Get to know the authorIt has been estimated that there are 60,000 Americans living in Hong Kong.
Living in Hong Kong is an amazing experience for a variety of reasons, including the culture, the sophistication, the quality of life, and the mountains and beaches just a stone’s throw from the city. As an American expatriate living in Hong Kong though, what exactly do you need to know regarding filing US expat (and Hong Kong) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Hong Kong, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“A person’s residence, domicile or citizenship is not relevant in determining liability to Hong Kong salaries tax under the domestic law.” – PricewaterhouseCoopers
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
If you pay income tax in Hong Kong, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Hong Kong resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Hong Kong. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Hong Kong governments share taxpayer info, and Hong Kong banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Hong Kong dual citizen, and you have been living in Hong Kong but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Hong Kong taxes – what you need to know
Hong Kong has a territorial rather than residential taxation system. This means that whether you are a resident or not, you are only liable to pay Hong Kong taxes on income sourced in Hong Kong. Income tax (known as Salary Tax) rates are low, ranging from 2% to 17%. There are also taxes on property rental income and self-employment profits.
The Hong Kong tax year runs from April 1st to March 31st, and tax returns are due by June 1st. The Hong Kong tax authority is called the Inland Revenue Department, and there is plenty of information in English on their website.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Hong Kong that you contact a US expat tax specialist.
