China Intensifies Tax Crackdown on Offshore Trusts, Seeks 20% Levy on Gains

Chinese tax authorities are intensifying a crackdown on offshore trusts used by the wealthy to hold shares in Hong Kong-listed companies, demanding detailed financial reports and in some cases proposing a 20% levy on investment gains plus penalties, people familiar said. The campaign, which began in Shanghai in early 2025, has spread to provinces including Jiangsu and Shenzhen, with officials seeking income disclosures from these trusts over the past two to three years. The move targets structures long considered a gray area, with some corporate owners now hesitant to create such trusts for upcoming Hong Kong IPOs. "Many are reviewing their structures," said Clifford Ng, a managing partner at Zhong Lun Law Firm in Hong Kong. China is seeking new tax revenue amid a sluggish economy and widening budget deficit. Personal income tax revenue jumped 11.5% in 2024 to a record 1.62 trillion yuan ($224 billion). The scrutiny of offshore trusts adds to restrictions on red-chip listings, where the securities regulator has moved to limit such offerings in Hong Kong, citing a need for greater transparency.