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On 24 July 2026, China introduced a sweeping new Individual Income Tax (IIT) regime for offshore trusts, effective immediately. The rules introduce a look-through taxation regime that affects settlors, beneficiaries, trustees and advisers across all major offshore jurisdictions.
A 90-day transition window is now running. Individuals who fall within scope should assess any disclosure and payment obligations as a matter of priority.
Key developments at a glance
The new regime casts a wide net. PRC resident individuals, including those holding foreign nationality or long-term permanent residency abroad are within scope where they have settled assets into an offshore trust, or where their 'principal economic interest' is regarded as originating from China. Non-resident settlors are also caught where PRC-sourced assets are involved or where a PRC resident effectively controls the trust.
IIT at a flat rate of 20% now applies at multiple stages of a trust's life cycle, from settlement of assets, annual trust income (attributed to the settlor regardless of distribution), distributions to PRC resident beneficiaries, trust termination, emigration of a PRC resident settlor, and death or succession. Notably, trustee fees, administration costs, legal fees and investment advisory fees are expressly non-deductible, and losses cannot be carried forward.
The role of offshore trusts
Offshore trusts remain a valuable tool for succession planning, family governance, asset protection and investment holding. The new regime does not eliminate these benefits, but it does require families and their advisers to reassess existing structures carefully. Whether an offshore trust should be maintained, restructured or wound up will depend on a range of factors including the ongoing tax cost, liquidity considerations, the non-tax advantages the trust provides, and the interaction with tax obligations in other jurisdictions.
What settlors, beneficiaries and trustees should consider now
The immediate priority is the 90-day transition window. Historical exposures dating back to 1 January 2023 may need to be disclosed and corresponding taxes settled. Late payment surcharges will be waived for those who comply within the transition period.
Looking beyond the transition period, affected individuals and trustees should assess whether existing structures remain fit for purpose in light of the new rules. In particular, consideration should be given to:
- whether any settlor, beneficiary or other connected person falls within the scope of the regime
- the potential ongoing tax cost of the structure, particularly where annual income attribution may create liquidity challenges
- the adequacy of governance, record-keeping and information-gathering procedures to support ongoing compliance and reporting obligations
- the interaction between the new PRC rules and tax obligations in other jurisdictions, including the availability of foreign tax credits and measures to mitigate double taxation
Early engagement with legal and tax advisers will help ensure that any necessary restructuring, reporting or compliance measures can be implemented in a timely manner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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