China targets offshore trusts with new tax rules

China has announced new tax rules targeting offshore trusts held by wealthy individuals, effective immediately. The Ministry of Finance stated that personal income tax will be charged on gains in asset values—such as shares and real estate—when these assets are first placed into offshore trusts, and income generated by the trusts will be taxed annually. The move aims to close a tax avoidance loophole and ease fiscal pressures exacerbated by a prolonged housing market downturn and economic slowdown. A 90-day grace period is offered for voluntary compliance on assets transferred between 2023 and 2025. The overhaul is expected to significantly impact Hong Kong, which recently overtook Switzerland as the world's largest offshore wealth center, with hundreds of billions of dollars held there. The policy follows a recent National Audit Office report uncovering tax evasion at state-owned financial institutions.