Beijing said to move to clarify ambiguity in offshore trust tax rules
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Beijing is moving to clarify new tax rules on offshore trusts that have sowed confusion among wealthy Chinese citizens and their advisers.
China’s State Taxation Administration is conducting large-scale training for local tax officers to align on how the levy on offshore trusts – some of them set up decades ago – should be applied, according to several onshore and offshore tax lawyers.
The tax agency has also sent out draft guidelines to onshore law and accounting firms, and plans consultation sessions with lawyers in the coming weeks, according to multiple lawyers and advisors who didn’t want to be named discussing sensitive policy matters. Some of those people expect more draft guidance to follow, with the documents eventually made public.
The STA has been conducting internal trainings at the provincial, municipal and county level to align interpretation across local tax offices, said Windson Li, co-head of tax for Asia at DLA Piper.
The Chinese Embassy in Singapore, and tax bureaus in Beijing, Shanghai and Guangdong, did not respond to CNBC’s request for comments.
Beijing last month imposed a 20% tax on offshore trusts – a structure long used by China’s wealthy families to hold hundreds of billions of dollars outside the country. The move set off a panic rush for tax and legal advice, and a scramble for cash to meet the bill.
The levy applies at nearly every stage of a trust’s life, from establishment to profit distribution and wind-up. Individuals must also declare and settle outstanding taxes on assets already transferred into such structures within 90 days of the rules’ release – by Oct. 21 – or face surcharges for late filing or non-payment.
Confusion
While the rules ended decades of regulatory ambiguity about the vehicles, they have also created fresh confusion over implementation.
Trusts established after 2023 face the 20% charge at inception, but it remains unclear how many years back owners of older structures, which are subject to an annual recurring tax, must declare, said Yuan Cao, Beijing-based partner of law firm Yingke.
Advisors also warn that many trust assets could fall afoul of foreign-investment reporting rules issued in July, potentially inviting scrutiny from foreign-exchange authorities over how the money left China in the first place.
Some questions include whether the standard statute of limitations of three to five years applies to offshore trusts that were set up before 2023; how extensive documentation must be for a filing to be accepted, or rejected; and whether the October deadline is the cut-off for declaration or full tax payment, DLA Piper’s Li said.
Local authorities are expected to become broadly aligned with the STA’s interpretation of those details over the coming weeks, he added.
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