China’s State Taxation Administration Photo: VCG

China's 90-day transition period for its offshore trust income tax policy has ended smoothly, with the vast majority of taxpayers actively cooperating and more than 160 billion yuan ($22 billion) in personal income tax declared, the State Taxation Administration (STA) said on Wednesday, according to the Xinhua News Agency.

More than 120 billion yuan was collected in October alone, contributing to a nearly 90 percent increase in nationwide personal income tax revenue for that month.

The Ministry of Finance and the STA issued a notice on July 24 clarifying individual income tax rules for offshore trusts. Under the policy, taxpayers receiving income from such trusts were given a 90-day transition period to declare and pay the relevant taxes without incurring late-payment surcharges. This transition period ended on October 22.

Explaining the policy's background in July, officials from the two departments noted that offshore trusts have been used for purposes including passing wealth between generations, cross-border asset allocation and risk management. However, some individuals have used offshore trusts, often established in jurisdictions with limited information transparency and relatively low taxes, to transfer assets, conceal wealth and evade taxes.

The officials said that the measures follow the principle under China's Individual Income Tax Law of taxing residents on their worldwide income. By clarifying tax rules for the establishment, operation and termination of offshore trusts, the policy aims to improve tax certainty and transparency, facilitate compliance, promote social fairness, safeguard national interests and stabilize taxpayers' expectations.

Li Xuhong, a professor at the Beijing National Accounting Institute, was cited by the Xinhua report as saying that taxing residents on their worldwide income, including income from offshore trusts, is a fundamental principle of China's Individual Income Tax Law and a common international practice.

“By setting out tax rules for different stages of offshore trusts and standardizing tax calculations, the measures have significantly improved policy certainty and transparency, helping to encourage compliance and allowing taxation to play a greater role in promoting fairness under the rule of law,” she added.

During the 90-day transition period, tax authorities provided targeted reminders and guidance to taxpayers, an official from the STA's Individual Income Tax Department said. As the deadline approached, the administration issued a further reminder on its official website and provided services to facilitate tax filing.

"With coordinated support from various parties and the active cooperation of most taxpayers, the policy's initial implementation has yielded notable results," the official said.

Tax authorities will next urge those who filed inaccurate returns or failed to file voluntarily after the transition period to declare and pay their taxes in accordance with the law, with late-payment surcharges imposed as required, the official said.

Taxpayers who still fail to file or submit accurate returns after being urged to comply will face formal tax investigations and other measures in accordance with the law. Those involved in particularly serious cases will be publicly exposed, the official added.

Tax authorities will also investigate and take action against unlawful intermediaries and individuals who induce or assist taxpayers in evading taxes, in accordance with relevant laws and regulations, and may publicly expose them depending on the circumstances. These measures are intended to ensure more effective implementation of the offshore trust income tax policy, according to the official.


Global Times