4 August 2026 — PRC-connected high-net-worth individuals may no longer assume that offshore trusts are beyond the immediate reach of PRC individual income tax (IIT). Effective upon issuance on 24 July 2026, the landmark rules introduced look-through taxation and reporting obligations throughout an offshore trust’s life cycle and may bring longstanding arrangements under renewed scrutiny. The clock is already running. Certain historical exposures are covered by a 90-day transitional period, while delayed action may result in late payment surcharges and, where applicable, penalties. A “wait-and-see” approach therefore carries material risk.
The new regime expressly highlights economic interest connection when determining an individual’s domicile. In particular, an individual may be treated as a PRC-domiciled resident if their principal economic interests are considered to originate from China, despite foreign nationality or long-term or permanent residence overseas. It remains unclear whether this interpretation will apply only to offshore trusts or extend beyond the trust context. In either case, it could materially reshape the wealth management landscape for PRC-connected high-net-worth individuals.
An effective response to the new regime requires more than a technical interpretation of the rules. It demands a coordinated, commercially practical strategy addressing the broader factual circumstances, evidentiary matters, engagement with the tax authorities and, where necessary, dispute resolution. Professional assistance is essential to formulate and implement this strategy. This update outlines the principal rules and practical consequences, highlights emerging trends and sets out recommended next steps. High-net-worth individuals, trustees and family offices should consider seeking professional legal and tax advice to evaluate potential exposure and available courses of action.
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* Lydia Peh, Special Counsel at Baker McKenzie Hong Kong, and Shanwu Yuan, Principal Economist at Baker McKenzie New York, co-authored this legal update.