The Ministry of Finance interprets the personal income tax policy of offshore trusts

Questions and Answers on Personal Income Tax Policies for Offshore Trusts

1. Question: If a resident individual fails to pay personal income tax during the loading process, how is the original value of the property adjusted?

Answer: According to Articles 3 and 17 of the "Announcement on Matters Related to Individual Income Tax on Offshore Trusts" (hereinafter referred to as the "Announcement"), if the market value of the property when it is loaded into the offshore trust is lower than the original value of the property or the tax at the time of loading exceeds the collection period, and the resident individual fails to pay personal income tax, the original value of the property will not be adjusted to the market value at the time of loading, and the original value of the property will still be recognized at the price when the individual acquired the property.

2. Question: Before the policy is released, if the offshore trust of a resident individual has been terminated or the resident individual who transferred the property has died, will the individual income tax of the offshore trust be levied?

Answer: According to the provisions of Article 17 of the "Announcement", if the resident individual offshore trust has been terminated and the resident individual whose property has been placed in the property has died before the "Announcement" is issued, personal income tax will not be levied in accordance with the provisions of Articles 5 and 7 of the "Announcement"; Taxes payable during the existence of an offshore trust shall be recovered in accordance with the provisions of Article 17 of the "Announcement". Among them, if the resident individual who transferred the property has died and the offshore trust is inherited by another resident individual, the heir shall declare and pay taxes in accordance with the provisions of Article 17 of the "Announcement".

3. Question: When calculating personal income tax on offshore trusts, what specific rules should be followed for exchange rate conversion?

Answer: According to the relevant provisions of the Implementation Regulations of the Personal Income Tax Law, when calculating the personal income tax of offshore trusts, the following exchange rate conversion rules should be followed:

First, when calculating the taxable income of offshore trusts established by resident individuals before December 31, 2025 (inclusive) and the income during the duration of 2025 and previous years, the central parity rate of the RMB exchange rate on December 31, 2025 shall be applied. Starting from January 1, 2026, when resident individuals obtain taxable income during the loading process and duration of offshore trusts, when reporting in the following year, the central parity rate of the RMB exchange rate on December 31 of the previous tax year will apply.

Second, when calculating the taxable income of the loading link for offshore trusts established by non-resident individuals before the date of the announcement (inclusive), the central parity rate of the RMB exchange rate on December 31, 2025 will be applied. From the date of issuance of the "Announcement", when non-resident individuals obtain taxable income during the loading process of offshore trusts, when reporting in the next month, the central parity rate of the RMB exchange rate on the last day of the previous month will apply.

Third, from the date of issuance of the Announcement, if a resident individual's offshore trust is terminated, the resident individual who loaded the property dies and the offshore trust is inherited by a non-resident or has no successor, or the resident individual who loaded the property is converted to a non-resident individual, when calculating liquidation income, the central parity rate of the RMB exchange rate on the last day of the previous month shall be reported.

4. Question: If an offshore trust only changes the trustee, is it deemed that the offshore trust is terminated and reinstalled into a new trust, and personal income tax is calculated and paid?

Answer: Only the trustee is changed during the existence of an offshore trust. The new trustee inherits the relevant rights and obligations of the original trustee and continues to hold, manage, use and dispose of the trust property. It will not be regarded as the offshore trust being terminated and reinstalled into a new trust to collect personal income tax.

5. Question: How is the tax year determined for the income earned during the existence of an offshore trust?

Answer: According to the provisions of Article 9 of the "Announcement on Personal Income Tax Policies on Overseas Income" (Ministry of Finance and State Administration of Taxation Announcement No. 3 of 2020), if the tax year of the location of the offshore trust is inconsistent with the calendar year, the calendar year of the last day of the tax year of the location of the offshore trust shall be the Chinese tax year corresponding to the offshore trust income.

6. Question: Are Hong Kong’s mandatory provident funds considered offshore trusts as mentioned in the Announcement?

Answer: The Hong Kong Mandatory Provident Fund is supervised by the Hong Kong Mandatory Provident Fund Schemes Authority and provides standardized pension financial services to unspecified customers. According to Article 1 of the "Announcement", it does not belong to the offshore trust referred to in the "Announcement".

7. Question: A Hong Kong listed company carries out financing through "old before new" allotment. The major shareholder first sells some of the stocks held by the offshore trust at a certain price, and then the company issues an equal amount of new shares to the major shareholder at the same price. Is this considered a transfer of offshore trust property?

Answer: If financing is carried out through "old before new" allotment, the major shareholder sells and buys stocks through the same offshore trust, and the prices are exactly the same, and new shares are issued to the same offshore trust of the major shareholder within 14 days from the date of signing the placement agreement, the number of shares sold does not exceed the number of shares purchased, which may not be regarded as a transfer of trust property, and the original value of the stock property will not be adjusted.

8. Question: When unlisted company equity is put into an offshore trust, how is the market value of the unlisted company equity determined?

Answer: Before the "Announcement" is released, if an individual puts the equity of an unlisted company into an offshore trust, the market value of the equity of the unlisted company can be determined in accordance with the net asset assessment method, and its market value cannot be lower than the share of net assets corresponding to the equity. After paying personal income tax at the loading stage, the original value of the property is adjusted to the market value determined at the loading stage. When an offshore trust actually transfers equity, it shall calculate and pay personal income tax based on the balance of the property transfer income after deducting the original value of the property and reasonable expenses.