I. New Individual Income Tax Rules for Offshore Trusts: Clearer Tax Rules for Offshore Assets

For a long time, domestic tax rules regarding individual offshore trusts were unclear. Many believed that once assets were placed into an overseas trust and ownership was transferred to an offshore trustee, they were largely disconnected from domestic tax obligations. They assumed that trust dividends, asset appreciation, and equity transfer gains did not need to be declared or taxed as long as they were not repatriated to China. Some also believed that using a foreign identity or nominee arrangements could circumvent Chinese individual income tax.

On July 24, 2026, the Ministry of Finance and the State Taxation Administration issued the Announcement on Matters Concerning Individual Income Tax on Offshore Trusts, effective immediately. This announcement covers the entire lifecycle of an offshore trust—establishment, existence, income generation, and liquidation—and, for the first time, comprehensively and clearly defines the tax boundaries for offshore trusts. The previous grey areas are now significantly narrowed.

First, the establishment of an offshore trust may trigger tax obligations. The new rules clarify that an offshore trust is not limited to a trust nominally established overseas. Any overseas legal structure established under foreign law—or one that does not bear the name "trust" but substantively possesses trust functions such as asset isolation, nominee management, and wealth succession—may be deemed an offshore trust. Common structures in the Cayman Islands, BVI, Bermuda, and Singapore, as well as various offshore asset nominee arrangements, are all included in the regulatory and tax scope.

The core tax rules will be strictly enforced from January 1, 2026: all Chinese tax residents who place personal property into an offshore trust will immediately incur a tax obligation. Meanwhile, all income generated during the trust's existence must be routinely declared and taxed.

There are, of course, exemptions. Standardized financial products issued by legitimate overseas banks, insurance companies, and publicly offered securities fund companies, which are subject to local official financial regulation, are not considered private offshore trust structures and are not subject to these rules. This is primarily to protect the normal financial management rights of ordinary cross-border investors.

The scope of taxable assets covers virtually all personal assets: real estate such as property and land; movable property such as jewelry, luxury cars, and equipment; and offshore corporate equity, stocks, funds, bonds, and various financial assets. Whether the assets placed into the trust are industrial or financial, the contribution process is uniformly taxed as "income from property transfer." The core logic of the new rules is deemed transfer: a substantive change in asset ownership or actual control structure is equivalent to an asset transaction and must be taxed accordingly.

Second, the management of income during the trust's existence is stricter. Income generated over years of trust ownership—such as equity dividends, deposit interest, asset appreciation, and investment returns—must be declared and taxed annually at a uniform rate of 20%, regardless of whether the funds have actually been paid into a personal account or repatriated to China. Even if the income remains within the trust account and compounds, the tax obligation cannot be exempted. Even upon the trust's eventual termination and liquidation, the final income generated from liquidation will still be subject to a 20% individual income tax. Income from property transfers and income from interest, dividends, and bonuses must be accounted for separately and cannot be offset against each other, achieving closed-loop taxation across the entire lifecycle.

At the same time, the new rules draw a hard line: trustee remuneration, trust management fees, legal service fees, investment advisory fees, and other expenses cannot be deducted from taxable income. Simply put, costs are borne by the taxpayer, and income must be taxed. There is no room for "deducting costs to pay less tax." The tax burden is extremely clear and rigid.

Third, identity arbitrage and third-party nominee arrangements are clearly ineffective. The operational space that previously relied on information asymmetry is narrowing. Some sought overseas permanent residency or foreign nationality, settled abroad long-term, or used relatives, friends, or overseas institutions to hold offshore trusts, believing they could escape Chinese tax supervision.

Articles 11, 8, and 12 of the new rules directly penetrate all identity shells and nominee structures to target the actual controller. The new rules clarify that even if an individual holds a foreign nationality, overseas permanent residency, or has long resided abroad, as long as their primary economic interests, core income, and asset foundation originate from within China, they will still be deemed a Chinese tax resident. All global offshore assets and trust income must be taxed in China.

Regarding nominee loopholes, the new rules are equally precise: regardless of whether it is a nominal nominee arrangement, as long as an individual directly or indirectly holds 25% or more of the equity or voting rights of an overseas organization, or actually controls an offshore trust through agreements or control arrangements, they are the statutory taxpayer and must truthfully declare and pay taxes. Nominee arrangements cannot evade any tax liability. In simple terms: in determining tax residency status, the core consideration is the source of actual economic benefits and the actual control relationship, not the nominal identity or nominee arrangement.

Fourth, the humane installment policy and the supplementary payment window are worth noting. Given that many holders of existing offshore trusts face real difficulties such as heavy tax payment pressure and limited asset liquidity, the new rules provide corresponding flexible compliance arrangements, which deserve close attention from relevant groups.

Five-year installment tax payment mechanism. For those with relatively large asset volumes who face excessive pressure from a one-time tax payment, installment payment may be applied for under specific circumstances, easing short-term funding pressure and giving high-net-worth individuals a certain compliance buffer period.

Note: The above five-year installment tax payment mechanism originates from Article 8 of the Announcement of the State Taxation Administration on Matters Concerning the Administration of Individual Income Tax on Offshore Trusts (State Taxation Administration Announcement No. 15 of 2026), issued by the State Taxation Administration on July 24, 2026.

90-day penalty-free supplementary payment grace period. This is the largest benefit window of the new rules. For assets already placed into offshore trusts between January 1, 2023, and December 31, 2025, as well as all undeclared and unpaid trust income existing before January 1, 2026, taxpayers may conduct a one-time consolidated self-inspection and supplementary payment within 90 days after the new rules take effect. If declared and paid within the prescribed period, no late fees will be charged, and no additional penalties will be imposed.

However, this benefit is fleeting. The new rules clearly state: taxpayers who fail to declare or make supplementary payments on time will not only incur normal late fees but will also be subject to high fines of 50% to 5 times the underpaid tax. Furthermore, after 2026, no grace period will be offered. All non-compliant actions will be penalized with no room for remediation.

II. New Immigration Management Rules: More Standardized Cross-Border Personnel Management

If the new trust tax rules govern cross-border assets, the new State Council Regulations on Exit and Entry Administration, officially implemented on September 15, 2026, governs cross-border personnel, forming a "assets + personnel" dual regulatory closed loop. The new rules significantly tighten review standards, strengthen penalties, and regulate the intermediary market, with far-reaching implications for cross-border enterprises, foreign employees, and frequent travelers.

First, comprehensive upgrade of document verification and lawful verification of electronic data. Previously, exit-entry applications and foreign visa processing largely relied on paper document review, leading to rampant issues such as fake invitation letters, fake employment certificates, and fabricated entry purposes. The new rules drastically increase verification intensity, clarifying that all application materials and entry purposes for visas and residence permits must be 100% authentic and lawful.

Regulatory authorities may lawfully require applicants to provide relevant electronic data to verify travel records, communication records, and document authenticity, eliminating forgery loopholes. At the same time, the new rules consolidate corporate responsibility: if invitation letters, guarantee certificates, or employment materials issued by domestic enterprises for foreign employees, overseas clients, or partners are found to be falsified, not only will the entry application be rejected and the individual's entry/exit restricted, but the issuing enterprise, its responsible executives, and handling personnel will also be penalized according to law. The enterprise's subsequent foreign-related business and authority to invite foreign personnel will also be restricted.

Second, tiered penalties with clear durations, including lifetime bans. The new rules refine the exit-entry penalty mechanism, distinguishing between foreign nationals' entry violations and Chinese citizens' exit violations, and establishing two tiers of penalties: 1 to 5-year restrictions and indefinite lifetime restrictions. Discretionary power rests with immigration management, commerce, and provincial authorities, significantly enhancing regulatory deterrence.

For foreign nationals' entry restrictions: those who provide false materials or statements during visa application or at port entry, or who obtain exit-entry documents through fraud, illegally enter or exit, or are subject to administrative or criminal penalties for obstructing border management, will be barred from entry for 1 to 5 years. Those placed on national countermeasure lists, unreliable entity lists, or malicious entity lists, or subject to special restrictive measures, will be banned from entry indefinitely and will never be approved for Chinese exit-entry documents.

For Chinese citizens' exit restrictions: citizens who are administratively detained for fraudulently obtaining documents or illegal entry/exit, or who engage in activities abroad that endanger national security or harm national interests, will be barred from leaving China for 6 months to 3 years. Enterprises should pay particular attention: personnel involved in core technology, dual-use items, or key data import/export compliance, or those endangering industrial and technological security, will be subject to indefinite exit restrictions. This completely eliminates the risk of cross-border loss of core technologies and talent through non-compliant channels.

Third, industry-wide intermediary filing system to thoroughly rectify grey agency practices. The exit-entry intermediary market has long been plagued by chaos: overseas institutions covertly taking orders domestically, unlicensed intermediaries providing false services, illegally packaging exit-entry materials, and assisting in forgery to evade regulations. The new rules establish a unified national filing management system for exit-entry intermediaries, achieving industry-wide compliance supervision.

All intermediary agencies and practitioners engaged in exit-entry policy consulting, visa processing, residence permit processing, and cross-border travel services must complete official filing. Newly established intermediaries after the implementation of the new rules must complete filing within 15 days of establishment; existing intermediaries must complete supplementary filing within 90 days of the new rules taking effect. Those failing to file by the deadline will be prohibited from operating. The new rules also impose a hard prohibition: all overseas institutions are prohibited from conducting exit-entry intermediary business within China. Domestic enterprises and individuals must handle all exit-entry, residence, and visa matters only through legally established, properly filed domestic agencies. This fundamentally eliminates illegal operations, information leakage, and material forgery by grey overseas intermediaries.

Fourth, daily corporate compliance red lines must be strictly observed. With the implementation of the new rules, the daily personnel compliance threshold for foreign-related enterprises has risen significantly. Even minor oversights can trigger penalties, personnel repatriation, or exit-entry restrictions.

First, daily management compliance for foreign employees: the two mandatory requirements of 24-hour accommodation registration and 10-day residence information change notification must be strictly enforced. Illegal employment, overstaying, and unauthorized changes to work scope for foreign personnel are prohibited. Violations will result in high fines, deportation, and restrictions on re-entry.

Second, corporate guarantee material compliance: all invitation letters, proof of funds, employment certificates, and cooperation certificates issued by enterprises must be authentic and verifiable. A full set of filing materials must be retained and available for regulatory inspection at any time. Any false packaging or non-compliant guarantee behavior is strictly prohibited.

Finally, core industry compliance: enterprises involved in high-end technology, precision equipment, dual-use items, and cross-border flow of core data must conduct advance export control compliance assessments and technology cross-border screenings. They must strictly regulate the cross-border movement of core technical and research personnel to avoid compliance flaws that could lead to key personnel being subject to lifetime exit bans, affecting normal business operations and development.

III. The Two New Rules Combined: Cross-Border Wealth and Identity Compliance Enter a New Era

These two sets of new rules, implemented simultaneously and synergistically, mark a formal shift in China's cross-border regulation from a previously "lenient and inclusive" approach with loopholes to one of comprehensive penetration, full lifecycle supervision, and strict penalties.

For ordinary citizens, normal immigration, ordinary overseas financial management, and compliant overseas consumption are completely unaffected. However, for those with offshore trusts, offshore companies, cross-border asset allocations, foreign identities, foreign-related enterprises, or core technology cross-border operations, compliance self-inspection must be initiated immediately.

The operational space relying on old models is clearly narrowing. The only way forward for cross-border wealth management and cross-border personnel mobility is compliance. Grasping the golden window for short-term supplementary payments and installment tax payments, reviewing asset structures, standardizing personnel management, and addressing compliance shortcomings are essential to avoiding risks, operating steadily, and ensuring peaceful succession in the new policy era.

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