Originally reported November 13, 2026. China’s Ministry of Finance published a question-and-answer document explaining how its offshore trust personal income tax notice applies to asset contributions, trust income and certain changes in trust ownership. The document clarifies the ministry’s stated treatment; it is not a new announcement of the underlying notice.
Asset values and earlier trusts. If a Chinese resident individual paid no personal income tax when contributing property to an offshore trust because its market value was below its original cost, or because the tax was beyond the recovery period, the property’s tax basis remains its original acquisition price. It is not reset to the market value at contribution.
For a trust terminated before the underlying notice was issued, or one whose original contributor had died before then, the ministry says tax is not recovered under Articles 5 and 7 of that notice. Tax due when property was contributed or during the trust’s existence remains subject to recovery under Article 17. If the contributor died and another resident individual inherited the trust, that successor must declare and pay tax under Article 17.
Currency conversion. For offshore trusts established by resident individuals on or before December 31, 2025, taxable income from contributions and income during 2025 or earlier uses the renminbi central parity rate on December 31, 2025. From January 1, 2026, taxable income residents receive on contribution or during a trust’s existence uses the previous tax year’s December 31 rate when declared the following year.
For nonresident individuals who established a trust on or before the underlying notice’s publication date, taxable income on contribution uses the December 31, 2025 rate. From that publication date, taxable income nonresidents receive on contribution uses the renminbi central parity rate on the last day of the preceding month when declared the following month. The ministry also specifies the preceding month-end rate for calculating liquidation gains, from the notice’s publication date, in certain cases involving termination, death followed by inheritance by a nonresident or no inheritance, or a contributor becoming a nonresident.
Other clarifications. Replacing only a trustee, with the new trustee assuming the original trustee’s rights and obligations, does not count as ending the trust and contributing its assets to a new one. If a trust’s local tax year differs from the calendar year, its income is assigned to the Chinese tax year containing the last day of that local tax year. Hong Kong’s Mandatory Provident Fund is not an offshore trust under the notice, the ministry says.
For a Hong Kong-listed company’s sell-old, issue-new share placement, shares sold and repurchased through the same offshore trust at exactly the same price need not be treated as a transfer of trust property—up to the number of shares repurchased—if the new shares are issued to that trust within 14 days of the placement agreement. The share basis is then unchanged.
For unlisted-company shares contributed to an offshore trust before the underlying notice was issued, market value may be determined using net assets but cannot be lower than the shares’ corresponding portion of net assets. If personal income tax is paid on contribution, the basis is reset to that determined market value. On an actual sale by the trust, taxable gain is calculated by deducting that basis and reasonable expenses from the proceeds.
