Hong Kong is one of the most popular destinations for American expats. Hong Kong is famous for its low income tax rates, highly efficient transportation network, skilled workforce and cultural openness. American expats Hong Kong must file expatriate tax returns and pay US expat taxes so it is important to understand various available exclusions. Specifically, US expatriates should learn more what is foreign earned income exclusion, foreign housing exclusion and foreign tax credits.
Which overseas taxes am I subject to on my foreign income in Hong Kong? How can I minimize US expat taxes paid when I file an expatriate tax return? Do you provide US expatriate tax services to American expats Hong Kong?
These questions are quite common from our clients, expats Hong Kong.
US taxpayers, both U.S. citizens and green card holders, are taxed on a worldwide income. It means that American expats have to file a tax return in Hong Kong as well as US expat tax return.
However, American expatriates can minimize US expat taxes if they take advantage of several provisions under Internal Revenue Code section 911.
- Foreign earned income exclusion. American expatriates who have foreign earned income can exclude up to $101,300 for 2016, $100,800 for 2015, $99,200 for 2014, $97,600 for 2013, $95,100 for 2012 and $92,900 for 2011 on US expatriate tax returns.
- Foreign housing exclusion. American expats Hong Kong can also deduct eligible foreign housing expenses. Hong Kong is considered one of the most expensive countries in Asia.
- Foreign tax credit. Although, Hong Kong has some of the lowest tax rates, American expats Hong Kong can deduct foreign taxes on a dollar-for-dollar basis and minimize US expat taxes.
Also, American expats must be aware that they may be required to report foreign financial accounts and to file the FBARs.
Tax system in Hong Kong – FAQ
I am an American expat living in Hong Kong. Is my worldwide income taxed in Hong Kong?
The system of taxation in Hong Kong is territorial. Hong Kong assesses a salaries tax on income derived only from Hong Kong sources. Paying overseas taxes in Hong Kong impacts US expatriate tax return and US expat taxes.
Who is considered a tax resident?
The residence status of an employee is not considered in determining a tax liability in Hong Kong. This is different from the US tax system.
What is the tax year in Hong Kong?
The tax year in Hong Kong runs from April 1 to March 31.
What is an income tax rate in Hong Kong?
Hong Kong has one of the lowest tax rates in Asia. The marginal tax rates vary from 2% to 17% (on chargeable income less personal allowances), however, a tax rate is kept at 15% (on chargeable income without deduction on personal allowances). American expats Hong Kong can claim a foreign tax credit for foreign income taxes paid in Hong Kong on US expatriate tax returns.
Which income is considered a taxable income in Hong Kong?
Generally, all income from any office or employment in Hong Kong is subject to salaries tax. This income includes such items as salary, bonus, commission, and leave pay, etc.
Can American expats Hong Kong file a tax return jointly with a wife?
Married people usually file separate tax returns. It might be advantageous to file a joint return in limited circumstances.
Is it a requirement to file a tax return in Hong Kong every year?
In April each year, the employer is required to submit an employer’s return to the Inland Revenue Department. American expats Hong Kong must file a tax return usually within one month of the date of issue by the Inland Revenue Department.
Does Hong Kong have a double-taxation agreement with the USA?
There is no such an agreement in 2013. Also, Hong Kong does not have a totalization agreement with the USA either that affects social security payments of self-employed individuals.
These are some of the basic expatriate tax issues that American expats in Hong Kong should review when they file an expatriate tax return and pay US expat taxes. It is important to check the latest developments by the Inland Revenue Department of Hong Kong.
If you need help with overseas taxes paid in Hong Kong and you would like to know how you can minimize US expat taxes and to file expatriate tax return, please seek assistance of an expat tax professional that specializes in international taxes. Tax experts at Artio Partners are pleased to offer international tax services to American expats, foreign nationals and green card holders.