Offshore trusts are becoming very popular among Chinese high-net-worth individuals (HNWIs) because they offers much more protection, flexibility, privacy and certainty than Chinese domestic trusts do. Offshore trusts were initially mainly used as part of pre-IPO planning for so-called Red Chip companies. “Red Chip” companies refers to companies that are mainly owned by Chinese entrepreneurs, organised under the law of a typical offshore financial centre such as the Cayman Islands, and listed on a major foreign stock exchange such as the Hong Kong stock exchange or the NASDAQ. The businesses of those companies are solely or mainly based in China. As the global capital market has slowed down in recent years and as more Chinese HNWIs have realised the unique benefits of offshore trusts in the areas of asset protection and succession planning, the number of Chinese HNWIs using offshore trusts for wealth planning is increasing rapidly.
However, setting up an offshore trust for a Chinese HNWI can be a complex task as a result of Chinese legal and tax constraints. This article provides an overview of the significant restraints and provides some solutions for working around them.
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