On 24 July 2026, the Chinese government issued Announcement No. 21, a comprehensive Individual Income Tax (IIT) framework for offshore trusts. A 20% income tax will be applied throughout the lifecycle of those trusts. The Announcement also provides taxpayers with a valuable 90-day compliance window to address their historical tax exposure.
For Australian residents with Chinese connections, including migrants, business owners and families with trust structures, the tax implications could be substantial.
Why This Matters
Historically, the taxation of offshore trusts in China was largely uncertain due to limited guidance and restricted access to offshore information.
That has changed. Enhanced international tax co-operation, CRS data sharing and improved transparency have given Chinese tax authorities unprecedented visibility over offshore structures. Announcement No. 21 provides the legal framework to translate that information into enforceable tax outcomes.
In practical terms, China has moved from a position where offshore trust taxation was uncertain to one where the tax treatment is expressly prescribed, said Carolyn Wang, an international tax partner from Baicheng Tax Services.
It is important to understand that Announcement No. 21 is not the creation of a new tax; rather, it is filling a long-standing regulatory gap and unifying enforcement standards, transforming what was previously a grey area addressed only through sporadic anti-avoidance rules into a full-process taxation regime, Carolyn added.
Key Changes Under Announcement No. 21
Tax on Transfers into Offshore Trusts
Chinese tax residents who transfer assets into an offshore trust may be treated as having disposed of those assets at market value. Any gain may be subject to Chinese IIT at 20%, even where no cash proceeds are received. This could affect transfers of shares, investment portfolios, real estate interests and other valuable assets.
Annual Taxation of Trust Income
A major change is the introduction of an attribution regime.
Income earned by an offshore trust may be attributed back to a Chinese-resident settlor and taxed annually, regardless of whether trust distributions are made. This represents a significant departure from common trust regimes where taxation is often deferred until beneficiaries receive distributions.
Exit Tax Rules
The new rules introduce a deemed liquidation mechanism designed to protect China’s future taxing rights.
Tax may arise based on the market value of trust assets when a Chinese tax resident becomes a non-resident; or a resident settlor dies and the trust is not succeeded by another Chinese-resident individual.
Limited 90-Day Compliance Window
Outstanding tax liability arising from foreign trusts from 2023 to date is subject to a 90-day grace period.
“We have already received feedback from some of our clients that they would like to review their structure to see if any tax to pay following the Announcement, said Beijing-based Carolyn, who advises on both inbound and outbound clients.
Carolyn also pointed out that the 90-day window should be regarded as the last and best opportunity for those taxpayers to resolve historical tax exposures. Once this window closes, the consequences will become severe. For substantial outstanding amounts, the tax authority may extend the recovery period well beyond the standard three-year lookback, potentially reaching five years or even earlier periods.
Implications for Australian Taxpayers
Review Your Chinese Tax Residency Position
Many individuals living in Australia maintain strong economic or family ties with China. Importantly, foreign citizenship or permanent residency does not automatically remove exposure to Chinese tax residency rules. Individuals with ongoing connections to China should carefully assess their tax residency status in the context of Announcement 21.
Reassess Trust Structures
Australian families and entrepreneurs with ties to China should review existing trust arrangements, particularly where Chinese tax residents or beneficiaries are involved, or the trust assets are originated from China.
Those taxpayers not only need to reassess if they have any historical tax filing and payable obligations but also should consider establishing an annual tax compliance mechanism going forward.
Evaluate Whether Existing Structures Remain Effective
Announcement No. 21 reflects a broader global trend toward increased transparency and scrutiny of cross-border wealth structures. In Australia, the government has also introduced the 30% tax on discretionary trust and tightening up the CGT regime in the 2026 Federal Budget. Against this backdrop, taxpayers should proactively review their existing investment structure to assess if trust is still an effective tax planning vehicle and delivering their intended tax objectives.
How HLB Can Help
Navigating the interaction between Australian and Chinese tax systems can be complex, particularly where tax residency, trust attribution rules, capital gains and foreign tax credits intersect.
Our tax advisory team can work together with our team in China to help you assess if there are any historical filing or tax liabilities, navigate the complex tax residency and foreign tax credit offset provisions in both jurisdictions and establish an annual tax compliance mechanism going forward.
If you have offshore trusts, family wealth structures or cross-border investments involving China, now is the time to review your position.
Thanks to Joey Wang from HLB Sydney & Carolyn Wang from Baicheng Tax Services for their contribution to this article. Baicheng is a leading tax advisory firm within the HLB Global China Service network. Leveraging HLB’s presence in key business centres across the world, the network brings together experienced Chinese-speaking professionals and provides integrated tax, accounting and advisory solutions to Chinese enterprises expanding and investing globally.