PRC Announcement No. 21: A Practical Guide for Offshore Trusts

The People’s Republic of China’s Ministry of Finance (MOF) and State Taxation Administration (STA) have introduced new rules under Announcement No. 21/2026 that may have significant implications for PRC tax-resident individuals with offshore trusts and similar arrangements.

Effective from 24 July 2026, the rules introduce additional tax and reporting considerations across the lifecycle of an offshore trust — from establishment and ongoing operation to distributions, termination and changes in tax residency.

For families, trustees and advisers, the immediate priority should be to understand which structures require closer review, gather the necessary information and ensure that the way a structure operates is appropriately documented.

1. Identify which structures require attention

Not every offshore structure will have the same exposure. A useful first step is to segment existing structures according to their PRC connections:

• Resident settlor: Where the settlor is a PRC tax resident, consider the establishment and initial funding of the trust, subsequent asset injections, trust income, capital gains
• PRC-resident beneficiaries: Review distributions and other benefits provided to PRC-resident beneficiaries, including loans or use of trust-owned assets.
• Non-resident settlor: Consider PRC tax implications where PRC-source property or income is involved, as well as distributions and other benefits provided to PRC-resident beneficiaries, including loans or use of trust-owned assets.
• Potential deemed settlor or control risk: Consider structures where a PRC tax resident may exercise significant influence or control, even if they are not formally identified as the settlor.
• Other legal arrangements with functions similar to trusts: Review arrangements that may not be formally described as trusts but perform similar wealth-holding, succession or control functions. The assessment should focus on how the arrangement operates in substance, not only its legal label.
• Underlying-company exposure: Where trusts own underlying companies, consider the location and nature of their assets, income and activities, including any China-situs assets or other PRC connections.

This initial exercise can help identify which structures should be prioritised for further review with specialist advisers.

2. Prepare a trustee-ready information pack

Good records will be critical to assessing the potential implications of the new rules. Trustees and families should consider assembling an information pack covering:

• trust deeds, amendments and letters of wishes;
• details of settlors, beneficiaries, protectors and other relevant parties;
• initial settlements and subsequent asset injections;
• historic acquisition costs and available asset valuations;
• trust accounts and financial statements;
• underlying-company accounts, where relevant;
• investment and transaction records;
• distribution records;
• records of loans, guarantees and other benefits;
• records relating to personal use of trust-owned assets;
• trustee resolutions and minutes;
• documentation covering reserved powers, protectors and private trust companies (PTCs); and
• records relating to changes in tax residence, succession or termination.

For older structures, some historical information may not be readily available. Identifying gaps early allows the taxpayer and their advisers to determine what additional information may be required.

3. Pay attention to valuations and historical records

The transitional provisions expressly cover certain settlements made between 1 January 2023 and 31 December 2025. A 90-day transitional window runs from the Announcement date and closes on 22 October 2026. Potentially affected taxpayers should use this period to assess historical tax exposure with their PRC tax advisers and determine whether voluntary reporting and payment are required or available. However, the treatment of pre-2023 settlements, including how far back the income of older trusts may need to be reviewed, remains unclear.

Families and trustees should therefore identify available valuations and historic cost information for assets settled into the trust, together with trust and underlying-company accounts showing income and gains.

They should also compile distribution records, including cash and asset distributions, loans, guarantees and other benefits made available to beneficiaries.

Trustees can assist by providing available trust accounts and transaction records. The PRC taxpayer should then work with their PRC tax adviser to determine any taxable amount and applicable filing requirements.

4. Review how control and governance are documented

The legal documentation of a trust should be considered alongside how the structure has operated in practice.

Trustee independence: Significant trustee decisions should be appropriately evidenced through resolutions, minutes and supporting records.

Reserved powers: Where powers have been reserved to a settlor or another person, the nature and exercise of those powers should be clearly documented.

Protectors: The protector’s formal powers and involvement in significant decisions should be recorded, particularly where their consent is required.

Private trust companies: For PTC structures, governance arrangements, board composition and decision-making processes should be properly documented.

Loans and personal use of assets: Loans, guarantees and arrangements allowing individuals to use trust-owned property or other assets should be supported by appropriate documentation recording their nature and terms.

The objective is not simply to generate more paperwork, but to ensure that the records accurately reflect how the structure is governed and operated.

5. Revisit why the structure was established

The new rules may prompt some families to review how their existing offshore arrangements are structured. It can be useful the tax treatment of a structure and the broader long-term objectives for which it was established.

Offshore trusts can serve purposes extending well beyond tax, including succession planning, family governance, continuity of ownership and management, and asset protection.

The new tax treatment does not necessarily remove these underlying objectives. Families should therefore avoid restructuring or terminating a trust solely in response to Announcement No. 21 without considering the wider legal, tax, succession and governance consequences.

6. Considerations for offshore companies?

Announcement No. 21 should not, by itself, be interpreted as making ordinary offshore company structures, such as BVI or Cayman companies, ineffective.

Companies and trusts perform different legal and commercial functions. BVI and Cayman companies may continue to be used for holding investments or businesses, facilitating joint ownership, and supporting corporate governance and continuity.

The relevant considerations go beyond where an entity is incorporated. They include who owns and controls the overall structure, the tax residence of the relevant individuals, the nature and location of the underlying assets and income, and how economic benefits are ultimately provided to individuals.

Where BVI or Cayman companies sit underneath a trust, they should therefore be considered as part of the overall review rather than automatically dismantled in response to the Announcement.

7. Practical next steps

Rather than making immediate changes, families and trustees should consider a structured review:

1. Map the structure — together with settlors, beneficiaries, trustees, protectors, PTCs, underlying companies and relevant tax residencies. Identify settlors, beneficiaries, trustees, protectors, PTCs, underlying companies and relevant tax residencies.
2. Identify potential exposure — prioritise structures involving PRC-resident settlors and/or beneficiaries, potential control issues or PRC-connected underlying assets.
3. Gather the records — compile accounts, valuations, historic costs, asset injection and distribution records.
4. Address the 90-day window — work with PRC tax advisers to assess historical exposure and determine any voluntary reporting or payment action needed before 22 October 2026.
5. Review governance — ensure trustee independence, reserved powers, protector involvement and PTC decision-making are appropriately documented.
6. Review benefits provided — including distributions, loans, guarantees and personal use of trust assets.
7. Seek specialist advice — obtain PRC tax advice before making significant restructuring, termination, emigration or succession decisions.

30 / 60 / 90 day action plan

The practical review can also be phased using the 30 / 60 / 90 day framework set out in the client advisory:

Days 1–7 – Triage & residence: confirm residence and domicile, establish the structure register, engage advisers and issue data requests to trustees and banks.

Days 8–30 – Historical reconstruction: rebuild the asset injection ledger, identify cost-base and valuation gaps, compile the SPV list and conduct an initial CRS/KYC consistency review.

Days 31–60 – Tax computation and evidence pack: prepare annual income schedules, realised gains by asset, dividends and interest, distribution and benefits logs, and foreign-tax-credit evidence.

Days 61–90 – Decision and filing: determine the voluntary disclosure or filing strategy with PRC tax counsel, prepare the required forms, schedules and Chinese translations, and plan tax payment or instalments where applicable.

Apart from the above, ongoing governance is also required to maintain an annual PRC tax reporting calendar, trustee data pack and distribution-clearance protocol, and keep PTC and reserved-powers governance under review.

How we can help

Announcement No. 21 reinforces the importance of robust governance, accurate records and coordination between families, trustees and professional advisers.

Ascentium can support clients by compiling available trust documentation, accounts and transaction records, reviewing the administration and governance of existing structures, and working alongside clients’ legal and PRC tax advisers as they assess the implications of the new rules.

For families with existing offshore trusts, now is the time to review the structure, identify information gaps and obtain appropriate advice before taking significant action.