Editor's Note: On July 24, 2026, the Ministry of Finance and the State Taxation Administration issued the Announcement on Matters Concerning Individual Income Tax on Offshore Trusts (Ministry of Finance and State Taxation Administration Announcement No. 21 of 2026) (hereinafter referred to as the "Announcement"), which clarifies the taxation rules for offshore trusts at the stages of establishment, existence, and termination/liquidation. At the same time, it grants a golden window period to taxpayers who have already established offshore trusts. Those who pay individual income tax in accordance with the requirements of the Announcement within 90 days from the date of implementation of the Announcement (by October 22, 2026) will not be charged late payment penalties. As of the date of implementation of the Announcement, 82 days have passed. How has tax administration practice unfolded? How do tax authorities precisely identify offshore trust taxpayers? How can taxpayers seize the final window period to complete their tax filings in compliance? If they fail to complete the filings, what tax risks will they face? This article intends to provide analysis and reminders for readers' reference.

I. Observations on the Offshore Trust Tax Administration Environment

Based on our observations, since the implementation of the Announcement, tax authorities have delivered tax-related reminders to taxpayers who have established offshore trusts through multiple channels, urging them to supplement their individual income tax filings. First, through pop-up notifications on the Individual Income Tax APP, taxpayers are prompted to confirm whether there is offshore trust-related taxable income in the corresponding tax year, and are required to make a confirmation between the two options of "I do not have offshore trust-related income" and "I do have offshore trust-related income." Second, taxpayers are informed by telephone, SMS, and other means to conduct self-examination and rectification regarding their offshore trust tax filing matters. Third, for taxpayers who cannot be effectively contacted, service by public announcement is adopted, requiring them to submit tax-related materials, including but not limited to offshore trust agreements, detailed lists of trust-settled property, offshore trust organizational structure materials, offshore trust financial statements, operating income and income distribution vouchers, and other offshore trust-related tax materials. In addition, for taxpayers against whom evidence proves that they have established offshore trusts but have not filed in accordance with the law, a Notice Ordering Correction Within a Time Limit is served by public announcement, ordering them to submit offshore trust business materials to the competent tax authority within the prescribed time limit and to file and pay supplementary individual income tax.

However, many controversies have arisen in tax administration practice. For example, if the property settled into the trust consists of stocks, the market value at the time of settlement may have been relatively high, but the current stock price has fallen significantly. Even if all the stocks are sold, the proceeds may still be insufficient to pay the tax. If individual income tax is calculated based on the market value of the stocks at the time of settlement, it would clearly violate the ability-to-pay principle and the principle of tax fairness. How should the relationship between tax interests and taxpayer rights be balanced in such a situation? If the property settled into the trust consists of non-listed company equity or other property for which no active trading market has been formed, and there is no public market quotation for the trust property, how should its market value be determined? Although the Announcement provides that tax authorities may specially engage government pricing cost and certification institutions to evaluate the property value, how can taxpayers raise objections through legal procedures if they do not accept the evaluated value? Another example is whether the statute of limitations for tax recovery applies to income generated during the existence of existing trusts and how it applies specifically. Taking resident individuals as an example, with respect to the offshore trust settlement stage, the Announcement provides that for individual income tax that should have been paid but was not paid as a result of settling property into an offshore trust during the period from January 1, 2023 to December 31, 2025, the tax shall be filed and paid within 90 days from the date of implementation of this Announcement. Where the amount of tax that should have been paid but was not paid is relatively large, it may be handled in accordance with the provisions of the Tax Collection and Administration Law. This means that for individual income tax arising at the settlement stage of existing offshore trusts, if the amount exceeds 100,000 yuan, then for all tax that should have been paid but was not paid with a tax attribution period before January 1, 2021, the statute of limitations for tax recovery has expired. However, with respect to income generated during the existence of offshore trusts, the Announcement provides that for income generated during the existence of offshore trusts of resident individuals before January 1, 2026, individual income tax shall be filed and paid within 90 days from the date of implementation of this Announcement. Does this mean that the tracing of income generated at the existence stage of offshore trusts may not be subject to the five-year statute of limitations for tax recovery under the Tax Collection and Administration Law? And so on. Regarding the controversial issues in practice, some tax departments have already established dedicated working teams to analyze core matters such as the determination of offshore trusts, the tax subject, the characterization of income, and tax calculation rules, with the aim of unifying business enforcement standards.

II. How Do Tax Authorities Precisely Identify Offshore Trust Taxpayers?

Under the CRS rules, any trustee that meets the criteria for being a financial institution with reporting obligations is subject to tax-related information due diligence and reporting obligations. If the trustee does not meet the criteria for being a financial institution under the CRS framework, then the custodian financial institution holding the financial assets under the trust shall assume the CRS due diligence and information reporting obligations. In either case, China's tax authorities can obtain relevant financial account information through CRS information exchange, providing a data foundation for identifying and targeting taxpayers. For non-financial assets such as equity and real estate settled into trusts, because they are not directly held through financial accounts, the coverage of CRS financial account exchange is limited, and identification must rely on look-through rules and big data integration analysis. For example, taxpayers' holding of an offshore trust may also be discovered through searches of public information, foreign exchange data analysis, and other means. For instance, public disclosure documents of overseas listings and shareholding platforms (prospectuses, reports on changes in interests, reduction announcements) will set out the shareholding entities and beneficial arrangements under the trust structure.

From the perspective of the overall tax administration logic, after CRS exchange data is connected to the Golden Tax Phase IV big data system, it can be cross-compared with taxpayer filing data and enterprise registration information, forming a discovery path of "CRS data identifies leads --- big data cross-verification." With respect to the aforementioned service by public announcement, tax authorities used CRS exchange data as leads and combined them with data from public channels such as public prospectuses to further lock in the fact that taxpayers had established offshore trusts.

III. With 8 Days Left on the Countdown, How Can Taxpayers Complete Filings in Compliance?

First, comprehensively sort out the offshore trust situation. Systematically clarify the trust type and terms of one's own offshore trust, the trustee and beneficiary structure, the settled property and the corresponding year, income generated during existence and distributions, changes in the settlor's identity, and prior filings and foreign taxes paid, so as to lay the factual foundation for accurately applying the various rules of the Announcement.

Second, fully prepare offshore trust materials. Completely gather trust agreements or documents with contractual effect, detailed settlement property schedules and original vouchers, trust organizational structure materials, trust financial statements and income distribution vouchers, valuation support materials, and prior filing and foreign tax credit evidence, and form a checklist to prepare for tax filing.

Third, resolve tax-related disputes at an early stage. On the one hand, taxpayers may seek the assistance of professional tax lawyers to help them accurately apply tax law provisions and file tax returns in accordance with the law within the legal framework. For example, regarding disputes arising from the absence of an explicit statement on the statute of limitations for tax recovery on income of existing offshore trusts, we believe that under the provisions of the Tax Collection and Administration Law, except in cases of tax evasion, refusal to pay, or fraud, the statute of limitations for tax recovery is five years, and offshore income generated during the existence of an offshore trust should certainly also be subject to the provisions of the Tax Collection and Administration Law. On the other hand, taxpayers may fully communicate with the competent tax authorities and, in accordance with the law and regulations, state and defend their positions regarding the choice of valuation methods, installment payment arrangements, and other matters, so as to strive for fair and reasonable handling results.

IV. What Tax Risks Do Taxpayers Face If They Fail to Complete Filings Within the Window Period?

If taxpayers fail to supplement their individual income tax filings and payments within the window period granted by the Announcement, tax authorities will recover the tax in accordance with the law and impose late payment penalties. Compared with filing and paying within the window period, taxpayers will bear an additional late payment penalty of 0.05% per day. After the window period expires, tax authorities may further investigate whether offshore trust taxpayers have all paid supplementary tax in full. For those who have not filed, they will further be notified to file. If taxpayers still fail to file in accordance with the law, the omission of non-filing will be transformed into tax evasion. For those who have filed, if during the filing process they backdate trust documents, conceal income, inflate the original value of settled property, or engage in other such conduct, this constitutes tax evasion through false tax filing. Both situations involve obvious subjective intent and objectively result in non-payment or underpayment of tax. Taxpayers will face the tax risk of being characterized as tax evaders and being subject to a fine of 0.5 to 5 times the amount of tax underpaid. In addition, it should be noted that where conduct is characterized as tax evasion, there is no limitation period for tax recovery, and tax authorities may recover in accordance with the law all taxes not paid in accordance with the law by resident individuals in all previous tax years, causing tax risks to increase abruptly.

Thereafter, if a taxpayer's failure to file or false tax filing results in non-payment or underpayment of tax amounting to more than 100,000 yuan and accounting for more than 10% of the total tax payable for all tax categories, and the taxpayer still fails to pay supplementary tax, late payment penalties, and fines after the tax authority issues a recovery notice, the tax administrative risk will further escalate to the criminal risk of the crime of tax evasion.