China Tightens Tax Rules on Offshore Family Trusts for Wealthy Individuals

China's tax authorities are expanding enforcement on offshore family trusts used by high‑net‑worth individuals. Tax bureaus in Shanghai, Jiangsu, Shenzhen and other regions now require owners of offshore trusts to disclose detailed financial information, including dividend income and capital‑gain proceeds. A new rule subjects the income generated by these trusts to a 20% personal income tax, to be reported annually, with penalties for non‑compliance. The regulation applies retroactively to assets transferred into trusts since 2023 and includes a 90‑day grace period for back‑tax payments.

The crackdown targets trusts located in jurisdictions such as the Cayman Islands, British Virgin Islands, Cook Islands and Hong Kong, and is aimed at closing a long‑standing tax‑deferral loophole. The move is expected to increase compliance costs for wealthy Chinese families, including founders of major tech firms, and could affect Hong Kong's wealth‑management industry, which has long served mainland investors.