China targets offshore trusts with new tax rules

China has announced a major overhaul of tax rules targeting offshore trusts used by wealthy individuals to avoid taxes. Effective immediately, 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 policy aims to close a long-used tax loophole and ease fiscal pressures on Beijing and local governments, exacerbated by a prolonged housing market downturn. A 90-day grace period is offered for voluntary compliance on assets transferred between 2023 and 2025. The changes are expected to significantly impact Hong Kong, which has overtaken Switzerland as the world's largest offshore wealth center, with hundreds of billions of dollars held there. The move follows recent audits uncovering tax evasion at state-owned financial institutions.