Introduction
On 24 July 2026, the People’s Republic of China (“PRC“) took a landmark step in the taxation of offshore trusts or legal arrangements with trust-like functions established under foreign law, with the publication of two Announcements:
- Announcement No. 21 of 2026 on matters relating to individual income tax (“IIT“) on offshore trusts, which was jointly issued by the Ministry of Finance and the State Taxation Administration (“STA“); and
- Announcement No. 15 of 2026 on tax administration matters relating to offshore trusts, issued by STA.
Together, the Announcements create a comprehensive framework for the taxation of offshore trusts funded or controlled by PRC tax residents (“PRC resident individuals“), as well as trusts holding PRC-situs or PRC-source assets funded by non-residents. Broadly speaking, a 20% IIT now applies:
- to capital gains of a trust asset at the time of asset transfer into the offshore trust;
- to income earned during the life of the offshore trust, even if such income is not distributed;
- to distributions and deemed distributions; and
- upon termination of the offshore trust.
The Announcements took immediate effect upon publication and apply retroactively, potentially reaching back to trusts settled from 1 January 2023. Where the outstanding amounts are “substantial”, the tax authority may extend the look-back period beyond 2023.
Where an affected person is a tax resident of Singapore, however, he/she may fall under the protection of the Singapore-China Avoidance of Double Taxation Agreement (“DTA“). Under Article 13(6) of the DTA, if an individual qualifies as a Singapore tax resident under the DTA, gains from trust property transfers (other than the specified exceptions) should be taxable only in Singapore. Singapore has no capital gains tax – essentially providing an exemption from the new tax regime for offshore trusts.
Critically, a 90-day transition window commenced on 24 July 2026 and will close on 22 October 2026. During this period, taxpayers may regularise their tax position in respect of pre-existing trust structures without incurring late payment surcharges. As the window is already running, immediate action is essential for you to confirm whether the DTA may apply to you.
Below, we cover (i) what the new tax regime entails; (ii) the protections offered by the DTA; and (iii) how we can assist those who are unsure whether they can avail themselves of the benefits of the DTA.
What Does the New Tax Regime Entail?
Who will be taxed?
Affected individuals include:
- PRC resident individuals who have settled assets into offshore trusts (“PRC settlors“). This includes those holding foreign nationality or permanent residency abroad whose principal economic interests derive from the PRC. However, the concept of “principal economic interests” is not defined in the Announcements, leading to some ambiguity.
- Non-resident individuals who have contributed PRC-situs or PRC-source assets to offshore trusts, or whose trusts are effectively controlled by PRC residents (“non-PRC settlors“).
- PRC resident beneficiaries receiving distributions from trusts settled by non-residents.
When can tax be levied, and how much?
| Situation | Applicability | Quantum |
|---|---|---|
| When the settlor transfers assets into an offshore trust | Applies where the settlor is:
| Capital gains (being the assets' market value upon transfer less its original cost and reasonable expenses) are taxable at 20% |
| Where income is generated from trust assets | Applies where the settlor is a PRC settlor | Income and capital gains are taxable annually at 20%, regardless of whether any distribution is made |
| Distributions and deemed distributions (where trust assets are used to provide collateral, guarantees, loans, expense payments or other benefits to the resident contributor or their related parties) | Applies where the settlor is:
| Distributions and deemed distributions are taxable at market value at 20% |
Deemed sale:
| Applies where the settlor is a PRC settlor | Proceeds are taxable at 20% |
| When the offshore trust is terminated or liquidated | Applies where the settlor is:
| Proceeds are taxable at 20% |
What Protections Does the DTA Offer?
For Singapore tax residents, Article 13(6) of the DTA provides that gains derived from the alienation of any property shall be taxable only in Singapore, except for the following types of property:
- immovable property situated in the PRC;
- ships or aircraft operating in international traffic or movable property pertaining to the operation of such ships or aircraft;
- shares deriving more than 50% of their value directly or indirectly from immovable property situated in the PRC; and
- shares, participation or other rights where the alienator has a participation, directly or indirectly, of at least 25% in the capital of that company or other legal person that is resident in the PRC.
For all other categories of property, the residual gains rule under Article 13(6) should, in principle, apply to restrict the PRC’s taxing rights over Singapore tax residents.
Who can benefit from the DTA?
PRC citizens residing in Singapore who can establish Singapore tax residency under the DTA stand to benefit most significantly from the residual gains rule. However, what if an individual is a tax resident in both Contracting States (i.e. Singapore and the PRC)?
In such cases, an individual’s tax residency for DTA purposes is determined by the DTA’s tie-breaker clause (Article 4(2)) based on a hierarchy of factors:
- Permanent home: the individual is deemed resident in the State where they have a permanent home available to them;
- Centre of vital interests: if a permanent home is available in both States, the individual is deemed resident in the State with which their personal and economic relations are closer;
- Habitual abode: if the centre of vital interests cannot be determined, the individual is deemed resident in the State where they have a habitual abode;
- Nationality: if they have a habitual abode in both or neither State, the individual is deemed resident in the State of which they are a national; and
- Mutual agreement: in any other case, the competent authorities of both States are to settle the question by mutual agreement.
An example where these tie-breaker provisions may become relevant is where a taxpayer is regarded as tax resident in both Singapore and China and maintains homes in both jurisdictions. In such cases, the analysis would turn on factors such as the location of the individual’s family, business interests, investments and day-to-day activities in determining his centre of vital interests.
To claim the benefit of the DTA, individuals should obtain a Certificate of Residence from the Inland Revenue Authority of Singapore (“IRAS“) to confirm their Singapore tax residency under the DTA.
What if Singapore tax residency is disputed by the PRC?
Even where a client qualifies as a Singapore resident under the tie-breaker clause and IRAS agrees, there remains a risk that the PRC tax authorities take a contrary view and seek to tax the individual as a Chinese resident. In such a scenario, the principal recourse is the Mutual Agreement Procedure (“MAP“) – a dispute resolution mechanism under the DTA through which IRAS and the PRC competent authority endeavour to resolve disputes regarding the application of the DTA.
As the MAP is conducted by IRAS, the taxpayer must apply to IRAS to initiate the process. Based on our understanding, most MAP cases to date have involved multinational corporations rather than individuals, and the acceptance of MAP applications is at IRAS’ discretion.
While IRAS does not accept all MAP cases (particularly where the quantum in dispute is modest), it may be possible to persuade IRAS to take on such cases given that many ultra-high net worth (UHNW) PRC citizens in Singapore are affected by the new offshore trust legislation. Policy-wise, allowing PRC citizens residing in Singapore to be taxed as PRC residents under the DTA would also undermine Singapore’s position as a wealth management centre.
How Rajah & Tann Singapore Can Assist
The new PRC offshore trust tax regime raises complex cross-border issues. Rajah & Tann Singapore is well-positioned to assist clients in navigating these challenges, drawing in particular on the protections afforded by the DTA.
Our team can provide comprehensive support across the full range of issues arising from the new PRC offshore trust tax regime, including:
- Advising on eligibility for DTA protection and preparing the evidence base for Singapore tax residency under the tie-breaker clause;
- Assisting with applications for Certificates of Residence from IRAS to formally confirm Singapore tax residency under the DTA;
- Analysing trust structures to identify which assets fall within the DTA carve-outs and which may benefit from the residual gains rule under Article 13(6);
- Advising on restructuring options to optimise DTA protection and minimise overall tax exposure;
- Representing clients in MAP applications to IRAS, including preparation of submissions and coordination with the Singapore competent authority;
- Coordinating with PRC tax advisers on cross-border compliance obligations, including IIT filings and the preparation of supporting documentation; and
- Advising on the interaction between Singapore domestic tax law and the new PRC rules, including the availability of foreign tax credits and the implications of Singapore’s territorial tax system.
We would be pleased to discuss the implications of the new regime for your specific circumstances and to assist you in developing a tailored strategy. Please do not hesitate to reach out to our team set out on this page.
For regional Tax matters, please see Rajah & Tann Asia’s Tax Practice Group for more information.
Disclaimer
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