Hong Kong taxes
Hong Kong is a considered a special administrative region within China, and as such it has a separate taxation system.
Hong Kong taxes income that originated in Hong Kong, regardless of whether you are a Hong Kong resident or not. So if you are working or earning in Hong Kong, or have passive income there such as rent from let property (for which there is a fixed income tax of 15%), or self-employment income, you are liable to pay income tax there. This is also true if you are paid by a Hong Kong company but don’t live in Hong Kong.
The good news is that Hong Kong’s income tax rates for employment income are relatively low, ranging from 2% to a maximum of 17%. There are also few other taxes: no VAT, wealth, capital gains, or gift or estate taxes, although there is a small stamp duty on immovable asset sales, for example the sale of stocks and property.
The Hong Kong tax year runs from April 1st to March 31st, and the Hong Kong Inland Revenue Department will issue you with a form soon after April 1st if you owe tax, which must be filed within a month of your receiving it. If you don’t receive a form, you must ask for one by July 31st.
The HK Inland Revenue Department has a great English language website here.
As a US citizen or green card holder living in Hong Kong, you are still liable to file a US federal tax return and pay US income taxes, however there are some exceptions and exemptions that it’s worth electing that will eliminate US tax liability for many people.
The Foreign Earned Income Exclusion allows you to exclude up to around $100,000 of foreign earned income (either salary or self-employment) income if you can prove that you are resident in Hong Kong or spend at least 330 days a year outside the US (excluding days travelling).
The Foreign Housing Exclusion meanwhile allows you to claim back some of their foreign housing expenses, including rental (but not mortgage payments).
Both the Foreign Earned Income Exclusion and the Foreign Housing Exclusion can be claimed on form 2555, which should be filed with your annual federal return.
Expats must still pay any tax due by April 15th, however there is an automatic filing extension for expats until June 15th, and this can be extended still further until October 15th if required.
Other filing requirements
Americans with a minimum of $10,000 in foreign financial accounts, such as all kinds of bank and investment accounts, at any time during the tax year also have to file an FBAR, or Foreign Bank Account Report. This is form FinCEN 114, and it should be filed online at the same time as you file your federal return.
The Foreign Account Tax Compliance Act (often referred to as FATCA) meanwhile requires expats who have a minimum of $200,000 of foreign assets, excluding a house owned in their own name, to report them by filing form 8938 along with their federal return.
It’s worth noting that penalties for incomplete or incorrect expat tax filing can be strict, more so than for Americans living stateside.
If you are living in Hong Kong temporarily, for example for a fixed-term employment contract, of if you are paying US social security contributions, you aren’t required to pay into a Mandatory Provident Fund the way permanent Hong Kong residents are.
US expat taxes are typically more complex compared to those for Americans living Stateside, and if you have any doubts about your situation or obligations, seek advice from an expat tax specialist, as penalties for incorrect or incomplete filing can be steep.
With clients in over 150 countries, Bright!Tax is a leading US expat tax services provider for the 9 million Americans living abroad. If you have any questions regarding your tax situation, don’t hesitate to get in touch for some advice.