Beijing clarifies offshore trust tax rules, exempting Hong Kong MPF accounts

China’s finance ministry on Friday clarified the enforcement details of its offshore trust tax, officially excluding Hong Kong pension fund accounts held by mainland Chinese and providing detailed calculation methods for publicly traded Hong Kong stocks and stakes in non-listed firms.

The move comes after Beijing’s trust tax circular on July 24 sparked widespread concern among wealthy Chinese families, including some who reportedly had to sell stakes in listed firms to raise cash.

China’s tax authority said earlier this week that it had collected 160 billion yuan (US$24 billion) in tax revenue from the policy.

In its statement on Friday, the Ministry of Finance addressed eight points, including calculation details, foreign exchange rates and the valuation of public and private firms.

Among them, Beijing exempted shares sold in a top-up placement via the offshore trust of a major shareholder in a Hong Kong-listed company, provided the shareholder subscribed to the new shares at the same price through the same trust within 14 days of signing the placement agreement.

Notably, the guidance carved out an explicit exemption for Hong Kong’s Mandatory Provident Fund (MPF), addressing a key point of contention among cross-border professionals. Earlier, some Hong Kong-based mainland Chinese workers said tax authorities had contacted them for details regarding their MPF accounts, which were classified as offshore trusts in certain cases.

But the Ministry of Finance in a statement said the MPF was “regulated” by the Mandatory Provident Fund Schemes Authority (MPFA), providing “standardised retirement services to the general public”.

The MPF did not qualify as an offshore trust under China’s policy announced in July, it added.

In place since 2000, the MPF covered nearly 5 million employees in Hong Kong as of June, with about HK$1.67 trillion (US$213 billion) worth of assets under management, MPFA data showed.

Friday’s notice was also Beijing’s second official response to the feedback from stakeholders. In a clarification on October 19, the State Taxation Administration excluded employee share incentive trusts from taxation.

China has tightened its tax rules for individuals’ cross-border income this year amid fiscal pressure, imposing a 20 per cent levy on the assets transferred into and gains from offshore trusts owned by mainland taxpayers to curb tax evasion and asset outflows.

Before the 90-day grace period ended on October 22, some owners of listed mainland Chinese companies borrowed money or reduced their stakes for short-term liquidity, according to several media reports.

China’s hotpot chain Haidilao International saw its Hong Kong-listed shares dive as much as 7 per cent on October 13 after announcing an agreement to lend up to HK$100 million to its chairman and CEO Zhang Yong.

The State Taxation Administration said on Wednesday that “most taxpayers” were cooperative. In October alone, the offshore trust levy contributed over 120 billion yuan in tax revenue to China, driving a surge of nearly 90 per cent in national individual income tax receipts for the month.