Some trust clients remain inclined to wait. That is understandable, but China’s new offshore trust tax rules are already in force.

For certain historical offshore trust matters, the rules provide a limited 90-day period (on the current timetable, before 22 October 2026) during which eligible filings and tax payments may be made without the statutory late-payment surcharge. After that date, any unpaid tax may be subject to a late-payment surcharge of 0.05% per day, broadly equivalent to 18.25% per annum.

Clients should use the window to assess the position, document the facts and, where required, prepare the filing.

1. Who should read this note?

You should review the position if any of the following applies:

·the family trust has a settlor, beneficiary, or other relevant “controlling” person who is, or may be, a PRC tax resident;

·the trust holds Chinese companies or China-source assets, particularly where a Chinese founder’s family trust holds pre-IPO shares or listed shares through a red-chip structure;

·the trust was settled years ago or has been restructured. Do not assume the exposure is limited to a three-year look-back period. The historical review may need to go further.

2. Who may be the relevant taxpayer?

The rules focus principally on the individual who settled assets into the offshore trust. This may include an individual who funded the settlement directly, or who arranged or controlled the transfer through another person or entity. The analysis is not limited to the person described as “settlor” in the trust deed.

If the relevant individual is a PRC tax resident, both the initial transfer of assets into the trust and the trust’s annual income may be reportable and taxable. A non-resident individual is generally exposed only in respect of China-source property settled into the trust, but the position may change if a PRC tax resident effectively controls the trust, or if distributions or benefits are provided to PRC tax-resident beneficiaries.

3. Does “no distribution” solve the problem?

Usually not.

A PRC tax resident who settled assets into an offshore trust may be taxed on the trust’s annual income even if no distribution is made. The fact that no cash has been received does not, by itself, eliminate the filing or tax analysis.

If income has already been properly reported, a later distribution of the same income should not be taxed again. The key question is whether the historical reporting position and supporting records are sufficient. This is why older silent trusts now require a careful review.

4. What if I do not file?

Unpaid tax may attract the statutory late-payment surcharge of 0.05% per day. Where the conduct is characterised as tax evasion, an administrative fine of 50% to five times the underpaid tax may be imposed. In serious circumstances, criminal exposure may also arise.

The 90-day window is not a tax exemption. It is an opportunity to address eligible historical matters on more orderly terms, with relief from the late-payment surcharge where the conditions are met.

5. I have a foreign passport or permanent residence. Am I outside the rules?

Not necessarily.

Foreign nationality or permanent residence is not, by itself, determinative of PRC tax residence. PRC tax residence depends on domicile, residence and broader factual connections, including family location, business management, asset base, personal presence and where key economic interests are managed.

The residence analysis should be done properly. It should not be assumed from immigration status alone.

6. If I emigrate, does the tax exposure disappear?

Not necessarily.

A change from PRC tax-resident status to non-resident status may trigger a separate clearance or deemed-disposition analysis. This may involve the trust’s value at the time of the change, together with historical amounts that have not been properly addressed. The rules contemplate a filing by the 15th day of the month following the change.

Emigration should therefore be coordinated with valuation, filing and asset-holding strategy. It is not a substitute for resolving the trust’s tax position.

7. Why a non-resident settlor may still leave China tax exposure

A non-resident settlor does not necessarily remove PRC tax exposure.

·A non-resident who settles China-source assets into an offshore trust may have PRC tax exposure on the China-source portion.

·If the trust makes distributions or provides benefits to PRC tax-resident beneficiaries, those beneficiaries may have their own filing and tax obligations.

·If a PRC tax resident effectively controls the trust, the arrangement may be analysed as one in which a PRC tax resident has settled or controls the relevant assets.

8. Can the trust quietly pay the family’s bills?

It can create tax issues.

A loan, guarantee, expense payment, free or discounted use of trust assets, or other indirect benefit provided to a PRC tax-resident connected person may be characterised as a deemed distribution or taxable benefit.

Families should pause informal benefits until the tax treatment is confirmed. These arrangements often reveal the practical tax exposure even where no formal distribution has been recorded.

9. The 90-day window: why it matters, and what to do

The rules can apply to existing offshore trusts and require historical review. The 90-day period is a surcharge-relief window for eligible historical matters. It does not waive the underlying tax.

Under Announcement No. 21, the analysis turns on who settled the assets and what property or income is involved.

Resident individual settlement:

Where a PRC tax resident settled assets into the trust, the contribution may be taxed by reference to fair market value less tax basis and reasonable expenses. The trust’s annual income may also be taxable to that individual, whether or not distributed. The 90-day period allows specified 2023 to 2025 historical items to be reported and paid without late-payment surcharge, if the relevant conditions are met.

Non-resident individual settlement:

Where a non-resident individual settled China-source assets into the trust, the China-source portion may be taxable. Additional exposure may arise if a PRC tax resident effectively controls the trust, or if PRC tax-resident beneficiaries receive distributions or benefits.

What to do inside the window:

·map the trust, holding companies, beneficiaries, protectors, controllers and China connections;

·identify who settled assets into the trust, and who may be deemed to have done so;

·confirm PRC tax-residence and control facts;

·gather contribution schedules, tax basis, valuations and 2023 to 2025 accounts;

·for older trusts, collect formation-year records, 2025 reporting materials and available historical financials;

·review distributions, loans, guarantees, expense payments and family use of trust assets;

·assess foreign tax paid and any available foreign tax credit position;

·where immediate payment is not feasible, consider whether instalment treatment may be available;

·prepare the required PRC filing forms and Chinese translations of foreign-language documents.

10. For trustees: what are my duties, and can I pay the client’s tax from trust assets?

The settlor is generally the relevant taxpayer, and the trust is looked through for these purposes. However, trustees may have mandatory assistance, filing and reporting obligations. These may include calculating trust income and distributions, assisting the settlor with the filing, providing documents and Chinese translations, and, in certain cases such as the settlor’s death, filing on the settlor’s behalf.

Filers are responsible for the truthfulness, accuracy and completeness of the information submitted.

Can the trustee pay the client’s personal income tax from trust assets? This should not be assumed. Using trust property to discharge the settlor’s personal tax liability may raise fiduciary duty, trust-property and tax-characterisation issues. It may also be characterised as a distribution or taxable benefit.

If the deed expressly permits such payment, the trustee should still confirm the governing-law power, fiduciary implications and PRC tax treatment before making the payment.

11. Do and don’t: deciding whether to file

Do:

·obtain advice where the facts are unclear, particularly on tax residence, valuation, control and prior restructuring;

·carry out a self-check and assess whether a filing is required;

·map the structure and gather documents, including Chinese translations where needed;

·use the 90-day window to file and pay where the conditions are met;

·ask the trustee and private banker what information has been, or may be, exchanged.

Don’t:

·remain passive until the deadline;

·restructure, strip assets from, or terminate the trust without tax analysis. Moving or terminating the structure may itself trigger a taxable transfer or distribution;

·assume the 90-day window closes the matter. A resident-settled trust may continue to generate annual reportable income, so the position requires ongoing review.

Our Observation

This is not a filing exercise to leave until the deadline. The difficult work is factual: who funded the trust, who controls it, what assets were transferred, what those assets were worth, what income arose, and whether the documents support the proposed position.

Founder and red-chip trust structures should begin that review now. The trust analysis should also be coordinated with any migration, restructuring or asset-holding plan.

Disclaimer

This note is for general information only and does not constitute legal, tax or accounting advice. It does not create an attorney-client relationship. The analysis for any particular family will depend on the trust deed, governing law, tax-residence facts, asset history, valuations, distributions and prior filings. Detailed filing practice may continue to develop. Specific advice should be obtained before making any filing, restructuring, distribution or change of tax-residence position.

Contact us

Joanna Jiang TEP, Partner

joannajiang@east-concord.com

East & Concord Partners Shanghai