US Expat Taxes for Americans Living in Hong Kong

Filing US tax returns for US citizens living in Hong Kong is generally the same whether you are in the US or in Hong Kong. Your global income is subject to US income tax, regardless of where you live.

Staying in Hong Kong is an amazing experience because of sophistication, a good standard of living, beaches, mountains, good job opportunities and healthy climatic conditions. These are the reasons why Hong Kong attracts a lot of American Citizens.

Taxes for US expats living in Hong Kong are obliged to file US expat taxes with the federal government every year irrespective of where you live. In addition to a regular income tax return, the expats might be required to file F BAR which is reporting of foreign financial accounts.

The US is one of few governments that tax international income of its citizens and permanent residents, it does have special provisions to protect from the double taxation including:

• The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $105,900 in 2019).
• A foreign tax credit that could allow lowering your tax bill on your remaining income by certain amounts paid to a foreign government, and
• A foreign housing exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.

Another reason Hong Kong is popular among both corporations and expatriates for their headquarters is the favorable tax system. Hong Kong has a progressive tax rate, which is capped at 17% — much lower than most western taxes, including US expat taxes.

The salaries tax is levied on a taxpayer’s income, minus allowable deductions, personal allowances, and charitable donations. The maximum tax payable is limited to the standard rate on a taxpayer’s from employment, minus allowable deductions. The standard rate is 15% for the 2019 tax year. Property tax and profits tax is charged at the fixed standard rate of 15% at the end of the tax year. There are no deductions or personal allowances. There are no regional or state taxes in Hong Kong.

Hong Kong does not have a traditional social security system. They instead require a Mandatory Provident Fund which provides the framework for a privately managed fund to accrue financial benefits for the workers in Hong Kong when they retire. Currently, the minimum contribution is 5% of income (including cash equivalents) from both the employer and the employee and is also subject to a maximum annual contribution of HK$15,000 (from each party). If a taxpayer earns less than HK$7,100 each month, no payment is required.

If you are on a temporary stay in Hong Kong or pay into the US Social Security scheme, you are not required to pay into the Mandatory Provident Fund. Note that contributions to MPF and other recognized occupational retirement schemes are tax-deductible (up to HK$15,000).

Taxpayers Americans living in Hong Kong have their taxes are based on income earned within its borders vs. your residency. As an expat in Hong Kong, you’re taxed on any Hong Kong sourced employment income, pension income, and business profits and the rental income derived from there. That said, it doesn’t matter if you’re a non-resident except in certain limited circumstances.

The income tax rates range from 2% to 17%. Similar to taxes in the U.S., the percentage of tax that you pay increases as your income increases. However, Hong Kong tax rates are much lower than U.S. tax rates, meaning many U.S. citizens working in Hong Kong would pay less in tax locally than in the U.S.

Have a question or not sure how to file your US taxes

Our team of expat-expert CPAs and IRS Enrolled Agents can help you understand the intricacies of US expat taxes while living abroad, so you’ll be prepared when tax season comes around. CONTACT US TODAY to learn more!