On July 24, China's Ministry of Finance and the State Administration of Taxation jointly released Announcement No. 21 of 2026, introducing new regulations for the individual income tax treatment of offshore trusts. Under the new rules, the cost base of shares held in a trust will be determined by their original pre-IPO price. When these shares are eventually sold, the total appreciation from the original cost to the market price at the time of sale must be taxed at a flat rate of 20%. For founders who held shares before their company's IPO, the original cost is often negligible, making the tax base nearly equivalent to the current market value.

Market estimates suggest that Pinduoduo founder Colin Huang, who holds about a quarter of the company's shares valued at roughly 250 billion yuan, faces a potential deferred tax bill of approximately 50 billion yuan. Similarly, Xiaomi Group founder Lei Jun holds shares of comparable value, with a deferred tax liability also in the 50-billion-yuan range. Xiaomi co-founder Lin Bin faces a deferred tax bill of about 15 billion yuan. While this tax is not immediately due, it acts like the Sword of Damocles, ready to fall whenever shares are sold and gains are realized.

It is noteworthy that Lin Bin has sold Xiaomi shares multiple times since 2019. On December 28, 2025, Xiaomi Group announced that Lin Bin planned to sell up to $500 million of Xiaomi's Class B ordinary shares every 12 months starting from December 2026, with a total cumulative sale limit of $2 billion (approximately 14 billion yuan). The proceeds from these sales were intended to establish an investment fund company. Public records show he has already cashed out nearly 9 billion Hong Kong dollars through three previous sale events: selling 41.307 million shares for about 370 million Hong Kong dollars in August 2019, selling 350 million shares for approximately 8 billion Hong Kong dollars in September 2020, and selling another 10 million shares for about 180 million Hong Kong dollars in June 2024.

The End of a Two-Decade Tax Myth for the Wealthy

The July 24th announcement, comprising less than 3,000 words, was effective immediately and overturned a long-standing practice among China's high-net-worth individuals that had persisted for twenty years. In the first weekend following the news, leading family offices and cross-border tax advisory firms worked around the clock. Some reviewed trust dividend flows, others sought advice on restructuring plans, and many tried to confirm whether their past actions fell within the scope of the new rules.

A Fortuitous Twenty-Year Tax Shelter, Now Sealed

For the past two decades, transferring company equity and large cash holdings into family trusts based in the Cayman Islands or BVI was standard practice for China's wealthy, particularly before and after an IPO. The strategy was straightforward: assets were nominally transferred to an offshore trustee. As long as the income was not repatriated to China, the appreciation of shares, company dividends, and wealth transfer to heirs were all considered tax-free. Combined with low offshore tax rates and strict secrecy laws, this created a virtual "tax-free vault."

While China's tax law has a global income principle, its enforcement was hampered by a lack of cross-border information and ambiguous regulations, leaving this structure in a grey area. The arrival of the Common Reporting Standard (CRS), now covering about 140 countries and regions, changed this. Chinese tax authorities now have access to a vast amount of offshore account data through CRS information exchange. With the full implementation of the Golden Tax System Phase IV in 2025, this offshore trust information can be cross-referenced with domestic tax filings, bank transactions, and business registration data, with system-generated alerts for anomalies. The new Announcement No. 21 acts as the final key to unlock taxation on this information.

A professional analysis from Zhong Lun Law Firm notes that the new regulation adopts a "full transparency" approach, disregarding the legal form of the trust and directly attributing trust income to the settlor. It applies not just to new trusts but covers the entire lifecycle of a trust, including existing ones, effectively settling old accounts as well.

Three Key Tax Hurdles: Entry, Holding, and Exit

The core of the new regulation is straightforward, imposing a 20% tax at three distinct points. While 20% is lower than the top rates in the US (37%) or Japan (55%), the real impact lies in the timing and method of collection.

The first hurdle is taxation upon establishment. The moment assets are transferred into a trust, it is treated as a property transfer, triggering a 20% tax on the difference between the market value and the cost base. This tax is due regardless of whether shares are sold or any cash changes hands.

The second hurdle is an annual tax during the trust's existence. All income generated by the trust during the year, whether or not it is actually distributed to the settlor, must be reported and taxed at 20% annually. This eliminates the previous strategy of accumulating income without distribution. Furthermore, trust management fees, legal fees, and investment advisory fees are not deductible, nor can investment losses be carried forward. This means the effective tax burden is higher than the nominal 20%.

The third hurdle is a final settlement upon termination of the trust. This occurs when the trust is dissolved, the settlor changes nationality, or upon the settlor's death. In any of these events, a final settlement is triggered, taxing the total appreciation based on the market value at that time. Changing nationality to avoid the tax is futile; the rules clearly state that as long as a person's primary economic interests are in China, they are considered a Chinese tax resident, and the tax liability remains.

Calculating the Bills: Who Pays and Who Benefits

The market is buzzing with estimates of the tax bills facing China's wealthy. Based on publicly available trust structures, dividends, and market capitalizations, three distinct financial scenarios emerge.

The first bill requires immediate payment within 90 days, covering dividends received and gains from share sales up to 2025. The deadline is approximately October 22. Paying within this window avoids penalties, but late payment incurs a daily surcharge of 0.05% of the overdue amount, an annual rate of 18.25%. Those with large dividend payouts are hardest hit. Wu Yajun of Longfor Group, known for its stable and high dividends, faces an estimated 2.5-3 billion yuan bill. Xu Shihui of Dali Foods faces about 1.5 billion yuan, and Zhang Yong and Shu Ping of Haidilao around 1.4 billion yuan. Liu Qiangdong of JD.com faces 800-900 million yuan, Sun Hongbin of Sunac 500-600 million yuan, and Jack Ma 300-400 million yuan. The most ironic situation is for Colin Huang of Pinduoduo and Wang Xing of Meituan. Their trust assets are among the largest, but since neither company has ever paid a dividend, they owe almost nothing in this immediate tax bill.

The second bill is the massive deferred tax liability. The cost base for shares in the trust is the pre-IPO price. When sold, the full appreciation is taxed at 20%. For successful founders, the original cost is almost zero, making the tax base nearly the current market value. The potential deferred tax for Colin Huang is about 50 billion yuan, for Lei Jun about 50 billion yuan, for Jack Ma about 17 billion yuan, and for Lin Bin about 15 billion yuan. Liu Qiangdong, Zhang Yong, Xu Shihui, and Wang Xing each face around 8 billion yuan, while Wu Yajun faces over 5 billion yuan. The total deferred tax for these individuals alone is nearly 170 billion yuan. This bill hangs like a Sword of Damocles, ready to fall upon any future share sale.

The third bill is a retrospective "establishment tax." Founders who transferred assets into a trust after January 1, 2023, must pay tax on the full appreciation at the time of the transfer. This targets those who went public in the last three years. For example, Yu Kai of Horizon Robotics, who established his trust in March 2024 when the company was valued at 63 billion yuan, may owe about 2.1 billion yuan. Wang Yun'an of Good me owes an estimated 1.6 billion yuan. Others caught in this net include Zhang Junjie of Chagee (1.4-2.8 billion yuan) and Yun Yeyi of MiniMax (whose trust was set up in November 2025). Those who luckily avoided this include founders like Bloks Group, whose trust was established in 2022, and companies using an H-share structure, like Mixue Bingcheng, Mao Geping, and Laopu Gold, where founders hold shares directly.

The Cruel Timing Trap

The most intriguing aspect of the new rule is its retroactive application only for trusts established between 2023 and 2025. Trusts set up before 2023 are not subject to the establishment tax, and those who waited and haven't set one up yet will follow the new rules without any historical liability. This means that the group that rushed to set up offshore trusts during the post-pandemic boom period, from 2023 to 2025, is the one that bears the brunt of the tax. The wealthy are now saying, "early is safe, late is safe, but the middle is the most dangerous." A grace period is available for those who cannot pay the tax in a single lump sum, allowing for payments over five years after registering with tax authorities. Taxes already paid overseas can also be credited against the Chinese tax liability.

The Future of Offshore Trusts

The value of offshore trusts as a tax avoidance tool has been effectively eliminated. The primary motivations for setting up such trusts—70% for tax optimization and 30% for asset protection and succession—have now shifted. With the tax benefits gone, only the non-tax functions of asset isolation and family succession remain, such as protecting against marital division or isolating business risks. However, these functions are now completely separated from any tax advantages.

The reputation of offshore trusts has also been under pressure recently. In 2025, a Hong Kong court ordered the freezing of a $2.3 billion offshore family trust belonging to Evergrande's Hui Ka Yan. In the same year, a dispute involving the Zong family's $1.8 billion offshore trust from Wahaha was also made public. For ordinary people, this massive tax collection effort represents a step towards greater tax equity. While salaried workers have taxes deducted before their salary arrives, the era of billions in equity appreciation escaping taxation is ending. The next 90 days will be the busiest quarter in the history of offshore trusts, as people scramble to find funds, restructure their holdings, and question whether the high annual fees for such structures are still worthwhile.

Note: All figures mentioned regarding individual tax bills are market estimates based on public information and are not official data. Final amounts will be determined by tax authorities.