American tax for US residents living Hong Kong is generally the same whether you are in the United States or abroad. Your worldwide income is subject to US income tax, regardless of where you reside.
American Citizen or Green Card Holders Living in Hong Kong
The requirement to file US taxes for all US citizens and Green Card holder living in Hong Kong or abroad is the same and are subject to declare their worldwide income. The difference is the taxpayers living abroad can use Foreign Income Exclusion to exclude or reduce the taxable income or Foreign Tax Credits to get credits paid abroad and avoid double taxation.
Life in Hong Kong is amazing for numerous reasons including culture, good quality of life, sophistication and the mountains and beaches; which are just a stone throw away from the city.
All the American citizens living abroad and the US green card holders are required to file their worldwide income and pay taxes to IRS, irrespective of where in the world they reside or income is generated. Read Taxes for US citizens living in Hong Kong.
The good news for US expats living in Hong Kong is if you are paying income tax in Hong Kong, there are certain exclusions and exemptions available to prevent you from double taxation.
Another reason for Hong Kong’s popularity among both corporations and expatriates is its favorable tax system. The city has a progressive tax system, with tax rates much lower than those in most of the western countries.
Known as one of the global premier centers of finance, Hong Kong is an ideal setting for business and entrepreneurs. Thanks to the agreement between the US and Hong Kong government and with the reputation of a top tax haven, Hong Kong and its banking institutions are closely watched by the Internal Revenue Service.
If you are US citizen living abroad or planning to move to Hong Kong, it is advisable to understand US tax laws to avoid any penalties.
Hong Kong taxes are reported from April to March, while US taxes run from January to December. This discrepancy stresses the importance of maintaining detailed financial records with exact dates.
The tax system in Hong Kong is territorial and the country assesses a salary tax on income derived only from the Hong Kong sources. Working in Hong Kong can affect your taxes even if you do not stay for very long. Say if you earn income while on a short term assignment, you will need to report that income on your US taxes. Also, US expats need to report Hong Kong financial accounts and assets. US taxpayers with an aggregate of $10,000 or more in foreign financial accounts are subject to FBAR filing and reporting requirements. Also, the individual may be subject to FATCA reporting requirements if he/she has foreign assets valued at $200,000 and more while living abroad.
Expats may take benefit of one of two options for lowering their taxes:
- Foreign earned income exclusion that allows the individual to exclude the wages from US taxes. This option is available to those, who meet certain time-based requirements of residency.
- The foreign tax credit allows claiming credit for income tax paid to a foreign government.
Because of lower taxes here, American citizens living in Hong Kong it is more favorable for US expats to use foreign earned income exclusion. Hong Kong pension is not tax-free in the US. If you are participating in a Mandatory Provident Fund often called MPF, through your employer, you can deduct your contributions from Hong Kong taxes, however, your contributions are not deductible and your employer’s contributions are taxable for US tax purposes.
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!