PRC individual income tax update: offshore trusts

On 24 July 2026, the Ministry of Finance and State Taxation Administration of the People’s Republic of China (PRC) issued a new framework concerning the individual income tax treatment of offshore trusts.

The new rules have immediate and significant practical implications for individuals and families with connections to offshore trusts. Those potentially affected should review their position promptly with specialist PRC tax advisers.

The guidance addresses the taxation of offshore trusts throughout their lifecycle, including the transfer of assets into trust, income generated during the life of the trust and certain events relating to distributions, changes in tax residence and succession.

The rules also have retrospective elements. Transfers of property into offshore trusts made from 1 January 2023 may need to be considered, while certain trust income accumulated before 1 January 2026 must also be declared.

A 90-day transitional window provides an important opportunity for affected individuals to address certain historical positions without incurring late-payment surcharges.

Who may be affected?

The application of the rules will depend on the circumstances of each individual and trust structure. They may be relevant where there are connections between an offshore trust and PRC tax resident individuals, including:

• PRC tax resident individuals who have transferred assets into an offshore trust
• PRC tax resident beneficiaries of trusts established by non-PRC resident individuals
• structures where a PRC tax resident individual may exercise control over an offshore trust
• structures involving underlying offshore entities held, controlled or managed by a trustee.

The definition of PRC tax residence and the application of the rules to individual structures can be complex and should be considered with a suitably qualified PRC tax adviser.

What has changed?  

While the precise treatment will depend upon individual circumstances, the new guidance introduces several potentially significant tax points.

1. Transfer of assets into trust

PRC tax resident individuals may be subject to individual income tax on gains arising when property is transferred into an offshore trust. The relevant gain is generally calculated by reference to the market value of the asset at the time of transfer against its original acquisition cost and qualifying expenses.

2. Income arising within the trust

Certain income generated by an offshore trust may be attributed to a PRC resident settlor and taxed annually, including where that income has not been distributed.

3. Distributions and other benefits

Where an offshore trust has a non-PRC resident settlor, distributions to a PRC resident beneficiary may give rise to tax for that beneficiary. Certain economic benefits, potentially including loans, guarantees, use of trust property and payments made on a beneficiary’s behalf, may also be treated as distributions.

4. Underlying entities

The rules can extend beyond assets held directly by the trust. In certain circumstances, income arising within underlying overseas companies, partnerships, foundations and similar entities may be attributed to the relevant PRC resident individual.

The 90-day transitional window

One of the most immediate considerations is the transitional arrangement applying to historical positions. 

Transfers into offshore trusts made between 1 January 2023 and 31 December 2025, together with certain trust income arising up to 31 December 2025, may need to be declared and relevant tax settled within the 90-day transitional period. The rules provide for these historical positions to be addressed during the window without late-payment surcharges.

Affected individuals should therefore seek advice promptly rather than waiting until the end of the transitional period.

What should clients do now?

We recommend that clients and families with a potential PRC tax connection speak to their professional tax advisers as soon as practicable.  

The immediate priority should be to establish whether the rules apply and ensure advisers have the information required to assess the position. This may include reviewing:  

• PRC tax residence of relevant settlors, beneficiaries and other individuals connected with the structure
• assets transferred into trust since 1 January 2023, including their original cost and value at the time of transfer
• income and gains generated within the trust and relevant underlying entities
• distributions or other economic benefits provided to PRC resident beneficiaries
• historical filing, disclosure or unpaid tax liabilities
• the information and processes required for future compliance.

The more strategic question of whether an existing structure should be amended or restructured should be considered separately and with appropriate professional advice.

The new rules do not remove the wider succession, asset protection, governance and continuity benefits that offshore trusts can provide, and significant structural decisions should not be made solely in response to the transitional deadline.

How Praxis can support

Praxis does not provide tax advice and cannot determine the tax consequences of the new rules for individual clients.

As trustee and administrator, however, we can work alongside the clients’ tax and legal advisers to help provide the information required to assess their position. This may include relevant trust records, structure charts, asset schedules and administration information held by us.

If you are advising a family or structure with a possible PRC connection or would like to understand what trust and administration information may be available to support a review, contact your usual Praxis representative or reach out to Tom Zierer.