On July 24, the Ministry of Finance and the State Taxation Administration jointly issued Notice No. 21 of 2026. Zhong Lun Law Firm's interpretation suggests the new regulations adopt a "fully transparent" tax model, directly piercing the trust structure and treating trust income as the settlor's personal income. The policy has no transition period, covers the entire lifecycle from trust establishment to termination, and requires retrospective liquidation for existing trusts. Market estimates indicate that JD.com founder Richard Liu faces approximately 9 billion yuan in deferred taxes, plus an additional 800-900 million yuan in dividend back taxes, totaling around 10 billion yuan in tax liabilities.
Trillions in Assets Targeted: The 20-Year Tax Avoidance Myth for the Ultra-Wealthy is Shattered
On July 24, the Ministry of Finance and the State Taxation Administration dropped a bombshell—Notice No. 21 of 2026. The document, less than 3,000 words, took effect immediately, directly overturning a 20-year unwritten rule among China's high-net-worth circle. In the first weekend after the news, top domestic family offices and cross-border tax firms worked through the night. Some were auditing trust dividend flows, others were consulting on restructuring plans, and many were repeatedly confirming whether their specific timing fell within the scope of retroactive enforcement.
The Tax Avoidance Tool That Reigned for 20 Years is Now Completely Sealed Off
Over the past two decades, placing company equity and large cash holdings into family trusts in the Cayman Islands or BVI has been a standard pre- and post-IPO practice for Chinese tycoons. The strategy was simple: assets were nominally transferred to an offshore trustee, meaning the money was placed in the hands of an overseas manager. As long as the income was not repatriated to China, equity appreciation was tax-free, company dividends were tax-free, and future inheritance to children was also tax-free. Combined with the ultra-low tax rates and strict confidentiality systems in offshore jurisdictions, this essentially created a public "tax-free safe."
China's tax law has always had a principle of taxing global income, but due to poor cross-border information sharing and vague enforcement rules, this structure long operated in a gray area where it was "unchecked, untraceable, and uncalculable." That changed with the arrival of the Common Reporting Standard (CRS). CRS now covers approximately 140 countries and regions worldwide. Through CRS information exchanges, Chinese tax authorities have access to vast amounts of offshore account data. With the full launch of Golden Tax Phase IV in 2025, CRS-exchanged offshore trust information can now be directly cross-referenced with domestic tax filings, bank statements, and business registration data—anomalies trigger automatic alerts. The final mile between "having information" and "being able to tax" has been completely bridged.
Notice No. 21 effectively shatters this last barrier. According to Zhong Lun Law Firm's professional interpretation, the new rules adopt a "fully transparent" approach—ignoring the legal form of the trust and directly piercing the structure, treating all trust income as the settlor's personal income. There is no "new rules for new people" approach; instead, it covers the full lifecycle of the trust from establishment to termination, including settling old accounts for existing trusts.
Three Heavy Blows Cover the Entire Process: Entry, Holding, and Exit, All Taxed
The core of the new rules is straightforward: tax is levied at three key points, with a uniform 20% rate. While 20% may seem moderate compared to the US's top rate of 37% or Japan's 55%, the real impact lies in the "how" and "when" of taxation.
The first blow: Tax upon establishment, pay before receiving money. The moment assets are transferred into a trust, it is deemed a property transfer. Tax is levied at 20% on the difference between the market value at the time and the cost basis. Even if no shares are sold and no cash is received—once assets are transferred, the tax must be paid.
The second blow: Annual tax on holdings, payable whether dividends are distributed or not. All income from the trust during its existence must be declared and taxed at 20% annually, regardless of whether it is actually distributed to the settlor. The old practice of "contributing without distributing, deferring indefinitely" is now obsolete. More critically, trust management fees, legal fees, and investment advisory fees cannot be deducted. Investment losses cannot be carried forward to offset tax. Profits are taxed, losses are borne—resulting in an effective tax burden higher than the nominal 20%.
The third blow: Full liquidation upon termination, even emigration or death cannot escape. Upon trust termination, settlor's change of nationality, or even the settlor's death—a full liquidation is conducted at the current market value, with all appreciation taxed. Want to avoid taxes by "running away" with a change of nationality? The new rules are clear: obtaining a foreign passport is useless if the settlor's primary economic interests remain in China, they will still be deemed a Chinese tax resident. The taxes due cannot be avoided.
As industry insiders say, from entry to exit, from life to death, the entire process has sealed off all tax avoidance opportunities.
Three Bills Calculated: Who is Rushing to Raise Funds, Who is Secretly Relieved
Market estimates of the tax bills for the ultra-wealthy are already circulating. Based on publicly disclosed trust structures, listed company dividends, and market value data, we break down the calculations into three scenarios—different individuals face vastly different situations.
The first bill: Immediate cash payments due within 90 days. This covers dividends received and share sales by trusts up to 2025. The deadline is approximately October 22. Payments made within this window are exempt from late payment penalties. After that, a daily penalty of 0.05% is charged, an annualized rate of 18.25%, harsher than most business loans. Note: All amounts below are market estimates, not official data. The tax amount is unrelated to total wealth, only to whether the company paid dividends and how much was paid.
The heaviest payer is estimated to be Wu Yajun, with around 2.5-3 billion yuan. Longfor Group has been a dividend star in the real estate industry, paying stable cash dividends for years, resulting in the largest accumulated dividends in its trust account. Following closely is Xu Shihui of Dali Foods, with an estimated 1.5 billion yuan; Zhang Yong and Shu Ping of Haidilao, with approximately 1.4 billion yuan. Haidilao's payout ratio has climbed to 95% in recent years, with 4.5 billion yuan distributed in 2024 alone, creating a massive base. Next is Richard Liu, with around 800-900 million yuan; Sun Hongbin, about 500-600 million yuan; and Jack Ma, around 300-400 million yuan.
The most dramatic cases are Huang Zheng and Wang Xing. Both have trust assets among the largest in this group, but Pinduoduo and Meituan have never paid dividends since their IPOs—their trusts have no cash income. Thus, they owe almost nothing in this round of back taxes. With market values in the hundreds of billions, they don't need to pay a cent now, making them the "luckiest" under the new rules.
The second bill: The looming deferred tax bill of hundreds of billions. This is the real big one. The cost basis of shares in the trust is calculated at the pre-IPO price. When the shares are eventually sold, the entire appreciation from cost to market price is taxed at 20% in one go. For successful entrepreneurs, the original cost is nearly negligible—the tax base is essentially the current market value. Huang Zheng holds about a quarter of Pinduoduo's shares, with a corresponding market value of around 250 billion yuan, resulting in a potential tax bill of about 50 billion yuan. Lei Jun's stake in Xiaomi is similar, also around 50 billion yuan. Jack Ma faces about 17 billion yuan, Lin Bin around 15 billion yuan. Richard Liu, Zhang Yong, Xu Shihui, and Wang Xing each face about 8 billion yuan, while Wu Yajun owes around 5 billion yuan. For just the dozen or so entrepreneurs under the highest market scrutiny, the total deferred tax is close to 170 billion yuan—nearly 20 times the first bill. This amount doesn't need to be paid immediately, but it hangs like a Sword of Damocles, ready to fall as soon as they sell shares in the future.
The third bill: The "contribution tax" caught by the retroactive timeline. If assets were placed into a trust after January 1, 2023, the full contribution tax at the establishment stage must be paid. This precisely targets founders of companies that went public in the last three years. Yu Kai of Horizon Robotics, who contributed shares in March 2024, would need to pay about 2.1 billion yuan based on the company's valuation of 63 billion yuan at that time. Wang Yun'an of Good Me is estimated to owe about 1.6 billion yuan, with the four founders collectively facing nearly 3 billion yuan. Zhang Junjie of Chagee faces between 1.4 and 2.8 billion yuan. Yun Yeyi, COO of MiniMax, completed the contribution in November 2025—right at the end of the retroactive period.
Some have escaped. For example, Bloks Group's trust was established in 2022, predating the retroactive line. Companies like Mixue Bingcheng, Proya, and Laopu Gold use an H-share structure, with founders holding shares directly, eliminating the trust contribution step, so they owe nothing.
The Most Painful Timing: Safe Three Years Early or Late, but Caught in the Middle
The most intriguing aspect of the new rules is the retroactive timeline. The contribution stage only retroactively covers the three years from 2023 to 2025. Old trusts established before 2023 are not subject to retroactive contribution taxes. Those who hesitated and never set up a trust will follow the new rules from now on, with no old debts. It is precisely those who established their structures during the peak three years of post-pandemic offshore trust creation—2023 to 2025—who are fully caught in the retroactive net. The early movers among the old money hit the window perfectly, while the latecomers have yet to act. Those in the middle who jumped on the trend are now left holding the bag.
"Safe early, safe late, but most dangerous in the middle"—this has become the hottest topic among the ultra-wealthy. Of course, rules provide some buffer. Those who face significant difficulty in paying the full amount in one go can apply to the tax authorities and pay in equal installments over five years. Taxes already paid abroad can also be offset according to regulations.
Can Offshore Trusts Still Be Used? Only Two Functions Remain
After the new rules take effect, the conclusion is clear: the value of offshore trusts as a tax avoidance tool has been essentially eliminated. In the past, people flocked to set up offshore trusts for three main reasons: 70% for tax optimization, 30% for asset protection and succession. With the tax avoidance route blocked, only the non-tax functions remain—such as protecting against marital division, isolating business risks, and distributing assets across generations according to wishes. These functions still exist, but they have nothing to do with "tax exemption."
Incidentally, offshore trusts have been facing turbulence in recent years. In 2025, a Hong Kong court ordered the freezing of Hui Ka Yan's 2.3 billion USD offshore family trust. The same year, disputes over the 1.8 billion USD offshore trust of the Zong family of Wahaha also came to light. Tax avoidance, asset protection, and succession—these once-celebrated functions are each facing real-world tests.
For ordinary readers, this multibillion-dollar tax collection storm is a concrete manifestation of tax fairness. Salaried workers have income tax deducted before their wages hit their bank accounts, and freelancers pay tax when they issue invoices. The era when multibillion-dollar equity appreciation long remained outside the tax net is coming to an end.
The next 90 days will be the busiest quarter in offshore trust history. Some will scramble to raise funds for back taxes, others will restructure their plans, and there will be those who reconsider whether the offshore structure, costing hundreds of thousands in annual fees, is still worth it.
Note: All specific tax amounts for the tycoons mentioned in this article are market estimates based on public information, not official data. Final amounts are subject to determination by tax authorities.
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