US Expat Tax for Americans Living in Hong Kong

Expat Living In Hong Kong

Living overseas in Hong Kong will be an interesting experience and an opportunity to immerse yourself in this new culture with its expansive skyline and beautiful harbour. While Hong Kong has a high cost of living as compared to the U.S. and is a bit crowded, it is fascinating place to live where East truly meets West. On the whole, many expatriates do find it relatively easy to live in Hong Kong.

The territory consists of Hong Kong Island separated from mainland China by the Sham Chun River, with the Kowloon Peninsula to the north and the New Territories further north, as well as its more remote outlying islands.

Guide To US Expat Tax In Hong Kong

The Tax Samaritan country guide to US expat tax in Hong Kong is intended to provide a general review of the tax environment of Hong Kong and how that will impact your U.S. expatriate tax return as a U.S. Expat In Hong Kong.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Hong Kong and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the Hong Kong, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in Hong Kong and this brief article will address a few of those considerations.

Hong Kong Expat Income Taxes

Who Is Liable For Income Taxes In Hong Kong

In Hong Kong, Individuals earning income that arises in or is derived from a Hong Kong office or Hong Kong employment, or from services rendered in Hong Kong during visits of more than 60 days in any tax year, are subject to salaries tax. Hong Kong observes a territorial basis of taxation; therefore, the concept of tax residency has no significance in determining tax liability, except in limited circumstances.

The Hong Kong government taxes only income earned within the city. Expatriates and residents are taxed at either a progressive 2% to 17%, depending on income level, or a standard rate of 15%.

Tax Year In Hong Kong And Tax Filing And Payment Rules

The tax year in Hong Kong runs from April 1 to March 31. Penalties apply for breaches of time limits in filing returns

At Tax Samaritan, we can guide you with the compiling and proper reporting of your tax return information on a calendar-year basis. We have many clients that are faced with the challenge of acquiring information based on a calendar year and as our client we will share with you our tips and tricks for acquiring your required calendar year tax information.

Expat Tax Withholding In Hong Kong

No payroll or withholding tax requirements apply for purposes of salaries tax, except for a taxpayer who is about to leave Hong Kong for over one month (other than in the course of his or her employment). Profits, property and salaries tax all operate under a system of prepaid tax, known as provisional tax. The provisional assessment for a tax year is an estimate, normally based on the preceding year’s assessment, and is payable in two installments: one equal to 75% of the preceding year’s tax liability, usually payable in the final quarter of the relevant tax year, with the remaining 25% payable three months later. When the actual income for the tax year is determined, a final tax assessment is issued, giving credit for provisional tax already paid. The final tax assessment is combined with a provisional tax assessment for the following year. The final tax is payable at the same time as the 75% installment of provisional tax for the following year.

What You Need To Know About Living And Working In Hong Kong For Your U.S. Expat Tax Return

When dealing with US expat tax in Hong Kong, there a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it will reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in Hong Kong include the:

• If you are a U.S. citizen or a resident alien of the United States and you live in Hong Kong, US expat tax in Hong Kong is based on your worldwide income and as such must file a U.S. return for all the years that you are residing in Hong Kong. However, when it comes to your US expat tax in Hong Kong you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to US expat tax in Hong Kong, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Hong Kong. A U.S. taxpayer working overseas in Hong Kong may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in Hong Kong does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.

When faced with US expat tax in Hong Kong there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.

Hong Kong Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in Hong Kong is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).

The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).

The FBAR must be filed with the Treasury Department (it is not filed with your your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at HSBC (Hong Kong and Shanghai Banking Corp), Bank of China, Hang Seng Bank or at another bank in Hong Kong or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Hong Kong Social Security Totalization Agreement

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.

Since Hong Kong does not impose any social security taxes, there is no Totalization Agreement with the United States to avoid double taxation of social security income for US expat tax in Hong Kong.

U.S.- Hong Kong Tax Treaty And Tax Relief For US Expat Tax In Hong Kong

The U.S. does not currently have a tax treaty with Hong Kong.

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in Hong Kong. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in Hong Kong. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in Hong Kong or to request a free 30-minute tax consultation.

Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in Hong Kong and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in Hong Kong. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in Hong Kong. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in Hong Kong advice based on your individual needs.