A landmark tax regulation for offshore trusts has been implemented, creating significant potential tax liabilities for high-profile Chinese entrepreneurs. A notable example is PDD Holdings Inc (NASDAQ: PDD) founder Colin Huang, who may face a tax bill of around 50 billion yuan on the massive capital gains from his shares in the company.
On July 24th, China's Ministry of Finance and the State Taxation Administration jointly issued Announcement No. 21 of 2026. According to Zhong Lun Law Firm, the new rules adopt a "transparent" tax model, effectively looking through the trust structure and treating all income within the trust as the personal income of its settlor. The policy has no transition period, covers the entire lifecycle of a trust from creation to termination, and requires a retrospective settlement for existing trusts.
One of the key tax bills under this new regulation targets the cost basis of shares held in trusts, calculated at their pre-IPO price. Whenever these shares are sold, a 20% tax will be due on the entire appreciation from the cost price to the market price. For successful entrepreneurs, the original cost is negligible, making the tax base nearly equal to the current market value.
Colin Huang holds approximately one-quarter of PDD Holdings, representing a market value of around 250 billion yuan, with a potential tax liability of 50 billion yuan. Xiaomi Corp (OTC: XIACY) founder Lei Jun holds a similar amount of Xiaomi shares, also facing a potential tax bill of 50 billion yuan. Other notable figures include Jack Ma with approximately 17 billion yuan, and Lin Bin with about 15 billion yuan. Richard Liu, Zhang Yong, Xu Shihui, and Wang Xing each face potential taxes of around 8 billion yuan, while Wu Yajun is looking at over 5 billion yuan in potential taxes.
This money does not need to be paid immediately, but it hangs over these individuals like the Sword of Damocles, ready to fall the moment they decide to sell their shares.
The 2.7 Trillion Asset Target: The End of a 20-Year Tax Avoidance Myth
The announcement from July 24th has sent shockwaves through China's high-net-worth community, dismantling a tax avoidance strategy that had been a quasi-standard practice for two decades. In the first weekend after the news, the country's top family offices and cross-border tax firms were working around the clock, with some checking trust dividend records, others consulting on restructuring plans, and many trying to determine if their trust's establishment date falls within the scope of the retrospective rules.
The "Free Ride" of the Past Two Decades is Now Closed
For the past 20 years, placing company equity and large cash sums into Cayman or BVI family trusts was a standard operating procedure for many Chinese tycoons before and after their companies went public. The strategy was simple: assets were nominally transferred to an offshore trustee. As long as the income was not repatriated to China, equity appreciation, company dividends, and inheritance for future generations were not taxed. Combined with low offshore tax rates and strict secrecy laws, this created an almost public "tax-free safe."
While China's tax law has long had a principle of global taxation, the lack of cross-border information and fuzzy enforcement rules allowed this structure to remain in a grey area. This changed with the arrival of the Common Reporting Standard (CRS), which now covers about 140 countries. China's tax authorities have access to vast amounts of offshore account data through CRS information exchanges. With the full launch of the Golden Tax System Phase IV in 2025, the information exchanged on offshore trusts can be cross-referenced with domestic tax filings, bank records, and business registration data, with system alerts for any anomalies.
The new Announcement No. 21 has effectively removed the final barrier between "having information" and "being able to tax." Zhong Lun Law Firm's interpretation confirms that the new rules adopt a "full transparency" approach, ignoring the legal form of the trust and directly attributing the trust's income to the settlor. This is not a "new rules for new people" policy; it covers the entire lifecycle of all trusts, including existing ones.
Three Phases of Taxation: Entry, Holding, and Exit
The core of the new rules is simple: taxation at three key points, all at a uniform rate of 20%. While 20% is lower than the top rates in the US (37%) or Japan (55%), the real impact lies in the "how" and "when" of the tax collection.
First Phase: Taxation at Establishment
The moment assets are transferred into the trust, it is deemed a transfer of property. A 20% individual income tax is levied on the difference between the market value at the time of transfer and the cost basis. This tax must be paid even if not a single share has been sold or a cent of cash has been received.
Second Phase: Annual Taxation of Trust Income
All income generated by the trust during its existence, whether it is actually distributed to the settlor or not, must be declared and taxed at 20% each year. The old strategy of "transfer in but never distribute" is now invalid. Furthermore, trust management fees, legal fees, and investment advisory fees are not deductible. Investment losses cannot be carried forward to offset future gains, meaning the actual tax burden is higher than the nominal 20%.
Third Phase: Taxation at Termination
When the trust is terminated, the settlor changes nationality, or even upon the settlor's death, a final liquidation is triggered based on the market value of the assets at that time. The total appreciation is taxed. Changing nationality to avoid this tax is no longer a viable strategy, as the rules state that if an individual's primary economic interests remain in China, they are still considered a Chinese tax resident.
Three Tax Bills: Who is Under Pressure and Who is Safe
Market estimates of the tax bills facing these billionaires have been circulating widely. Based on publicly disclosed trust structures, dividend payments, and market capitalizations, the situation breaks down into three distinct scenarios.
First Bill: Immediate Cash Payouts Due Within 90 Days
This bill covers dividends and gains from share sales received by trusts before 2026. The deadline is approximately October 22nd. Paying within this window avoids late fees, which are charged at 0.05% per day (18.25% annually) if missed. These are market estimates, not official data. The amount is related to how much the company has historically paid out in dividends.
Heaviest payers include Wu Yajun, with an estimated 2.5 to 3 billion yuan, as Longfor Properties has been a consistent dividend payer. Xu Shihui of Dali Foods is next at approximately 1.5 billion yuan, followed by Zhang Yong and Shu Ping of Haidilao at around 1.4 billion yuan. Richard Liu is estimated to owe 800-900 million yuan, Sun Hongbin 500-600 million yuan, and Jack Ma 300-400 million yuan.
The most interesting cases are Colin Huang and Meituan's Wang Xing. While their trust assets are among the largest, Pinduoduo and Meituan have never paid dividends. Since their trusts have no cash income, they owe almost nothing for this bill, making them the "luckiest" under the new rules.
Second Bill: The Hanging Sword of Deferred Tax
This is the biggest bill. The cost basis for shares in the trust is the pre-IPO price. When sold, a 20% tax is due on the entire appreciation. For successful founders, the original cost is negligible, making the tax base nearly equal to the current market value.
Colin Huang's 25% stake in Pinduoduo is worth about 250 billion yuan, with a potential tax of 50 billion yuan. Lei Jun's Xiaomi stake is similar, also at 50 billion yuan. Jack Ma's potential tax is 17 billion yuan, Lin Bin's 15 billion yuan, and Richard Liu, Zhang Yong, Xu Shihui, and Wang Xing each owe about 8 billion yuan. Wu Yajun's potential tax is over 5 billion yuan. The total deferred tax for just these top entrepreneurs is nearly 170 billion yuan, nearly 20 times the first bill. This money isn't due immediately, but it will be the moment any shares are sold.
Third Bill: The "Entry Tax" for Those Caught in the Retrospective Net
If assets were transferred into a trust after January 1, 2023, the full "entry tax" at the time of establishment must be paid. This hits founders of companies that went public in the last three years. For example, Horizon Robotics' Yu Kai, who transferred shares in March 2024 at a valuation of 63 billion yuan, may owe 2.1 billion yuan. Good Me's Wang Yun'an may owe 1.6 billion yuan, and the four founders of Chagee may owe a combined 1.4 to 2.8 billion yuan. Some individuals, like those who set up trusts before 2023 or founders of H-share companies like Mixue, Maogeping, and Laopu Gold, who hold shares directly, are not affected by this specific bill.
The Most Painful Timing Discrepancy
The most interesting aspect of the new rules is the retrospective timeline. The "entry tax" only applies to trusts established between 2023 and 2025. Older trusts are not subject to this tax, and those who never set up a trust are also safe. This means the group that rushed to set up offshore trusts during the post-pandemic boom of 2023-2025 are the ones who are now caught. As the saying in the wealthy circle goes, "Early is safe, late is safe, but the middle is the most dangerous."
The rules do offer a buffer. Those who have difficulty paying the full tax at once can apply to pay in installments over five years. Taxes already paid overseas can also be credited against the Chinese tax bill.
Is There Any Future for Offshore Trusts?
The new rules mean that the value of offshore trusts as a tax avoidance tool has been effectively eliminated. While the primary motivation for setting up these trusts was tax optimization (70%), the remaining functions of asset protection and wealth succession (30%) still exist. These functions, such as protecting assets from marital disputes or business risks, remain, but they are now completely separate from any tax benefits.
The legitimacy of these trusts has also been under scrutiny recently, with high-profile cases like the freezing of Hui Ka Yan's 2.3 billion USD trust fund and the dispute over the Zong family's 1.8 billion USD trust. For the average person, this massive tax enforcement represents a move towards tax fairness. The era of massive stock appreciation being untaxed is ending. The next 90 days will be the busiest quarter in the history of offshore trusts, as individuals scramble to pay taxes, restructure, or simply decide if the annual fees for maintaining their offshore structures are still worthwhile.
Note: All tax figures mentioned in this article are market estimates based on public information and are not official data. The final tax liability will be determined by the tax authorities.
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