China Insights – The trust questions I keep getting asked

Since my last article, China’s new individual income tax rules for offshore trusts have moved from announcement to reality, and several of you have asked me variations of the same questions. I have spent a good part of the past few weeks reading the actual text, not just the summaries, because I wanted to give you real answers rather than a repeat of what is already circulating.

Why 1 January 2023, and not further back

The new individual income tax rules for offshore trusts, issued jointly by the Ministry of Finance and the State Taxation Administration on 24 July, reach back to 1 January 2023 for anyone who settled assets into a trust and never reported it. At first this looks like an arbitrary line, but I don’t think it is.

Between 2020 and 2022, China was effectively closed. Lockdowns, almost no outbound travel, and heightened scrutiny of anything crossing the capital account meant very little trust settlement activity happened in that window. Going back further than 2023 would mean auditing years with a thin paper trail and thinner practical activity to show for it. Starting the clock at 2023 catches the real wave of structuring that followed reopening, without the tax authority taking on a fight it does not need. Whoever drafted this understood the shape of the problem. I would not call it generous, but it is deliberate.

The question nobody has answered yet: what if you left, then came back

Here is a scenario I have heard from three different families in slightly different forms.

Someone emigrates and is no longer a Chinese tax resident. While genuinely non-resident, they settle an offshore trust. Some years later, their circumstances change and they become a Chinese tax resident again, whether by choice or because their economic centre of gravity has shifted back.

I looked for an answer in the announcement itself, and in every serious commentary published since, and it is not there. The rules tell us what happens to a resident who becomes a non-resident: there is a deemed disposal, taxed on the increase in value up to the day residency ends. There is no mirror provision for the reverse journey. What the rules do make clear is that residency is tested on where your economic interests actually sit, not simply on your passport or where you hold a residence permit, so someone can be pulled back into resident status even holding a foreign passport if enough of their economic life is still in China.

My reading (and it is a reading rather than a settled position) is that once residency resumes, the ongoing annual taxation of trust income would begin applying from that point forward, under the general rule that a resident settlor is taxed each year whether or not anything is distributed. Whether the original settlement itself gets revisited, and what value is used as the starting point once residency resumes, is genuinely open. For anyone in this position, I would want asset values properly documented when residency resumes, so there is a clear reference point whichever way this eventually settles.

Being taxed twice on the same money

The third question is the one I think matters most in practice, because it is not really a legal technicality, but a family situation. A trust distributes income to a beneficiary living overseas. That beneficiary pays tax on it where they live. Does China still tax the settlor back home on the same income?

The honest answer is yes.

The rules tax the resident settlor annually on trust income, regardless of whether it has been distributed at all. There is a mechanism to stop China taxing the same money twice within its own system: once the settlor has paid tax on a given tranche of trust income, that same amount is not taxed again in China when it is later actually paid out. But that only protects against a second round of Chinese tax. It does nothing about tax already paid overseas by the beneficiary, because the settlor and the beneficiary are different taxpayers in the eyes of the law, and the credit mechanism in the announcement is written for tax the settlor has paid themselves, and not tax paid by someone else on money the settlor never personally received. Several of the more careful commentaries flag this as an unresolved gap rather than an oversight on my part. In plain terms, a family where the parent is the PRC-resident settlor and the child receives distributions overseas can end up with genuine double taxation on the same underlying income, and nothing in the current rules relieves it.

“How would they find out?”

The question I get asked most often, though, is not about the rate or the mechanics. It is simpler than that: how would they even know a trust exists.

The most direct channel is one that has been running since around 2018 and is only now being put to use. Trusts, and the banks that hold their accounts in Hong Kong and Singapore, are generally required under the Common Reporting Standard to identify every settlor, protector, and beneficiary connected to the structure, collect their tax residency and tax identification number, and report that automatically, every year, to the tax authority where that person is resident. For a Chinese-resident settlor, that means the data has been arriving in Beijing for years.

What has changed is not the flow of information but the use of it: the State Taxation Administration is now actively matching what it already holds against what individuals report themselves, which is why the window to come forward voluntarily is something to take action on.

That channel is about to get wider. A revised version of the standard, developed alongside a new framework for crypto assets, is being adopted by a first group of jurisdictions, Hong Kong and Singapore among them, with exchanges beginning in 2027 and based on 2026 data. Crypto holdings, and certain e-money and digital currency products, become reportable for the first time. Trusts also get described more precisely, with the specific role each person holds, settlor, trustee, protector, or beneficiary, now required rather than a general label. Anyone who has treated crypto or a loosely defined trust role as sitting outside this system should assume that the window is closing.

There is a second, less official channel worth knowing about: the trustee itself. A number of trust companies operating in Hong Kong sit inside banking groups whose ultimate parent is a Mainland institution. That structure does not automatically mean information travels home, but it does mean beneficial ownership and client data often sits inside group-wide compliance systems, and that regulatory cooperation between the Mainland and Hong Kong is far more straightforward when the entity being asked already answers to a Mainland-linked parent. I would treat this as materially higher exposure, not as certain disclosure.

Outside Hong Kong and Singapore, the picture is uneven, and worth understanding rather than assuming it is uniform. British Columbia’s land registry is open: it can be searched by an individual’s name, and it names the settlor of any trust that holds land through it. The United Kingdom (UK) now allows anyone to request the trust details behind an overseas company that owns UK property, for a modest fee.

Europe, interestingly, has gone the other way. A number of its beneficial ownership registers were fully open to the public until a court ruling in late 2022 closed that off, and access now requires the requester to show a genuine reason, not merely curiosity. Australia has no equivalent public register in force yet. New Zealand does not either, and for trusts specifically, the responsible minister has said plainly that no decision has even been made on whether a future register would cover them at all. Of everywhere I have just described, New Zealand is currently the most closed.

Tying it all together

What ties all of this together is not any single dramatic new power. It is that several ordinary, already-public sources of information, some of them open by design for entirely different reasons, are converging with a tax authority that now has both the legal basis and, increasingly, the tooling to make use of them. Treat the gaps in these rules (and I have described more than one above) as temporary rather than loopholes you can rely on.

None of this is final. The announcement is new, further guidance is still coming, and the gaps I have described are things that get clarified over the following year, sometimes helpfully and sometimes not.

If any of this touches your own structure or your family’s plans, the gaps suggested above aren’t theoretical. We work through cross-border trust and residency positions like this with families who need it done properly. Get in touch and we can go through your specific position together.