China Closes Offshore Trust Loophole, Targets Wealthy Citizens' Overseas Assets
For years, China’s super-rich could place their wealth in trust structures abroad without incurring taxes payable at home. That grey area has now been officially closed by the Chinese government.
A trust is a legal arrangement in which the owner of wealth hands over management of assets to another party, or trustee, for the benefit of beneficiaries, usually family members. If established in another country or jurisdiction, the structure is called an offshore trust.
Wealthy Chinese use offshore trusts to manage shares in unlisted companies, property, and other assets. The structures are also used to preserve and pass on family wealth.
According to CNBC International, China’s Ministry of Finance and tax authorities on 24 July 2026 set a 20% tax rate on almost every stage of trust management. Tax can arise when a trust is established, when profits are distributed, and when the structure is wound up.
The provisions also cover assets transferred into offshore trusts since the beginning of 2023.
Owners have been given 90 days, or until 22 October 2026, to report and settle outstanding liabilities. Late payment may incur additional charges.
The short deadline has triggered a surge in demand for consultations.
Law firms and financial advisers are now inundated with questions from wealthy Chinese families wanting to know whether they are affected by the rules, how large their bills will be, and how to prepare funds to pay them.
“Many clients, trustees, and advisers are still shocked,” said Clifford Ng, a partner at Zhong Lun law firm in Hong Kong, as quoted by CNBC International.
The scale of wealth potentially affected by the tax rules is also evident in Hong Kong, one of the main locations for trusts held by wealthy Chinese families.
According to a report by KPMG and the Hong Kong Trustees’ Association, assets in the territory’s trust industry reached HK$5.2 trillion, or about US$667 billion, in 2023.
Around 55% of the investments underlying those assets are located in Hong Kong and mainland China. However, it is not yet known how much of the assets will actually be taxed.
The policy comes as the Chinese government seeks new sources of revenue. Income from land sales, which has long underpinned local government finances, has slumped due to the property crisis and the economic slowdown in the Bamboo Curtain country.
Assets held by Chinese citizens abroad have therefore become one of the targets of tax enforcement.
China’s individual income tax revenue jumped 13.1% in the first half of 2026 even though retail sales growth remained limited.
Bills Arrive, Assets Hard to Liquidate
The challenge facing Chinese tycoons is not just calculating the tax. They must also provide cash within less than three months.
Most of the wealth in trusts is held in assets that are not easily liquidated, such as company ownership, shares, and property. Selling those assets in a hurry could force them to sell at prices far below market value.
They must also trace banking and transaction records back to 2023. The values reported must match the information Beijing receives through the Common Reporting Standard (CRS).
The CRS allows countries to automatically exchange information on taxpayers’ financial accounts. China joined the system in 2018, enabling its tax authorities to obtain data on Chinese citizens’ accounts abroad.
Withdrawing money directly from a trust is not necessarily a solution either. A withdrawal may be treated as a new distribution that again triggers a tax liability.
“Finding the cash to pay the tax can be more complicated than calculating the tax,” said Kia Meng Loh, a senior partner at Dentons Rodyk in Singapore.
Affected families are now considering asset sales, loans, distributions from trusts, and staged tax payments. Listed shares are likely to be the first assets offloaded because they are the easiest to sell.
Hong Kong Stock Market Could Come Under Pressure
The need for cash could add pressure to the stock market. A number of founders of Chinese companies hold share ownership in trust structures, including shares traded in Hong Kong and mainland China.
“The retroactive 90-day period could prompt ‘forced or earlier reductions in holdings’ to fund compliance,” said Citigroup economist Xiangrong Yu, as quoted by CNBC International.
Even so, selling pressure is expected to be limited. Most large Chinese companies in Hong Kong were listed before the tax calculation period began in 2023. Certain trust owners may also apply for staged payments of up to five years.
Dominic Chiu, a senior analyst at Eurasia Group, expects share sales to appear occasionally rather than becoming a wave that drags the market down for a prolonged period.
What Can Indonesia Learn for PFII?
The China case can be taken as a valuable lesson for Indonesia.
As is known, Indonesia is currently preparing the development of the Indonesian International Financial Centre (PFII). The House of Representatives passed the PFII Law on 21 July 2026, just three days before Beijing announced the rules on offshore trusts.
The PFII is designed to attract global banks, wealth management companies, family offices, insurance companies, and aircraft and ship leasing businesses. The government estimates the financial centre could bring in investment of up to Rp500 trillion.
One of the facilities being prepared is a corporate income tax exemption of up to 50 years for investors who meet the requirements. The PFII will also have a supervisory body, an arbitration institution, a special court, and facilities for the use of foreign currency.
Indonesia’s situation differs from China’s. Beijing is pursuing its citizens’ tax obligations on assets abroad, while Indonesia wants to attract global financial activity into the country.
From China’s experience, there are at least three things Indonesia needs to pay attention to in developing the PFII.
- Certainty of Tax Rules
The tax treatment of trusts and family offices must be clear from the outset. The rules need to explain who is liable to pay tax as well as the treatment of asset transfers, profit distributions, inheritance, and the dissolution of trusts.
- Transparency Must Be Maintained
Tax incentives need to be accompanied by reporting obligations, information exchange, anti-money laundering measures, and disclosure of the beneficial owners of assets. The PFII must be a centre of financial activity, not merely a place to register wealth to obtain low tax rates.
- Incentives Must Move the Economy
Facilities need to be directed at investors who genuinely bring economic activity to Indonesia. Incentive recipients should open offices, employ professional staff, and manage assets from within the country.