China has announced a new rule requiring taxpayers in China to report and pay taxes on income from foreign trusts, even if they have not yet received dividends or returns.
On July 24, 2026, at 4:34 PM, Bloomberg News reported that China announced new rules to tax offshore trusts established by residents in China, closing tax loopholes that wealthy individuals had long used to manage assets and plan inheritances. The new rules are effective immediately.
The Chinese Ministry of Finance stated that Chinese residents who transfer assets to foreign trusts must report and pay personal income tax on profits generated in the trust, even if that income has not yet been distributed to beneficial owners.
These measures represent a significant step forward in overseeing overseas wealth management, following signals from the Chinese government since last year, and are considered one of the most significant crackdowns on tax evasion in years.
The new rules have sent shockwaves through Hong Kong and other major wealth management hubs, where foreign trusts are a popular tool for Chinese entrepreneurs and billionaires to protect their assets and plan for inheritance.
Analysts estimate that these measures are related to the hundreds of billions of dollars in wealth held by mainland Chinese, which has been a major driver of luxury goods spending, the real estate market, and the Hong Kong stock market. The massive inflow of Chinese capital into Hong Kong has propelled it to surpass Switzerland as the world's largest offshore wealth management hub.
Oscar Liu, founder of JLT Trust and One Plus Holdings, stated that this is the first time China has officially issued tax guidelines for foreign trusts. This means that the previous practice of using trusts to defer taxes will no longer be possible, and regulations are expected to become stricter in the future.
Under the new rules, income generated in foreign trusts established by Chinese taxpayers will be considered direct income of the trust settlor.
While profits from foreign companies held or controlled by a trust are taxed annually, regardless of whether they are from asset transfers or income in the form of interest, dividends, and bonuses.
The Chinese government has introduced incentive measures to encourage taxpayers to comply with the law. Those with outstanding taxes on foreign trusts established between January 1, 2566, and December 31, 2568, will be given 90 days to file and pay taxes without incurring additional charges or late payment penalties.
However, if significant tax evasion is discovered, tax authorities still have the power to track down and collect back taxes under Chinese tax laws.
Analysts view these measures as part of the Chinese government's efforts to increase tax transparency and track assets held overseas, following a significant decline in land sales revenue, a key source of income for local governments, due to the real estate crisis.
Data indicates that China's real estate-related income is projected to decline by 48% in the five years leading up to 2025. Meanwhile, following the lifting of COVID-19 restrictions, over 1.3 million people have emigrated from China, according to the United Nations (UN). This has prompted the government to intensify its efforts to track assets and income held by Chinese citizens abroad in order to improve tax collection efficiency and strengthen the country's fiscal position.
Reference : bloomberg.com
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