In late March 2026, two executives of Hong Kong listed companies served by Zhao Dong received phone calls from tax departments in economically developed areas along the eastern coast.

They are required to declare detailed financial information of their offshore trusts established overseas, including dividend income from overseas assets, investment income from buying and selling stocks of Hong Kong listed companies, and other related returns.

Zhao Dong is a client director at a cross-border investment consulting firm. His main job is to provide overseas investment advice to domestic individuals who establish offshore trusts and assist in resolving various issues during their overseas investment process.

In the past week, he has been particularly busy with work, having multiple meetings with colleagues from the legal and risk control departments to provide targeted responses to the "offshore trust asset income declaration and tax compliance issues" raised by high net worth clients.

The reporter learned that relevant departments have already taken action regarding the declaration of overseas asset returns. At the beginning of 2025, Shanghai has launched a special inspection, requiring relevant personnel to declare the overseas asset transfer situation in the past 2-3 years, including details of Hong Kong stock dividends, equity transfer income, etc.

Lawyer Fu Yue, who has long been responsible for cross-border investment business, also told reporters that a high net worth client she serves in the Yangtze River Delta region received a call from the local tax department in mid March, requesting to declare the overseas asset income status of offshore trusts. This means that more local departments are following international practices and doing a good job in taxing residents' overseas income.

Fu Yue stated that relevant local departments have levied taxes on the stock dividends of offshore trusts at a rate of 20%. If overseas trust holders are found to have deliberately evaded taxes, they will be subject to additional late fees and fines in accordance with the law.

Fu Yue believes that the measures taken by the tax department not only relate to tax compliance in cross-border investment, but also reshape the operational path of cross-border investment. Especially with the trend of strengthening regulation in various countries around the world, the gray tax avoidance function of offshore trusts is continuously weakening. In the future, offshore trusts will return to the origin of wealth inheritance and risk isolation.

Concerns about Information Declaration

The so-called offshore trust is a trust structure established by high net worth individuals overseas, entrusting personal or family wealth to offshore trust trustees to better achieve goals such as wealth inheritance, asset risk isolation, and tax planning.

For a long time, offshore trusts have been favored by high net worth individuals in European and American countries, becoming an important tool for them to arrange their wealth.

In recent years, with the increasing number of domestic listed companies going public overseas, many executives of listed companies have become high net worth individuals through wealth accumulation. They have set up offshore trusts in offshore financial centers such as the Cayman Islands and the Virgin Islands, injecting overseas assets such as stocks of Hong Kong and US listed companies. On the one hand, they have completed asset risk isolation and wealth inheritance planning, and on the other hand, they have used offshore financial centers to implement policies exempting personal income tax, corporate income tax, and capital gains tax on offshore trusts, achieving tax avoidance purposes.

However, as tax authorities in multiple regions require offshore trust holders to declare detailed financial information, these high net worth individuals are beginning to worry about their offshore trust tax compliance issues.

Over the past week, Zhao Dong has found that the most frequently consulted question by high net worth clients is "What should I do if the reported overseas asset returns of offshore trusts do not match the data held by relevant departments

After communicating with the risk control and legal departments, he gave a unified response: "It is essential to make a truthful and complete declaration first.

Some high net worth clients still hold a lucky mentality, "Zhao Dong said. They always feel that offshore financial centers such as the Cayman Islands, Virgin Islands, Isle of Man, Jersey, etc. have offshore trust holder information protection policies that can hide their overseas assets and income status.

In fact, since September 2018, China has completed information exchange with 47 countries and regions around the world through the CRS (Automatic Exchange of Financial Account Tax related Information) mechanism, covering Hong Kong, Macau, Singapore, Australia, Canada, Japan, South Korea, the Cayman Islands, the Virgin Islands, and others. Since then, information related to bank accounts opened by Chinese residents overseas, insurance products purchased, offshore trusts established, and overseas financial assets held will be automatically reported back to relevant domestic departments through official channels.

Wei Junjun, a lawyer at Hai Zhengce Law Firm, pointed out that the essence of the CRS mechanism is a tax declaration system for countries around the world to jointly prevent wealthy individuals from evading taxes across borders. Its core approach is to promote the sharing of financial asset information among their residents in various countries. In the early stages of the implementation of the CRS system, due to limited data exchange and other factors, the relevant departments had a low proportion of spot checks on overseas assets such as offshore trusts of Chinese residents, leading some people to have the misconception that overseas assets do not need to be taxed. With the continuous improvement of the CRS mechanism, the overseas accounts and offshore trust financial information of Chinese residents are no longer confidential, and concealed declaration will trigger severe punishment. ?Wei Junjun said.

Zhao Dong found that truthfully and completely declaring the overseas asset income status of offshore trusts did not make high net worth clients feel at ease. Instead, they began to worry about how to properly resolve inconsistencies in data even after truthful and complete declaration.

At present, Zhao Dong's suggestion is to first collect various asset transaction vouchers and asset proof materials of offshore trusts, and then communicate with relevant departments.

Previously, a high net worth client of Zhao Dong discovered that two overseas accounts he had cancelled in previous years were still being reported to relevant Chinese departments through the CRS mechanism after declaring the income status of offshore trust overseas assets, resulting in inconsistencies between his declared data and the data held by the relevant departments. So he submitted the relevant documents for the cancellation of overseas accounts, so that the relevant departments could re evaluate his overseas asset income status without paying "additional" tax amounts.

Fu Yue also noticed that another reason why high net worth individuals have concerns about declaring the overseas property income of offshore trusts is the fear of being subject to double taxation. Recently, two high net worth clients consulted with me on how to properly resolve such issues, "said Fu Yue. A few years ago, they invested in US registered hedge fund products through offshore trusts and paid a capital gains tax in accordance with relevant US laws when redeeming shares. Nowadays, they are concerned about whether they will be required to pay secondary taxes if they declare the overseas asset income status of offshore trusts.

One of the high net worth clients informed Fu Yue that if they were subject to double taxation, their investment income would turn from profit to loss.

On April 8th, Fu Yue suggested that they first collect relevant capital gains tax payment proof materials and apply for tax credits when truthfully declaring the overseas asset income status of offshore trusts to relevant Chinese departments.

Urgent rectification of 'tax avoidance targets'

On April 6th, Zhao Dong received a consultation call from a senior executive of a Hong Kong listed company in the eastern coastal region, who bluntly stated that he had encountered a difficult problem.

Originally, this executive of a listed company established an offshore trust with the goal of tax avoidance in 2022, and fully invested his holdings of Hong Kong listed company stocks, stock options, and other overseas assets.

This type of offshore trust with the goal of tax avoidance involves finding local residents in offshore financial centers to act as "custodians" of the offshore trust during the structural design phase, without first establishing beneficiaries, making it difficult to trace the true identity of the offshore trust holder and thus achieving the concealment of personal overseas assets.

At the end of March, after hearing that the local tax department required relevant personnel to declare the overseas asset income status of offshore trusts, this listed company executive quickly realized that such offshore trusts could put them at risk of "tax evasion penalties". He found Zhao Dong through his friendship, hoping to complete the "compliance" of offshore trusts before declaring the personal overseas asset income status of offshore trusts.

Zhao Dong frankly stated that in previous years, offshore trusts aimed at tax avoidance were highly sought after by high net worth individuals in China and executives of overseas listed companies. The reason was that relevant offshore trust service providers exaggerated the hedging function of such offshore trusts - as long as the relevant departments could not find the actual owner identity information of offshore trusts, they could "perfectly" achieve the effect of concealing personal overseas assets and tax avoidance.

However, as countries continue to strengthen their investigation and control of overseas asset information of their residents, offshore trust structures aimed at tax avoidance have become a key regulatory target for relevant departments in various countries. With the assistance of big data and artificial intelligence technology, relevant departments in various countries can track the flow of funds in such offshore trusts and trace the true identity of their actual holders and overseas wealth assets. At that time, holders of such offshore trusts will face stricter cross-border asset income reviews and tax penalties.

On April 7th, Zhao Dong contacted an offshore trust service provider, hoping that the latter could quickly provide an offshore trust structure adjustment plan. This offshore trust service provider stated that it is handling another similar case.

This made Zhao Dong realize that the regulatory measures against offshore trusts sent a clear signal: offshore trusts are neither tax avoidance tools nor a shield for hiding overseas assets.

Zhao Dong has suggested to the company's senior management that starting from mid April, the focus should be on investigating the compliance of business operations of all offshore trust service providers' partners. If it is found that they have been selling "high-risk" offshore trusts with the goal of tax avoidance in the past, they will be directly blacklisted and no longer recommended to domestic high net worth clients.

Shift from pursuit to observation

Zhao Dong also noticed that the attitude of high net worth domestic clients towards setting up offshore trusts is shifting from "seeking" to "watching".

Since April, several high net worth clients who used to proactively inquire about offshore trust establishment plans every two to three days have suddenly become indifferent.

Zhao Dong once reminded them to submit personal financial information and other supplementary materials as soon as possible, but the feedback they gave was almost always that they were dealing with other important work and the establishment of an offshore trust could be handled slowly.

A high net worth client told Zhao Dong that as relevant departments in multiple regions require offshore trust holders to declare detailed financial information, many high net worth individuals have a premonition that the tax avoidance nature of offshore trusts will be significantly weakened and need to reassess the necessity of establishing offshore trusts.

Fu Yue also felt that the attitude of high net worth individuals towards offshore trusts has undergone significant changes.

At the beginning of this year, several high net worth clients approached her to inquire whether the relevant design structure, tax planning, and other terms of offshore trusts could meet their expectations. But in the past week, these high net worth clients have called to inquire about whether it is necessary for them to establish offshore trusts - if the tax avoidance function of offshore trusts is significantly weakened, they may as well set up overseas accounts to carry out global investments, which can save considerable offshore trust establishment and operation costs.

Fu Yue reminded that the reason why offshore trust business has been able to last for over a hundred years is that its core value has never been tax avoidance, but through professional entrusted management, enabling global high net worth individuals to better achieve wealth inheritance and asset risk isolation.

Fu Yue believes that the requirement for offshore trust holders to declare detailed financial information by relevant departments in multiple regions is not to deny the value of offshore trusts, but to remove their "grey function" of tax avoidance and return them to their original positioning - wealth inheritance and asset risk isolation. This may drive the offshore trust market from its wild growth in previous years to a new stage of standardized development.

(At the request of the interviewee, Zhao Dong is using a pseudonym)