 2023 will not be retroactively pursued.
Liability via offshore entities: Where assets flow through an offshore entity de‑facto controlled by a Chinese tax‑resident, the resident remains taxable. The carve‑out for entities with genuine commercial substance leaves “genuine commercial purpose” and “substantive business” criteria unclarified.
Filing jurisdiction unspecified: Determination will refer to enterprise registration place, location of Chinese‑situated assets and individual habitual residence in China.
Deemed distribution rules: A non‑resident‑established offshore trust is deemed to distribute taxable income to a related Chinese tax‑resident in four scenarios: debt support via trust assets; expense reimbursement or below‑market‑rate use of trust assets; indirect benefit transfer via third‑parties; benefits granted to related‑party entities controlled / benefitted by the resident.
Allowable expenses undefined: Qualifying deductible expenses for taxable‑income calculation are not specified. Pre‑consultation with local tax authorities is recommended.
Extended tax recovery: The 90‑day amnesty applies to eligible outstanding tax; material liabilities can trigger extended recovery back to pre‑2023 periods.
Instalment option: Subject to submission of supporting documents, taxpayers with large tax bills may apply for instalment payment up to five years.
Cross‑border tax‑payment: Affected taxpayers should monitor official channels for compliant settlement.
Recommended Actions for Taxpayers with Cross‑border Asset Holdings
1. Full self‑review and assessment
‑ Confirm personal tax‑residence status;
‑ Take stock of existing offshore trusts, gather trust deeds, asset schedules and supporting documentation;
‑ Review historical tax filings and identify unreported taxable events.
Deadline for penalty‑free settlement: 22 Oct 2026
Tax‑resident individuals
(1) Unpaid tax from asset contributions to offshore trusts, 1 Jan 2023‑31 Dec 2025
(2) Income accrued under offshore trusts established before 1 Jan 2026
(3) Distributions received from non‑resident offshore trusts before 1 Jan 2026
Non‑resident individuals
Unpaid tax from asset contributions to offshore trusts, 1 Jan 2023‑24 Jul 2026
2. Forward‑looking planning
For planned new offshore trusts, conduct pre‑transaction tax assessment and cost projection to mitigate unexpected tax exposures from policy misinterpretation.
3. Engage professional advisors
Work with specialists to design compliant strategies and risk‑control frameworks for cross‑border asset arrangements.
Announcement 21 marks a new phase for China’s offshore‑trust tax supervision. Tax transparency, regular filing and mandatory compliance have become the new norm. Affected taxpayers and enterprises should closely follow regulatory updates and mitigate potential tax risks.
Source: kpmg.com