China starts taxing offshore trusts, and enforcement has already begun
Beijing has brought offshore trusts into the personal income tax net. Weeks later, reporting on fines against Hong Kong brokerages shows the enforcement side is running in parallel.
China’s Ministry of Finance closed a long-standing gap in the tax code in late July. Personal income tax now applies to offshore trusts, the structures mainland families have used for years to hold assets outside the reach of domestic reporting.
According to the South China Morning Post, which reported the ministry’s statement on 27 July, the tax applies in two places. Gains in the value of assets such as shares and property are taxed at the point the assets are first settled into the trust, with effect immediately. Income the trust subsequently generates is taxed annually. Family Wealth Report, summarising a Wall Street Journal report of 9 August, put the rate on offshore trust income at 20 per cent and noted that overseas insurance payouts are also being brought into the taxable net.
The case that exposed the gap
The rules arrived after a family dispute made the scale of the practice visible. Zong Qinghou, founder of the soft drinks group Wahaha, died in 2024. Three of his children born outside his marriage went to court seeking to freeze an offshore trust worth billions of dollars controlled by their half-sibling, and the litigation put a set of arrangements that had never been publicly examined into the open.
Karen Cheung, a partner at law firm HFW, told the SCMP that the new rules bring clarity to an area that has long involved uncertainty, and are likely to prompt a review of existing structures. For families with cross-border assets, she said, “the emphasis will likely shift from tax efficiency to transparency, governance, and long-term succession planning.”
Enforcement is not waiting for the tax
The second half of the story is that Beijing has been acting against the channels themselves. In May, the China Securities Regulatory Commission fined Nasdaq-listed Futu Holdings about RMB1.85 billion, roughly $275 million, over securities, public fund sales and futures business conducted without the necessary licences in the mainland and Hong Kong. Founder Leaf Li was fined about RMB1.25 million, around $183,000. Media reports cited by Family Wealth Report say Tiger Brokers and Longbridge Securities were also fined.
The numbers give a sense of the exposure. Futu said mainland Chinese accounts made up about 13 per cent of its funded accounts at the end of the first quarter of this year. China technically requires government approval before its citizens invest in overseas shares or property, but accounts opened through Hong Kong-facing platforms have operated in the space between the rule and its enforcement for a decade.
What it means outside China
Hong Kong has overtaken Switzerland as the world’s largest cross-border financial centre, and offshore trusts for mainland families are frequently created there. That puts the new rules on a market European trustees and private client firms also serve.
So far the pressure looks like it is redirecting flows rather than stopping them. Reports cited by Family Wealth Report indicate the crackdown is accelerating emigration enquiries inside China, which tends to benefit financial centres further afield. For advisers holding mandates from Chinese settlors, wherever the structure itself sits, there is now a compliance review to run and a harder conversation to have about what the family wants the structure to do.
