On 24 July 2026 the Ministry of Finance and the State Taxation Administration issued the Announcement on Individual Income Tax Matters Concerning Offshore Trusts (MOF/STA Announcement No. 21 of 2026), together with a companion administrative announcement from the STA (Announcement on Administrative Matters for Individual Income Tax on Offshore Trusts, STA Announcement No. 15 of 2026). It is the first time China's individual income tax system has addressed offshore trusts systematically in a dedicated announcement — liability, income recognition, annual filing and information reporting in one place. For Chinese tax residents, high-net-worth families, offshore holding structures, family trusts, and Canadian, US or other foreign arrangements with Chinese-resident beneficiaries, the practical reach is considerable.
1. The regulatory logic: substance and benefit, not the label on the deed
Announcement 21 is not simply "tax on offshore trusts." It builds a look-through identification regime for individual income tax purposes.
An offshore trust, as the Announcement uses the term, covers trusts established under foreign law and foreign legal arrangements that are not styled as trusts but perform substantially the same function. Registration jurisdiction, contract title and structural form are therefore not a safe basis for concluding the rules do not apply. Where an arrangement in substance involves transferring property, management by a fiduciary, distribution of benefit and asset segregation, it may fall within scope.
The Announcement also looks hard at foreign entities held, controlled or managed by an offshore trust. Where a foreign company, partnership, foundation or other entity earns mainly passive income — dividends, interest, rent, royalties, gains on disposal of property — lacks substantive business activity, or channels economic benefit to a resident individual by paying personal expenses or allowing assets to be used for nothing or below market, the authorities may decline to respect the legal shell and instead require the resident individual to report under China's individual income tax rules.
The tests are quantified. Passive income exceeding 50% of total profit in the prior year; the absence of employees and premises commensurate with the scale of business; funds applied to personal consumption; operating decisions not in fact made by the entity — any of these may support look-through treatment. Licensed financial institutions and entities with genuine operations and a sound commercial purpose can be excluded.
2. Funding the trust: settlement itself can trigger Chinese IIT
Offshore trust planning has traditionally focused on asset protection, succession, control and validity under foreign law. The tax consequence of the act of settling property into the trust received far less attention.
Announcement 21 is explicit: where a resident individual transfers property into an offshore trust, the market value at the time of transfer, less the original cost of the property and reasonable expenses, is treated as income from the transfer of property and taxed at the 20% flat rate.
So a Chinese tax resident who settles shares in a foreign company, listed securities, real property, fund units, private company interests or other appreciated assets into an offshore trust may trigger Chinese individual income tax on the transfer of beneficial ownership — even though no cash has been received. For non-resident individuals, a Chinese filing obligation may still arise where the settled property derives directly or indirectly from property situated in China, or where the trust's beneficiaries include Chinese resident individuals.
3. Income during the trust's life: anti-deferral in the CFC / FAPI / PFIC mould
One of the Announcement's most significant departures is annual reporting of income arising while the trust is in existence.
For an offshore trust funded by a resident individual — and for foreign entities that trust holds, controls or manages — income arising during the life of the structure cannot simply wait for an actual distribution. The resident individual may be required to report it for individual income tax on an annual basis.
The policy logic is recognisably close to the US PFIC (Passive Foreign Investment Company) regime, Canada's FAPI (Foreign Accrual Property Income) rules, and CFC (Controlled Foreign Corporation) anti-deferral rules more broadly.
The US PFIC rules test whether a foreign corporation earns mainly passive income or holds mainly passive assets, and exist to stop US taxpayers accumulating investment returns in an offshore passive vehicle, deferring distribution and with it the US tax. Canada's FAPI rules apply to foreign affiliates controlled by Canadian residents: where such an affiliate earns property income, income from a non-active business or certain capital gains, the Canadian taxpayer may have to include FAPI on an accrual basis even though nothing has been distributed.
Announcement 21 does not use the terms PFIC, FAPI or CFC, and it does not import the American or Canadian ratio tests and computational mechanics. But the concern it is addressing is nearly the same: where a foreign entity beneath an offshore trust mainly holds investment assets, earns dividends, interest, rent, royalties or disposal gains, lacks genuine commercial operations, or produces returns ultimately controlled and enjoyed by a Chinese resident individual, the Chinese authorities may decline to wait for an actual distribution and instead require look-through, annualised reporting.
For clients holding assets through offshore trusts, foreign holding companies, investment companies, fund platforms or private wealth structures, that means several anti-deferral exposures have to be considered at once: whether the foreign corporation is a PFIC under US law; whether the foreign affiliate generates FAPI under Canadian law; and whether the offshore trust and the entities it controls can be looked through under Announcement 21, giving the Chinese resident individual annual reporting and payment obligations.
Families with overlapping Chinese, Canadian and US status are the hardest case. They may face PFIC, FAPI, CFC, grantor trust rules, foreign trust reporting, Chinese offshore trust reporting and Chinese foreign-source income reporting simultaneously. In practice the danger is rarely one country taxing something. It is that different countries recognise the same structure at different moments, characterise the income differently, and defer on different terms — producing "deferred abroad, taxed now in China," or simultaneous filings in several countries whose credits do not line up.
4. Deemed distributions: loans, paid expenses and below-market use of assets
The Announcement also sets out deemed distribution rules. Where an offshore trust lends to a resident individual, pays or reimburses their expenses, allows them to use trust property for free or below market value, or channels economic benefit to them or their related parties through a third party, that benefit may be treated as a distribution of trust income and brought into taxable income.
This matters enormously for family trust arrangements. In practice some families have subsidiary companies of the trust pay for private travel, home maintenance, education or living costs, or allow family members to use offshore property, aircraft or vessels at no charge. Under the new rules these cannot be read purely as a matter of legal form — "use of trust assets," "internal funds movement." The question becomes whether economic benefit has been received in the sense China's individual income tax law means.
5. Cross-border mismatch: Canadian s.85/86 and FAPI, US §351/368 and PFIC do not settle the Chinese question
For clients with a North American footprint, the most common misreading is to treat a deferral available under Canadian or US law as though China defers too. Announcement 21 and its administrative rules do not incorporate section 85 or section 86 of Canada's Income Tax Act, and do not recognise the deferral or tax-free reorganisation treatment of IRC §351 or §368.
In Canada, a section 85 rollover generally lets a taxpayer transfer property to a taxable Canadian corporation and defer the capital gain through the elected agreed amount; section 86 is typically used for a capital reorganisation, share exchange or estate freeze, and where the conditions are met can likewise defer for Canadian purposes. FAPI, meanwhile, runs the other way: where a Canadian resident earns specified property income or non-active business income through a controlled foreign affiliate, the income may have to be included in Canada on an accrual basis even without a distribution.
In the US, IRC §351 generally applies where a taxpayer transfers property to a corporation in exchange for its stock and is in control immediately afterwards; §368 sets out the classes of corporate reorganisation that can qualify as tax-free. So certain incorporations, share exchanges, mergers, reorganisations and holding-company restructurings may not trigger immediate recognition under US law — while the PFIC rules cut against deferral for offshore investment companies.
All of these are deferral or anti-deferral mechanisms of a foreign domestic system. None of them binds the Chinese authorities. Where the individual is a Chinese tax resident, or the transaction involves property sourced in China, Chinese-resident beneficiaries, an offshore trust's controlled entities or an actual-benefit arrangement, China may still require reporting and payment under its own individual income tax rules — on settlement of property, an exchange of interests, a transfer of control, a deemed distribution, or income arising in the year. The result can be deferral in Canada or the US with immediate tax in China, or an accrual inclusion already required in the US or Canada with a further, separate filing in China.
So cross-border structures involving a Canadian family trust, an estate freeze, a section 85 rollover, a section 86 reorganisation or FAPI — or a US grantor trust, foreign trust, §351 contribution, §368 reorganisation or PFIC — cannot stop at the local tax conclusion. Each transaction has to be taken back to Chinese individual income tax law on its own: who is a Chinese tax resident, who actually controls the trust or the foreign entity, who actually enjoys the benefit, whether the asset has appreciated, whether a deemed distribution has occurred, and whether foreign tax paid can be effectively credited in China.
6. Deadlines and documentation: compliance now runs to the paper trail, not just the tax
Where a resident individual settles property into an offshore trust, the filing is made between 1 March and 30 June of the year following the settlement. During the life of the trust, the resident individual files for the prior year's tax between 1 March and 30 June each year. On termination, filing is due within 15 days of the month following completion of liquidation; if liquidation is not completed within 60 days of termination, day 60 is treated as the completion date.
The administrative rules also require the taxpayer to submit the trust deed, a schedule of property, the organisational structure, financial statements, operating income and distribution records. Foreign-language documents will generally need a Chinese translation. Offshore trust compliance is therefore no longer a matter of computing tax. It requires a complete evidentiary chain: trust documents, valuations, cost-base records, reorganisation documents, foreign tax receipts, distribution records and an account of the control relationships.
7. Existing structures: the 90-day window is a catch-up, not an amnesty
For individual income tax payable but unpaid on property settled into offshore trusts by resident individuals between 1 January 2023 and 31 December 2025, and for income arising during the life of such trusts before 1 January 2026, the Announcement allows filing and payment within 90 days of its effective date without late-payment surcharges.
This is not an exemption. It is a transitional window to catch up. Clients who have already established an offshore trust, completed an estate freeze, a section 85 rollover, a section 86 reorganisation, a §351 contribution or a §368 reorganisation, or who have accumulated passive income in an offshore investment company over a long period, should revisit the Chinese individual income tax position promptly.
8. What we suggest: run the tax review before anything else
For anyone who has established, or is planning, an offshore trust, we would suggest a dedicated review: confirm the Chinese tax residency of the settlor, beneficiaries, protector, controlling persons and family members; map the asset types settled into the trust, their cost base, market value and transaction history; analyse whether the trust and its subsidiary entities earn mainly passive income and whether they lack genuine operations; test for deemed distribution exposure through loans, paid expenses, below-market use of assets or benefits routed to related parties; and assess whether tax already paid in Canada, the US or elsewhere can be credited in China.
Taken together, Announcement 21 marks the point at which China's individual income tax treatment of offshore trusts becomes institutional rather than incidental. Offshore trusts remain available for legitimate wealth management, succession and asset planning — provided the tax treatment is transparent, the documentation is complete and the commercial purpose is sound.
After these rules, cross-border wealth planning can no longer ask only whether income is deferred abroad. It has to ask whether China has already recognised it. The structure may be complex; the tax logic has to be clear. The assets may sit offshore; the Chinese filing obligation cannot be left out of the picture.