US Taxes for Expats Living in Hong Kong

Expatriation from the United States has become increasingly common in recent years. Considered one of the world’s premier centers of finance, Hong Kong is an ideal setting for businesses and entrepreneurs. However, thanks to intergovernmental agreements with the U.S. and a reputation as a top tax haven, Hong Kong and its banking institutions are closely watched by the Internal Revenue Service.

If you’re an American expat living in Hong Kong, or if you’re planning on moving to Hong Kong in the future, it’s important to ensure your full compliance with U.S. tax laws both before and after you depart. Otherwise, you could be subject to costly civil penalties, or even criminal prosecution. Expatriates are not exempt from the IRS’ strict reporting requirements, and furthermore may be subject to additional taxes such as the exit tax. That said, there are tax perks available to expats living in Hong Kong, like the foreign earned income exclusion (FEIE) and the foreign tax credit. Using the credits and exclusions available to you can allow you to reduce your tax liability and avoid double taxation while residing abroad.

For help understanding your tax liability from our tax CPAs for American expatriates, call US Tax Help today at (541) 362-9127.

IRS Tax Filing Deadlines for Expats Living in Hong Kong

American citizens abroad required to file a yearly tax return with the IRS. However, recognizing that living abroad can cause long processing and shipping delays, the IRS allows several extensions of the normal mid-April deadline.

The first automatic extension pushes the filing deadline back 60 days from Tax Day, to mid-June. You may also request an additional deadline to push the filing deadline back six months from the original deadline, to mid-October. To request an extension, taxpayers should prepare and submit Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return). These deadline extensions are available to U.S. citizens residing overseas, resident aliens residing overseas, and members of the U.S. military who were on duty, outside the U.S., on Tax Day.

As an expatriate, you will need to prepare some additional forms to supplement Form 1040. These include IRS Form 2555, used by expats to claim the foreign earned income exclusion, and IRS Form 1116, used by expats to claim the foreign tax credit.

Expatriates in Hong Kong should also be aware of differences between Hong Kong and the U.S. in terms of timetables for reporting. Hong Kong taxes are reported April to March, while U.S. taxes run January to December. This discrepancy only emphasizes the importance of maintaining detailed financial records with accurate dates.

U.S. persons abroad are also subject to Social Security tax, otherwise known as FICA tax, named for the Federal Insurance Contributions Act. Taxpayers avoid double-taxation through the provisions of totalization agreements, also known as U.S. international Social Security agreements. However, as of this date, the U.S. has not yet entered into totalization agreements with Hong Kong or China.

Reporting Thresholds for IRS Form 8938 for US Expats Living in Hong Kong

One of the most prominent international information returns expats living in Hong Kong are responsible for filing is IRS Form 8938. This form deals with assets held by Americans in foreign financial accounts oversees.

If you live in Hong Kong, you will have to file Form 8938 if the total value of your foreign financial assets is more than $200,000 on the final day of the tax year or $300,000 at any point during the tax year. This threshold is for expats filing a return independently. For expats filing joint returns, the reporting threshold for Form 8938 is having $400,000 or more of foreign financial assets on the final day of the tax year or $600,000 at any point during the tax year.

Foreign financial assets refer to any financial accounts maintained by foreign financial institutions. This might include stocks, bonds, other securities, and bank accounts. Form 8938 is used solely for informational purposes and filing it will not increase your tax liability to the IRS.

FBAR Filing Requirements for US Expats Living in Hong Kong

In an effort to combat tax evasion, in 2010 the federal government passed a law known as FATCA, or the Foreign Account Tax Compliance Act. The FBAR (Report of Foreign Bank and Financial Accounts), which is often associated with FATCA, was also designed to encourage taxpayers to disclose offshore bank accounts held with foreign financial institutions (FFIs).

Unfortunately, FATCA and FBAR have also had negative effects on expats in Hong Kong, and indeed around the world. It is not unheard of for the IRS to investigate expatriates who use their foreign accounts for ordinary, day-to-day expenses. All individuals who hold accounts with FFIs, especially in known tax havens like Hong Kong, should familiarize themselves with the IRS’ FBAR filing requirements.

If you have financial interest in, or signature authority over, any financial accounts in Hong Kong or elsewhere outside the U.S. or have a foreign bank account with a value equal to or greater than $10,000 at any time, no matter how briefly, you will have to file an FBAR.

If you are married, it may be possible for you and your spouse to file an FBAR jointly, though in some cases separate submissions are required. Our tax CPAs for American expatriates will help you understand how you and your spouse are affected by FBAR, FATCA, and related reporting requirements and tax laws. FBARs can be filed online through the Financial Crimes Enforcement Network’s BSA E-Filing System.

Penalties for Not Filing Your US Taxes While Living in Hong Kong

Ignoring your reporting liability to the IRS, whether willfully or not, can lead to penalties. Such penalties vary, depending on the seriousness of the violation and the specific forms left unfiled by expats living in Hong Kong.

Failure to File the FBAR

If you fail to file an FBAR, the penalties can be severe – particularly if the IRS determines that your conduct was “willful,” or deliberate. Potential penalties for non-willful violations include fines of up to $10,000. For willful FBAR reporting violations, civil penalties might be assessed up to $100,000 per violation or 50% of the balance of the foreign bank account. Willful FBAR filing violations might also result in criminal penalties for $250,000 in fines and up to five years in prison.

Failure to File IRS Form 8938

Failure to comply with FATCA and not filing IRS Form 8938 can come with serious financial penalties for American expatriates living in Hong Kong as well. The initial penalty for failure to file Form 8938 when required is $10,000. If, after being notified of your delinquency by the IRS, you continue not to submit a completed Form 8938, you might be fined an additional $40,000 and face other consequences. It is important to note that filing Form 8938 will not alleviate your responsibility to submit an FBAR.

Failure to File IRS Form 1040

In addition to filing forms and reports specific to expats, Americans living in Hong Kong must also submit their annual tax returns to the IRS, regardless of if they have taxable worldwide income or not. The initial failure-to-file penalty is 5% of the tax owed for each month that your return is late, up to 25%. If you continue to fail to file your annual tax return while residing in Hong Kong, you might have additional consequences from the IRS.

Can My Passport Be Revoked if I Don’t Pay US Taxes While Living in Hong Kong?

All American expatriates, provided they have not revoked their American citizenship, have a tax reporting liability to the IRS. If you do not report your worldwide income when required to, your passport might be revoked.

When expats reach the stage of serious delinquency regarding their U.S. taxes, the United States Secretary of State might revoke their American passports. Currently, seriously delinquent tax debt refers to any tax debt totaling more than $59,000. This amount is adjusted annually for inflation.

While most expats will not be seriously delinquent, those who have lived in Hong Kong for many years without knowing about their tax liability to the United States might find themselves in such a situation.

If your passport has been revoked, you might be able to get a limited-validity passport allowing you to return directly to the United States to address your delinquency.

Will My Worldwide Income Be Taxed by the US if I Live in Hong Kong?

While worldwide income is subject to taxation by the IRS, the IRS does allow expats living in Hong Kong to exclude a significant portion of their income from taxation.

For 2024, the IRS has increased the foreign earned income exclusion to $126,500. This means you can exclude up to this amount of your foreign earned income from taxation by the IRS. Any income earned from U.S. sources will be subject to taxation and cannot be excluded using the FEIE. Any income earned from a foreign source that exceeds the FEIE will also be taxed by the IRS. You can claim the foreign earned income exclusion using IRS Form 2555.

Our tax CPAs for American expatriates can also help you file Form 1116 to claim the foreign tax credit and avoid double taxation while living in Hong Kong. These forms can be attached to your annual tax return and submitted to the IRS by Tax Day.

Call US Tax Help to Learn More About Taxes for Expats Living in Hong Kong

For assistance during tax season while living abroad, call the tax CPAs for American expatriates at US Tax Help at (541) 362-9127.