A major new policy is taking effect. On July 24th, the Ministry of Finance and the State Taxation Administration jointly issued new regulations on offshore trusts. The rule is clear: if you are a Chinese tax resident, all assets placed in an offshore trust are now subject to taxation. What's more, the tax applies in three waves: a 20% levy when assets are placed in the trust, a 20% tax on annual income generated within the trust, and another 20% when assets are finally disposed of or cashed out. The definition is broad, covering not just formal trusts, but also various offshore shell companies, structures, and nominee holdings that function to isolate assets or facilitate inheritance. All such arrangements will be taxed as if they were offshore trusts.

On the surface, this policy appears to be a regulatory adjustment for trusts. In reality, it tears apart the complete grey chain that has allowed the ultra-wealthy to evade taxes and pass on wealth through trusts over the past decade. Industry insiders know that offshore trusts have never been simple wealth isolation tools. They are a closed-loop system, layered and nested, designed to perfectly circumvent domestic tax liabilities. Public information reveals that figures like Jack Ma of Alibaba, Richard Liu of JD.com, Colin Huang of Pinduoduo, Wang Xing of Meituan, Lei Jun of Xiaomi, Wu Yajun of Longfor, the Zhang Yong couple of Haidilao, and Pan Shiyi of SOHO China—essentially all founders of major internet and real estate companies—transferred their equity, worth billions, into offshore trusts in the Cayman Islands and BVI before their companies went public.

For example, in 2014, before its IPO, Richard Liu of JD.com transferred his entire 100% stake, valued at over 33.3 billion yuan, into an offshore family trust. In late 2018, Sun Hongbin transferred shares worth approximately 45.9 billion yuan into an offshore family trust. There are countless more examples, with amounts ranging from hundreds of millions to tens of billions of yuan. The income generated by these assets was kept overseas and not distributed, meaning for decades, there was no need to declare or pay taxes domestically. When real estate tycoons divorce or their companies face debt defaults, the trust assets remain completely isolated. Even if a company suffers losses and is mired in debt, the family's wealth remains untouched. When passed to children, it also effectively avoids potential future inheritance taxes. Offshore trusts have been the ultimate "golden bell" for the rich.

Beyond trusts, there are other tax avoidance strategies that are hard for ordinary people to imagine. Many salaried workers meticulously calculate their monthly expenses, agonize over a few hundred yuan in tax deductions, and pay the full 45% top marginal tax rate without fail. Meanwhile, the super-rich, with assets in the hundreds of billions, use regulatory loopholes to drive their tax burden to near zero. One common method is to immigrate to Singapore, which has no capital gains tax. In recent years, a wave of entrepreneurs and billionaires have rushed to obtain Singaporean residency. The goal is to become a Singaporean tax resident. They can then sell their corporate equity. The capital gains are tax-free. If the same equity transfer was done in China, a mandatory 20% tax would be levied on the appreciated value. For a company valued at 100 billion yuan, becoming a Singaporean resident saves 20 billion yuan in taxes.

Another frequently heard strategy is the "Cayman offshore company + VIE structure + family trust" model. This is the standard architecture for domestic real estate and internet giants. The model works by using intellectual property licensing fees and service fees to transfer billions of yuan in annual domestic operating profits to offshore companies. These profits are then placed into irrevocable offshore trusts, where they are kept indefinitely without being distributed back to China. In the past, such activities fell into a regulatory blind spot. Then there is the debt isolation strategy. Some real estate tycoons restructure their business, placing all of their massive debts (hundreds of billions of yuan) into a wholly-owned subsidiary, which then files for bankruptcy. The most egregious part is that before the bankruptcy, the core assets—like premium real estate projects and equity—are transferred to a personal offshore trust for a token price of 1 yuan. Creditors are left to chase the bankrupt shell company, while the real wealth has been safely isolated and transferred away, leaving the creditors with nothing.

Large-value whole life insurance policies are another tax avoidance tool. The super-rich purchase insurance policies worth billions of yuan, naming their children as direct beneficiaries. Even if the individual has billions in personal debt and declares bankruptcy, the courts cannot seize or freeze the insurance asset. After the individual's death, the full payout goes to the heirs, and it is also exempt from personal income tax, enabling a seamless, tax-free transfer of wealth across generations. In the past, the biggest loophole for offshore trusts was that dividends and equity gains earned by the trust didn't need to be declared as personal income in China as long as they weren't transferred to the individual's personal account. The profits could remain in the offshore trust indefinitely. That is no longer the case. China has now joined the Common Reporting Standard (CRS). This means tax information is automatically exchanged with over 110 jurisdictions, including "tax havens" like the Cayman Islands and the British Virgin Islands. These havens must now hand over account information, making it impossible to hide offshore assets.

Last year, a tax policy on income from overseas stock market investments was also implemented, effectively closing both major channels for hiding wealth: overseas investments and offshore trusts. For decades, China's economy grew rapidly, with the core goal being to make the economic pie bigger. To encourage entrepreneurship and attract capital, oversight of the asset management of this wealthy group was relatively lax. But the era of rapid wealth creation is over. The incremental gains have dried up. The state is no longer just focused on growing the pie; it is now focusing on how to divide the existing pie more fairly and narrow the wealth gap. Ordinary people earn income through labor, with every salary payment taxed in full. The ultra-wealthy, however, used various offshore structures and regulatory loopholes to aggressively avoid taxes, paying almost zero tax on capital. This was an extreme injustice. Now, the offshore trust tax avoidance channel has been blocked, and there is no longer a vacuum for capital. The future direction is clear: the government will balance efficiency and fairness. Capital must also shoulder its share of social responsibility.