In brief
For PRC-connected high-net-worth individuals, the long-held assumption that offshore trusts fall outside the immediate reach of PRC individual income tax (IIT) may no longer be sustainable. The landmark rules released on 24 July 2026 introduce an immediately effective look-through and life-cycle taxation and reporting regime for offshore trusts, potentially bringing years of historical arrangements under fresh scrutiny. The clock is already running. A 90-day transition window applies to specified historical exposures, and failure to take timely action may result in late payment surcharges and, where applicable, penalties. A “wait-and-see” approach is therefore no longer a low-risk option.
The new regime specially called out the concept of economic interest when assessing the domiciliation of an individual, i.e., an individual may be treated as a PRC-domiciled resident where their principal economic interests are regarded as originating from China, notwithstanding foreign nationality or long-term or permanent residence overseas. It remains to be seen whether this specific reference of economic interest concept will be confined to offshore trusts or extend beyond the trust context. Either way, it could significantly reshape wealth management landscape for PRC-connected high-net-worth individuals.
Responding effectively to the new regime requires more than a technical reading of the rules. It demands a coordinated and commercially pragmatic strategy that takes into account the broader factual context, evidentiary considerations, interactions with the tax authorities and, where necessary, the resolution of potential disputes. Professional support can be critical in developing and implementing such a strategy. This update discusses the key rules and practical implications and, more importantly, our observation of the trend and the recommendations on next steps. High-net-worth individuals, trustee companies and family offices should consider seeking professional legal and tax advice to assess potential exposure and evaluate available options under the new regime.
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Jason Wen, Senior Tax Consulting Director, Jinghua Liu and Luis Zhang, Partners, and Tingting Guo, Senior Counsel, FenXun, have co-authored this legal update. FenXun established a joint operation office with Baker McKenzie in China as Baker McKenzie FenXun, which was approved by the Shanghai Justice Bureau in 2015.
© 2026 Baker McKenzie FenXun (FTZ) Joint Operation Office. All rights reserved. This client alert/publication/presentation has been prepared for clients and professional associates of Baker McKenzie FenXun (FTZ) Joint Operation Office. Whilst every effort has been made to ensure accuracy, this publication is not an exhaustive treatment of the area of law discussed and no responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this publication is accepted by Baker McKenzie FenXun (FTZ) Joint Operation Office.