China’s Ministry of Finance published a question-and-answer document on November 13, 2026, clarifying how individual income tax rules apply to offshore trusts. The guidance addresses the tax basis of assets placed in trusts, exchange-rate conversion, and several specific transactions.
Tax basis and earlier trusts
If a resident individual did not pay individual income tax when placing property into an offshore trust because its market value was below its original cost, or because the tax was beyond the period for retrospective collection, the property’s original cost is not reset to its market value at that time. It remains the price the individual paid to acquire it.
Where a trust had terminated, or the resident individual who placed property into it had died, before the relevant policy announcement was issued, tax is not pursued under Articles 5 and 7 of that announcement. Tax arising when property was placed in the trust or during the trust’s operation remains subject to Article 17. If the individual has died and another resident individual inherits the trust, the successor must file and pay under Article 17.
Exchange rates and tax years
For offshore trusts established by resident individuals on or before December 31, 2025, the December 31, 2025, RMB central parity rate applies when calculating taxable income from placing property into the trust and from trust income for 2025 and earlier years. From January 1, 2026, taxable income arising at either stage is converted using the RMB central parity rate on December 31 of the preceding tax year when the resident files in the following year.
For trusts established by nonresident individuals on or before the announcement’s publication date, the December 31, 2025, rate applies to taxable income from placing property into the trust. From that publication date, nonresidents filing in the following month for taxable income at that stage use the rate on the last day of the preceding month. The preceding month’s last-day rate also applies to certain liquidation gains arising from the announcement’s publication date, including when a resident’s trust terminates, when it passes to a nonresident or has no successor after the person who placed property into it dies, or when that person becomes a nonresident.
If the tax year where an offshore trust is located differs from the calendar year, its income is assigned to the Chinese tax year containing the last day of the trust’s local tax year.
Trustees, pension funds and share transactions
Changing only the trustee does not count as terminating the offshore trust and placing its assets into a new trust, provided the new trustee assumes the former trustee’s rights and obligations and continues to hold and manage the trust property. Hong Kong’s Mandatory Provident Fund is not an offshore trust under the announcement: it is regulated by the Mandatory Provident Fund Schemes Authority and offers standardized pension financial services to customers generally.
In a Hong Kong-listed company’s “top-up” share placement, a major shareholder may sell shares held through an offshore trust and then receive newly issued shares through the same trust. If the sale and purchase prices are identical and the new shares are issued to that same trust within 14 days of signing the placement agreement, the portion of shares sold that does not exceed the number purchased may be treated as not transferring trust property. The original cost of those shares is then unchanged.
For unlisted-company equity placed into an offshore trust before the announcement was issued, market value may be determined using a net-asset valuation method but cannot be lower than the equity’s corresponding share of net assets. If individual income tax is paid when the equity is placed in the trust, its original cost is reset to the market value determined at that stage. On an actual sale, taxable income is calculated by deducting that cost and reasonable expenses from the transfer proceeds.