On 24 July 2026, the Ministry of Finance and the State Taxation Administration jointly issued Announcement No. 21 of 2026, and the State Taxation Administration separately issued Announcement No. 15 of 2026. Both took immediate effect upon publication. These announcements clarify tax obligations across the lifecycle of offshore trusts and reinforce the administration of individual income tax (IIT).
WHY THIS MATTERS
The announcements may affect resident and non-resident individuals with offshore trust arrangements, particularly those involving domestic assets, China tax residents, or structures effectively controlled by China tax residents. The rules may have implications for tax residency assessments, trust documentation, historical filings, and cross-border asset arrangements.
The 90-day grace period for certain historical liabilities may warrant consideration of existing offshore trust arrangements and related tax obligations, particularly where potential tax exposures arose during 2023 - 2025 or, for certain non-residents, through 24 July 2026.
Background
On 24 July 2026, the Ministry of Finance and the State Taxation Administration jointly issued Announcement No. 21, and the State Taxation Administration issued Announcement No. 15, both effective from the date of issuance. The purpose is to clarify tax responsibilities throughout the lifecycle of offshore trusts and enhance the management of IIT.
Key Highlights
Scope of Application
The announcements cover the following scenarios:
- Resident individual (including those holding foreign nationality or residency rights but deriving most economic benefits from China) who transfers domestic and/or overseas assets into an offshore trust.
- Non-resident individual who transfers domestic assets into an offshore trust.
- Non-resident individual transfers assets into an offshore trust that is effectively controlled by a resident individual.
Tax Implications
Taxpayers with outstanding liabilities may file and settle unpaid taxes within 90 days from the implementation of Announcement No. 21:
- IIT arising from resident individuals transferring assets into offshore trusts between 1 January 2023 and 31 December 2025, as well as IIT arising during the existence period of offshore trusts established before 1 January 2026.
- IIT arising from non-resident individuals transferring assets into offshore trusts between 1 January 2023 and 24 July 2026.
Taxpayers who comply within this period are exempt from late payment interest.
Tax treatment concerning offshore trusts under Announcement No. 21 is outlined as follows:
Applicable tax rate is 20% | ||||||
| Trust establishment | Income during continuation period | Distribution | Transfer of trust assets through allocation, gifting, or below-market-value transfers | Termination and liquidation | Change of residency status/Inheritance by non-resident individuals |
Taxation event | At the time of asset transfer | Annual basis (even if not distributed) | Upon distribution (excluding income already declared and taxed during continuation) | At the time of transfer | At liquidation | At the time of change or inheritance |
Taxpayer | Settlor (resident or non-resident individual) | Resident settlor | Resident beneficiary | Resident settlor | Settlor, trustee, or designated domestic institution | Settlor (resident individual) |
Income classification | Capital gains | Interest, dividends, bonuses, or capital gains | Interest dividends, bonus issue | Capital gains | Interest, dividends, bonus issue | Interest, dividends, bonus issue |
Taxable income value | Market value at the time of asset transfer - original cost -reasonable expenses | Capital gains = income amount -original cost - reasonable expenses Other income based on actual income | Actual distribution amount | Market value at the time of asset transfer - original cost - reasonable expenses1 | Liquidation gain = market value of trust assets at termination -original cost - reasonable expenses | Market value of trust assets on the day of change or transfer - original cost |
1 Losses arising from transferring assets to related parties of the offshore trust are not deductible against taxable capital gains.
Foreign taxes paid on the same income may be credited against the corresponding IIT liability.
Outstanding tax arising from offshore trusts in the years 2023 - 2025 is subject to a 90-day grace period, beginning on 24 July 2026, during which no late payment interest may be applied. If the outstanding tax amount is deemed substantial, the tax authority retains the discretion to extend the look-back period beyond 2023.
Resident taxpayers may file their tax returns between 1 March and 30 June of the following year. Non-resident taxpayers may file their tax returns within 15 days of the following month. Failure to file or delayed filing may result in late payment interest, tax recovery, and legal liability.
Offshore trusts controlled by resident individuals are attributed to those individuals.
Benefits distributed to residents or related parties may be taxed as income.
Tax authorities may adjust any arrangements identified as clear cases of tax avoidance.
KPMG INSIGHTS
Comprehensive Self-Inspection and Assessment
- Determine your tax residency status.
- Review all existing offshore trusts, compile trust agreements, asset lists, and related records.
- Re-examine past tax filings to identify any unreported taxable items.
Individuals in the following situations must complete the declaration and payment of overdue IIT by October 22, 2026, to avoid late payment interest:
Resident Individual
- Between 1 January 2023, and 31 December 2025: Outstanding taxes from transferring assets into offshore trusts.
- Before 1 January 2026: Income generated from offshore trusts.
- Before 1 January 2026: Distributions received from offshore trusts established by non-residents.
Non-Resident Individual
- Between 1 January 2023, and 24 July 2026: Outstanding taxes from transferring assets into offshore trusts.
Prudent Planning for Future Arrangements
- Consider evaluating the tax implications associated with establishing new offshore trusts, including potential reporting and tax obligations.
- Consider the potential tax and compliance implications associated with offshore trust arrangements.
Engage Professional Expertise
- Consider consulting qualified tax advisers regarding compliance considerations and the application of the new rules to cross-border asset arrangements.
Announcement No. 21 introduces detailed IIT rules relating to offshore trusts and provides guidance on the taxation of offshore trust arrangements involving China tax residents and certain non-residents. Individuals with existing offshore trust arrangements may wish to review the potential application of the new rules and any related reporting and tax obligations.
If assignees and/or their programme managers have any questions or concerns about the scope of the update, its application and potential impacts, and appropriate next steps, they should consult with their qualified tax professional or a member of the GMS team with KPMG in China (see the Contacts section).
RELATED RESOURCE
This article is excerpted, with permission, from "New Individual Income Tax Rules for Offshore Trusts Implemented: Tax Transparency and Compliance Now the Norm,” Tax Alert (29 July 2026), a publication of the KPMG International member firm in China.
Contacts
Disclaimer
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