China targets offshore trusts in tax crackdown on ultra-rich
Authorities in provinces and cities have demanded the owners of these structures report detailed financial information: sources
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[HONG KONG] Chinese officials are intensifying efforts to tax offshore trusts that hold shares in some Hong Kong-listed companies, clamping down on a structure that the country’s mega-rich have used to invest billions of US dollars overseas.
Authorities in provinces and cities, including Jiangsu and Shenzhen, have demanded that the owners of these trusts report detailed financial information, including investment gains from dividends and share disposals, according to people familiar with the matter.
That follows similar demands on three years of income information that started in Shanghai in early 2025, another person said.
In at least one instance, a local tax bureau sought to impose a 20 per cent levy on investment gains plus additional penalties, one of the people said, asking not to be identified as the information is private.
Authorities in another province are demanding disclosure of income derived from offshore trusts over the past two years. The State Taxation Administration did not immediately reply to a request for comment.
The move highlights a crackdown on offshore structures that have long been considered a grey area for tax enforcement, part of increasing attempts by Beijing to tax money held overseas.
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The trusts now being targeted by tax officials have been used to invest in companies incorporated overseas, including red-chip firms, which are registered offshore but offer investors exposure to Chinese companies.
Offshore trusts have long been popular vehicles for the shareholders of companies seeking Hong Kong listings, in part because they were largely shielded from the gaze of mainland tax authorities.
In response to the increasing scrutiny, some corporate owners have been hesitant to create such structures to hold shares for upcoming Hong Kong initial public offerings (IPOs).
“Many founders of listed companies put their shares into a trust for succession planning purposes, but those who do it for tax purposes need to think twice, and we are seeing many who have these already review their structures,” said Clifford Ng, a managing partner of Zhong Lun Law Firm in Hong Kong.
“Many hold significant stakes in listed companies worth billions of US dollars.”
Saddled with a sluggish economy and widening budget deficit, China has sought more avenues for tax revenue. Authorities have intensified efforts to tax citizens’ mountain of undisclosed overseas assets and expand their scrutiny to less wealthy individuals after targeting the ultra-rich two years ago.
China’s personal income tax revenue jumped 11.5 per cent from 2024 to a record 1.62 trillion yuan (S$302.4 billion) last year, official data showed.
Red chips
The scrutiny of offshore trusts is the latest blow for red-chip listings, which allow Chinese firms to sell shares in entities outside the mainland that hold assets and businesses within it. China Mobile and Cnooc are among the flagship companies that have taken this route for Hong Kong IPOs.
The China Securities Regulatory Commission moved this year to restrict red-chip listings in Hong Kong, citing a need for greater transparency and stricter compliance. Some listing candidates are now overhauling their corporate structures before attempting to sell shares.
The crackdown on trust income also creates significant uncertainty for the country’s mega-rich. It remains unclear how far back the inspectors will trace income or if penalties will be applied.
Chinese officials have also been taking tougher stances on capital flows out of the country, including removing the nation’s two leading cross-border online brokerages from app stores in the mainland.
An estimated US$1.04 trillion of so-called hot money flowed out of the country in 2025, according to an index compiled by Bloomberg Intelligence. That was the biggest yearly outflow since data began in 2006. BLOOMBERG
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