China's offshore trust tax rules are bringing greater clarity to the taxation of overseas income and promoting greater fiscal fairness, as authorities seek to establish a more consistent framework for levying taxation on cross-border wealth.

Taxpayers in the country have declared more than 160 billion yuan ($24 billion) in personal income tax on offshore trust income following the smooth conclusion of a policy transition period, the State Taxation Administration said on Wednesday.

More than 120 billion yuan was collected in October alone, helping drive a nearly 90 percent increase in national personal income tax revenue during the period, the administration said.

The rules, jointly issued by the Ministry of Finance and the STA in July, provided a 90-day transition period ending Oct 22, allowing taxpayers to declare and pay without late payment fees and surcharges.

Li Xuhong, a professor at the Beijing National Accounting Institute, said taxing residents' worldwide income — including offshore trust earnings — is a basic principle of China's personal income tax law and common practice round the world.

By clarifying the tax treatment of share sales and dividends, and standardizing how liabilities are calculated at different stages of a trust's life, the rules make obligations more predictable and transparent, Li said, adding that clarified rules also help taxpayers comply and support fairer tax practices.

The July rules clarify taxation when assets enter a trust while it operates and when it is wound up. For Chinese residents who place assets in offshore trusts, annual investment income and gains are subject to a 20 percent tax rate, including earnings retained within the structure.

Under the anti-avoidance provisions, individuals who transfer assets into offshore trusts through other people or organizations, but actually fund, bear the cost of or control those assets are still treated as the taxpayers responsible for the transfers.

The STA said the new rules target individuals who have used offshore trusts in low-tax jurisdictions with limited transparency to transfer assets, conceal wealth and evade taxes.

Offshore trusts are arrangements established under laws in place overseas to hold and manage assets, often for inheritance planning and cross-border investment purposes. According to domestic media reports, offshore trust assets currently held by Chinese high-net-worth individuals are estimated to total between 2.3 trillion yuan and 2.7 trillion yuan.

"Chinese residents generally hold overseas assets in three ways: directly under their own names, through trusts or via offshore companies," said Wang Xu, a partner at Beijing-based Dacheng Law Offices.

The first two arrangements are now subject to annual tax filing and payment requirements under relevant rules, but China has yet to introduce a unified set of personal income tax rules specifically for earnings retained by standalone offshore companies operating outside trust structures, Wang said.

In this regard, offshore companies were likely to become a focus of further rulemaking and oversight, judging from the direction of overseas income tax administration and recent policy guidance, he added.

With the transition period over, tax authorities said they would urge taxpayers who had failed to file — or submitted inaccurate declarations — to fulfill their obligations, with late payment surcharges applied in accordance with regulations. Intermediaries and individuals found to have encouraged or assisted acts of tax evasion would also be investigated and held accountable.

(Source: China Daily)