China's tax authority closed a 90-day amnesty on 22 October 2026 for anyone holding money in an offshore trust. The rule behind it, issued 24 July 2026 by the Ministry of Finance and the State Taxation Administration, taxes a resident individual's offshore trust at 20% three times over: when money goes into the trust, every year the trust earns income whether or not it pays that income out, and when the trust is wound up. The tax reaches back to 1 January 2023. By the time the window closed, one of China's best-known family fortunes, the co-founders of the Haidilao restaurant chain, had already sold $351 million of stock through their family trust to cover the bill.
- 20% individual income tax now applies three times over: when money enters an offshore trust, every year it earns income, and when the trust winds up.
- 1 January 2023 is how far back the tax reaches.
- 22 October 2026 was the deadline for the penalty-free filing window, now closed, with no extension.
- $351 million of stock was already sold by one family trust to cover the bill.
- 183 days (or 90, with conditions) is what UAE tax residency actually requires, not a trust deed.
The detail that matters for anyone outside China reading this is not the rate. It is the mechanism. An asset protection trust moves legal ownership of an asset out of your name. It does not, by itself, move you out of your tax authority's reach, and China's 2026 rule is a clean, recent example of a tax authority closing that gap on paper by simply looking straight through the trust to the person who actually funded, controls or benefits from it.
What China's offshore trust rule actually taxes
Announcement No. 21 of 2026 sets out three taxable moments for a resident individual's offshore trust, each at a flat 20%:
- Funding. Transferring property into the trust is taxed as property-transfer income, on the gain over the asset's original cost, at the point of transfer.
- Ongoing income. Every year the trust exists, its income, whether paid to the resident individual or left inside the trust, is taxed to that individual as property-transfer income or as interest, dividend and bonus income. Undistributed income sitting in entities the trust controls is pulled into the same tax base rather than left alone until a distribution is made.
- Termination. Winding the trust up taxes whatever gain remains unrealised at that point.
A companion rule, STA Announcement No. 15, issued the same day, closes an obvious workaround: if a resident individual actually supplies, bears the cost of, or controls property that is nominally funded by somebody else, the trust is still treated as that individual's own for tax purposes. It also sets out the paperwork, an annual self-declaration plus an Offshore Trust Details Table and Annual Reporting Form, and a five-year instalment option for anyone who cannot pay the full retroactive bill at once, provided they registered for it before the deadline.
The transitional window ran 90 days from the 24 July effective date to 22 October 2026. Filing and paying 2023-2025 liabilities inside that window waived the late-payment surcharge that applies afterward. The State Taxation Administration posted a reminder on 19 October, three days before the deadline, telling taxpayers to review their position and file. It repeated the 22 October date. No extension has followed.
- 24 Jul 2026Rule issuedMOF and STA jointly issue Announcement No. 21, taxing offshore trusts at 20%, retroactive to 1 Jan 2023.
- 19 Oct 2026Reminder noticeSTA posts a reminder restating the 22 October deadline, with no extension.
- 22 Oct 2026Window closesThe 90-day penalty-free filing window ends; ordinary enforcement and surcharges apply after.
Why the trust didn't protect anyone who stayed resident
An offshore trust is a legal structure. Tax residency is a separate question, decided by where you actually live, not by where a trust deed is signed or which bank holds the assets. Most countries that tax on the basis of residency, rather than only on income earned inside their own borders, apply some version of the same look-through logic China just wrote into statute: if you are still a tax resident there, and you still control, fund or benefit from a structure abroad, the authority treats the structure's income as yours, whether or not a single dollar of it ever touches your personal bank account.
That is the part a trust alone cannot fix. The Haidilao sale is the concrete version of the point: a family with the resources to set up BVI holding vehicles and a discretionary trust still ended up selling stock on the open market to raise cash for a Chinese tax bill, because the people who controlled the trust remained Chinese tax residents the whole time. The structure moved the asset. It did not move the tax base.
What actually changes the tax base: genuine residency, not paperwork
The alternative is not a better trust. It is a real change of tax residency, which the UAE defines in specific, checkable terms rather than leaving it to interpretation. Under Cabinet Resolution No. 85 of 2022, in force since 1 March 2023, an individual is a UAE tax resident if physically present in the UAE for 183 days or more in a rolling 12-month period. A second route applies to UAE or GCC nationals and UAE residence-permit holders: 90 days or more of physical presence in the same 12 months, combined with having a usual place of residence or the centre of financial and personal interests in the UAE. A separate test looks at where someone's main home and the centre of their personal and financial life actually sit, independent of a day count.
None of those tests can be satisfied by a signature on a trust deed. They require a person to actually be somewhere, for a counted number of days, in a way a tax authority can verify after the fact. That is the substance a trust by itself does not provide, and it is the difference between a structure that worked on paper in 2023 and one that still works after a tax authority starts asking who really controls it.
| Question | Offshore trust, original tax residency kept | Genuine UAE tax residency |
|---|---|---|
| Who is taxed on the trust's annual income | The resident settlor or beneficiary, even if nothing is distributed (China's 2026 rule) | The UAE levies no personal income tax on worldwide income once residency is established |
| Does undistributed trust income still count | Yes, pulled into the tax base annually under Announcement No. 21 | Not applicable: UAE tax residents are not taxed on undistributed foreign structure income under a worldwide personal income tax, because there is none |
| What proves the position to a tax authority | A trust deed and filings, which China's rule now looks straight through | Physical presence: 183 days in 12 months, or 90 days plus residence and life-centre conditions, under Cabinet Resolution No. 85 of 2022 |
| What happened when the rule caught up | Retroactive tax to 1 January 2023, a 90-day amnesty, then enforcement from 22 October 2026 | Not exposed to China's rule once UAE residency and non-residency elsewhere are both genuinely established |
The controlled foreign company problem is not unique to China
China's version is simply the most recent and most precisely documented one. The underlying mechanism, taxing a resident on income earned through a foreign structure they control, is what tax lawyers generally call controlled foreign company or trust-attribution treatment, and variations of it exist across most residence-based tax systems. The lesson travels regardless of which country's version eventually applies to a given reader: an offshore trust, company or account changes who legally owns an asset. It does not by itself change where its owner is a tax resident, and it is the residency question, not the ownership question, that most attribution rules are actually built around.
ETERAX explains and implements this distinction for European founders and investors moving to the UAE, Singapore or the Netherlands. ETERAX explains the rules and builds the structure; the client decides whether and when to relocate, and nothing here is tax or legal advice for a specific situation.
Common questions
What is an asset protection trust?
An asset protection trust is a legal structure that moves the formal ownership of assets, such as company shares, investment accounts or property, away from the person who created it, typically to reduce exposure to creditors, lawsuits or, in some structures, tax. It does not automatically change the tax residency of the person who set it up or benefits from it.
Does an offshore trust avoid tax if I still live in my home country?
Usually not, once a tax authority applies look-through or attribution rules. China's Announcement No. 21 of 2026 is a direct example: a resident individual's offshore trust is taxed at 20% on funding, annual income whether distributed or not, and termination, specifically because residency, not the trust deed, decides who is taxed.
How does China's 2026 offshore trust tax work?
It taxes a resident individual's offshore trust at three points, all at 20%: the gain when property is transferred into the trust, the trust's income every year regardless of distribution, and any remaining gain when the trust is terminated. The rule reaches back to 1 January 2023 and carried a 90-day penalty-free filing window that closed 22 October 2026.
What counts as UAE tax residency?
Under UAE Cabinet Resolution No. 85 of 2022, in force since 1 March 2023, an individual is a UAE tax resident with 183 days or more of physical presence in the UAE within a rolling 12-month period, or with 90 days or more combined with UAE/GCC nationality or a UAE residence permit and either a usual place of residence or the centre of financial and personal interests in the UAE. A separate route looks at where someone's main home and centre of personal and financial life actually are.
Is an offshore trust still useful if I actually relocate?
The question changes once residency genuinely changes. A trust's usefulness then depends on the rules of wherever the person actually becomes tax resident, and on whether their previous country of residence still asserts a claim over them, which is a separate, jurisdiction-specific question that needs its own check, not a general answer.
What happens if someone missed China's 22 October 2026 deadline?
The penalty-free window closes and ordinary enforcement under China's Tax Collection and Administration Law applies, including late-payment surcharges. The underlying tax liability does not disappear; only the amnesty on penalties does.
Sources
- Ministry of Finance and State Taxation Administration, Announcement on Individual Income Tax Matters Concerning Offshore Trusts, Announcement No. 21 of 2026, 24 July 2026: szs.mof.gov.cn
- State Taxation Administration, Announcement on Individual Income Tax Collection and Administration Matters Concerning Offshore Trusts, Announcement No. 15 of 2026, 24 July 2026: fgk.chinatax.gov.cn
- State Taxation Administration, filing reminder, 19 October 2026: chinatax.gov.cn
- Caixin Global, "Haidilao Shares Slide After Founders' Family Trust Sells $351 Million Stake," 10 September 2026, and "In Depth: China's Offshore-Trust Tax Grace Period Ends as Questions Linger," 23 October 2026: caixinglobal.com
- UAE Ministry of Finance and UAE Cabinet Resolution No. 85 of 2022 on tax residency, in force 1 March 2023: mof.gov.ae