Reports have recently circulated online that Pan Shiyi and Zhang Xin of SOHO China face a huge back-tax bill on equity they placed into an offshore trust two decades ago; that Haidilao founders Zhang Yong and his wife are exposed through their own trust structure; and that the family of the late Wahaha founder Zong Qinghou may owe back taxes on offshore assets. The exact figures await official confirmation, but the buzz itself makes one thing clear: offshore trusts are no longer a tax-free zone.

The trigger was the Announcement on Individual Income Tax Matters Relating to Offshore Trusts (Announcement No. 21 of 2026), jointly issued by China's Ministry of Finance and the State Taxation Administration on July 24, 2026.

Why act now? In simple terms, an offshore trust is a structure through which wealthy individuals move equity, securities, real estate, or other assets into a trust set up in places like the BVI, Cayman Islands, or Jersey, to be held by an offshore trustee — typically for wealth transfer, cross-border asset allocation, or risk isolation. These jurisdictions tend to share two traits: low tax and limited transparency. China's individual income tax law has long required tax residents to pay tax on worldwide income, but no clear rules ever spelled out how that applied to offshore trusts — whether transferring assets in counted as a taxable transfer, whether annual trust income was taxable, who was liable, or how to file. That gap became a grey zone, one some people used to shift and hide assets and dodge tax — eroding the tax base and putting ordinary taxpayers, whose wages are taxed automatically every month, at a disadvantage. Announcement No. 21 closes that gap, aiming to make tax treatment clearer and more consistent, and to restore fairness.

This isn't happening in isolation. Offshore account information has been flowing to Chinese tax authorities for years under the Common Reporting Standard (CRS), and tax bureaus in Shanghai, Shenzhen, and Jiangsu had already begun reviewing individual cases and assessing 20% tax before the national rule existed. Announcement No. 21 essentially turns that patchwork of enforcement into a unified national standard.

So how does the tax actually work? The core principle is simple: no matter how many layers of offshore structure you build, whoever put up the money is the taxpayer.

At formation: A tax liability arises the moment assets go into the trust — you don't need to have received any cash. Say you bought equity for RMB 10 million, and by the time it goes into the trust it's worth RMB 100 million; the RMB 90 million gain is taxed as "income from property transfer" at 20%, i.e., RMB 18 million — even if you haven't pocketed a cent. Tax residents are taxed on the full value of assets contributed; non-residents are taxed only on the portion sourced within China.

During the trust's life: Income the trust generates each year is taxable annually, whether or not it's actually distributed to you. Gains from selling assets are taxed as "income from property transfer"; dividends and interest are taxed as "interest, dividend, and bonus income" — both at 20%, with no deduction allowed for management fees, legal fees, or advisory costs. In other words, the old strategy of "leave it undistributed and owe nothing" no longer works. For trusts funded by non-residents, tax applies once income is actually distributed to a Chinese tax resident, also at 20%.

A companion administrative announcement spells out filing channels and the competent tax authorities, and offers a window for voluntarily disclosing and settling past-due issues.

Bottom line: wealth deserves respect, but paying tax is a legal duty. The era of exploiting information gaps and offshore structures to avoid tax is coming to a close.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.  

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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