How Trusts Work
Elements Process Result Third-party trustee Client, also known as Settlor, conveys ownership to trustee May leave client with less tax liability Offshore For taxpayers in places where wealth-planning trusts don’t exist Adds layer of protection against third-party claims Beneficial owner Eventually, the trustee should distribute income or capital to the beneficial owner Effectively defers taxes
Trusts put assets under the ownership of third-party trustees. That can sometimes limit an owner’s ability to make some decisions, but can also help steer away from taxes as high as 20 percent on profits of what Chinese authorities consider “controlled foreign corporations.”
Broader Crackdown
Wealth planning offices aren’t the only ones busied by the reforms. China’s tax authority is also swamped with inquiries.
A representative for the national government’s tax hotline said they are busier this year handling queries.
Alan Jia, chief executive officer at wealth-planning adviser Ishtar Consulting Inc., started helping clients set up trusts well before the latest tax reforms came into view.
“Setting up a trust takes time,” Jia said. “Many of our clients had anticipated the tax reform and reacted earlier on.”
China’s State Administration of Taxation didn’t respond to a faxed request for comment.
In September, China implemented an international data-sharing agreement called the Common Reporting Standard, making overseas money much more visible to mainland officials.