China’s offshore trust announcement carries a test for tax domicile

On 24 July 2026 the Ministry of Finance and the State Taxation Administration issued a joint announcement on the personal income tax treatment of offshore trusts, and the Administration issued a second one on how it will be collected. Both took effect the day they were issued. Eleven articles in, the first of them sets out a test for tax domicile.

Article 11, and how far it reaches is not stated

Article 11 of Announcement No. 21 of 2026 reads, in full:

取得外国国籍、境外长期或永久居留权，但主要经济利益来源于中国境内的个人，可判定为有住所居民个人。

An individual who has acquired foreign nationality, or long-term or permanent residence rights abroad, but whose principal economic interests derive from within China, may be determined to be a domiciled resident individual.

Three things about that sentence need holding apart.

The verb is 可判定为 — may be determined to be, not is. It describes a power to make a determination on stated conditions, not an automatic consequence. It does not say a second nationality is disregarded; it says a second nationality does not settle the question on its own.

The test it names is principal economic interests deriving from within China, not days of presence and not the passport. The announcement does not define the phrase, and no guidance defining it was read for this article.

One further thing is visible in the text, and it is reported as that and nothing more. Articles 1, 2, 13 and 14 each open with 本公告所称 — for the purposes of this announcement — when they define a term. Article 11 does not open with that formula. That is the whole of the observation. The announcement does not say whether Article 11 reaches beyond the taxation of offshore trusts, and this article does not decide the question either. The concept it uses, 有住所, belongs to the Individual Income Tax Law, which was not read for this piece.

What the announcement charges, and when

The rest of Announcement 21 is about trusts, and it is wide.

An offshore trust is a trust established under foreign law, or any other legal arrangement with a trust function. Financial products issued by banks, insurers, securities firms and fund companies are excluded, provided they are supervised by the financial regulator where they sit, deal with unspecified clients independently and carry the risk themselves.

Putting property in is itself the taxable event. For a resident individual the taxable income is the market value of the property when it goes in, less its original cost and reasonable expenses, filed as property transfer income. Once the tax is paid, the original cost is reset to the value at which the property went in.

After that, income arising during the life of the trust — and of overseas entities the trust holds, controls or manages — is taxed on the resident annually, whether or not anything is actually distributed. Income already taxed is not taxed again when it is distributed.

Three further rules narrow what can be set against that.

• Losses may not be carried forward to later years.
• The two income categories, property transfer and interest-dividend-bonus, may not be set off against each other.
• Trustee remuneration, trust management fees, legal fees and investment advisory fees incurred in setting up and running the trust may not be deducted at all.

Tax paid abroad of a personal-income-tax character on the same trust is creditable.

Who the announcement follows

The reach is defined by control rather than by form.

Property transferred through another person or organisation, where the individual actually funded it, bore it or controlled it, is treated as put in by that individual. A non-resident’s placement that is actually controlled by a resident is treated as the resident’s. Where a resident and a non-resident put property into the same trust, the announcement treats all of it as the resident’s. Where two or more residents do, it is split by market value.

An overseas entity means a company, partnership, fund or other organisation established under foreign law that also meets any one of four tests:

• passive income above 50 per cent of total profit in the previous tax year;
• staff, registered address or accounting that fail substantive-operation conditions;
• funds used to pay an individual’s consumption or property expenditure unconnected with the business;
• operating decisions not actually taken by the entity itself.

Licensed, supervised financial institutions are outside it, and so is any organisation that can prove reasonable commercial purpose and substantive operations — the burden of that proof is placed on the taxpayer.

Control means holding 25 per cent or more of equity, votes, units, income rights or similar rights, directly or indirectly, with indirect tiers multiplied and an intermediate tier above 50 per cent counted as 100; or substantive control over funds, operations, purchasing and sales, or distribution.

For a non-resident’s trust, Article 12 then treats four things as distributions to a connected resident even where none is declared:

• trust property pledged or guaranteed for that person’s debts, or lent to them, and not released or repaid by 31 December;
• expenses paid or reimbursed for them, or trust property made available free or at a clearly low price;
• property, payments or other economic benefits routed to them through a third party;
• the same benefits given to their related parties, or to organisations they control or actually benefit from.

Two events trigger a charge on the whole holding. Ceasing to be a resident gives taxable income of the market value of the trust property on the day of the change, less original cost. Where a resident dies and the trust passes to another non-resident individual, or to no one, the taxable income is the market value at the date of death less original cost — with the trustee, or a domestic institution the trustee designates, filing the declaration and paying the tax.

The window that is open now

Article 17 sets a transitional rule, and it is the part with a clock on it.

A resident who put property into an offshore trust between 1 January 2023 and 31 December 2025 and has unpaid tax on it must declare and pay within 90 days of the announcement taking effect, with no late-payment surcharge. The same applies to a non-resident for the period from 1 January 2023 to the effective date, and to trust income arising before 1 January 2026, which is declared as interest-dividend-bonus income regardless of what kind of income it was.

Miss it and the ordinary regime applies: the Tax Collection Administration Law, with the surcharge charged, and where the conduct amounts to evasion, recovery of the tax and surcharge plus a fine. Where the unpaid amount is large, the announcement lets the authority extend the recovery period.

The announcement took effect on the day it was issued, 24 July 2026. It does not say how the ninety days are counted — whether the day of issue is included — so the last day is not fixed by the text, and no date for it is given here.

A separate provision addresses payment. Where payment is genuinely difficult, a taxpayer who files with the tax authority may pay in equal instalments over up to five years; Announcement 15 attaches a form for exactly that.

The ordinary filing dates are these. A resident who puts property in files between 1 March and 30 June of the following year, and files again in that window each year of the trust’s life, for the year before.

What this article did not read

The Individual Income Tax Law itself was not read, so what 有住所 means in the statute, and how Article 11 sits against it, are not established here. That is the article’s main limit.

The Ministry of Finance’s own page returned HTTP 502 and the Administration’s law database returned HTTP 403, and the in-app browser refused to navigate to either. The full texts were therefore read on the websites of provincial tax bureaux of the same Administration, which republish them with the document number, the issuing bodies and the date. Announcement 15 was read on two different provincial sites and the two agreed. The officials’ question-and-answer note could not be opened, and nothing from it is used.

The five forms attached to Announcement 15 were not opened; only their titles are known. No guidance defining “principal economic interests” was read. Nothing here reads across to any double-tax treaty, and no treaty was consulted.

What the documents do support is narrow. China has written down, in a tax announcement, that acquiring foreign nationality or long-term or permanent residence rights abroad does not by itself answer the domicile question: where a person’s principal economic interests derive from within China, Article 11 says they may be determined to be a domiciled resident.