China’s tightening of tax rules around offshore trusts is creating a new demand risk for luxury jewellery and watch brands serving the country’s wealthiest consumers.

Rules introduced on 24 July treat the transfer of assets into an offshore trust as a disposal, with gains subject to individual income tax at 20%. Income generated by the trust can also be taxed annually at the same rate, including in some circumstances when it has not been distributed.

The measures apply retrospectively to certain assets and income from January 2023. A 90-day transitional period gives affected taxpayers until 22 October to declare historic liabilities and make payments without late penalties.

For luxury jewellery and watch businesses, the threat is significant. Clients facing large and unexpected tax bills might need to defer discretionary purchases. Others could become more cautious about highly visible spending as authorities increase their scrutiny of offshore wealth.