China’s Ministry of Finance published a Q&A on November 13, 2026, clarifying how its offshore trust individual income-tax rules apply to asset values, exchange rates and certain trust transactions.
Key points include:
- Asset cost basis: If a resident individual did not pay income tax when placing assets into an offshore trust because their market value was below their original cost, or because the tax was beyond the collection period, the cost basis remains the price the individual originally paid. It is not reset to the market value at the time of transfer.
- Trusts that ended before the announcement: The Q&A says the rules on termination and succession do not trigger a retrospective tax collection where a resident’s trust had already ended or the resident who contributed the assets had died before the announcement. Tax due when assets were placed in the trust or during its operation remains subject to the announcement’s retrospective-collection provision. If another resident individual inherited the trust after the contributor’s death, that successor must file and pay under that provision.
- Currency conversion: The applicable renminbi midpoint rate depends on the taxpayer’s residency, the taxable event and when it occurred. For resident individuals’ trusts established by December 31, 2025, the Q&A specifies that date’s rate for calculating taxable income on the initial transfer and on returns through 2025. For taxable income residents receive from January 1, 2026, on transfers into a trust or during its operation, it specifies the previous tax year’s December 31 rate when filing the following year. Separate rules apply to nonresidents and to specified liquidation events.
- Change of trustee: Replacing only the trustee, with the new trustee assuming the former trustee’s rights and obligations, does not count as terminating the trust and placing its assets into a new one for income-tax purposes.
- Tax year for trust returns: If the trust’s local tax year differs from the calendar year, the corresponding Chinese tax year is the calendar year in which the local tax year ends.
- Hong Kong Mandatory Provident Fund: The ministry says it does not fall within the announcement’s definition of an offshore trust.
- Hong Kong “top-up” share placements: Where a major shareholder sells shares held by an offshore trust and buys the same number of newly issued shares through that same trust at an identical price, with the new shares issued within 14 days of the placement agreement, the portion sold that does not exceed the number bought may be treated as not being a transfer of trust property. Its share cost basis is not adjusted.
- Unlisted company shares: For shares placed into an offshore trust before the announcement, market value may be determined using a net-asset valuation method and cannot be lower than the shares’ corresponding portion of net assets. If income tax is paid when the shares enter the trust, their cost basis is reset to that value. Tax on a later sale is calculated on proceeds less that basis and reasonable expenses.