Moving abroad to a place like Hong Kong can be a thrilling new experience. However, depending on how long you are in Hong Kong and what your living situation looks like, you might be responsible for taxes back home in the United States and in your new country of residence. Taxes are famously complex, and you should call a tax CPA for help.
American expats in Hong Kong often have tax obligations in both countries. Since the U.S. and Hong Kong do not have a tax treaty, there is a chance that you will be taxed twice on the same income. Talk to our team about your living situation in Hong Kong, and we can help you figure out if you are a tax resident. You might have to pay Hong Kong taxes for income, property, and business dealings. We might also find tax exclusions or credits to help you minimize your taxes in the United States. If you have assets or accounts in Hong Kong, like bank accounts or other holdings, you might have to report them on your United States taxes. Failing to do so might lead to trouble.
For help with your tax situation, call US Tax Help at this link – get in touch and talk to our tax CPAs for American expats in Hong Kong.
Your U.S. Tax Obligations as an Expat Living in Hong Kong
While you might not be living in the United States anymore, that does not mean you can escape your U.S. tax obligations. As long as you are still a citizen of the United States, you must pay your taxes. Alternatively, if you renounced your United States citizenship and are now a citizen of Hong Kong, you might still owe taxes for the last year of your U.S. citizenship.
The U.S. government taxes citizens and residents based on their worldwide income. This means that the money you earn from working in Hong Kong might be subject to taxation by the United States government. In short, your income might be taxed by two countries, leading to very expensive tax obligations.
To make matters more complicated, you might also have to report various financial holdings outside the United States on your U.S. taxes. Depending on your situation in Hong Kong, you might have accounts or assets that you need to report to the IRS. If you do not, the IRS might suspect you are trying to hide assets in order to avoid paying taxes, and you might be in big trouble.
How U.S. Expats Pay Taxes in Hong Kong
In addition to your U.S. taxes, you might also have tax obligations in Hong Kong. You do not have to be a citizen of a particular country to be required to pay taxes. Instead, you only have to be a tax resident. Many people are considered tax residents based on their work, living situation, and ties to their community in Hong Kong.
Hong Kong is unique because it assesses taxes almost solely based on where your money comes from. If your income originates in Hong Kong, you may be considered a Hong Kong tax resident and be obligated to pay taxes. For example, if you left the U.S. behind and opened your own store in Hong Kong, your income originated within Hong Kong and is subject to taxation. However, if you are in Hong Kong working for an American company – perhaps you are in Hong Kong on business for a few months – your income might not be subject to taxation.
You should also be mindful of assets, accounts, or financial holdings you might have in Hong Kong. These holdings may or may not affect your U.S. taxes, but they likely have to be reported if they are worth enough money. The IRS might see failing to report foreign assets as highly suspicious, and you might be in trouble.
There is no tax treaty with the U.S., which means U.S. expats could be taxed twice on the same income. However, credits and exclusions exist that can help you reduce your U.S. tax obligations.
Possible Taxation You Might Face as a U.S. Expat in Hong Kong
Taxes are nothing if not complicated. If you are living and working in Hong Kong, there is a chance that you might have to pay more than just taxes on your income. You might face additional tax obligations depending on whether you own a business or have any assets.
Income Taxes
Income may derive from many different sources, and your income may be taxed based on how it is earned. General income (e.g., your weekly paycheck) is subject to Hong Kong’s salaries tax. The specific salary tax rate that applies to you varies based on how much money you earn. Also, the salaries tax is applied at progressive rates. As of 2024, the tax rate for a salary of up to 50,000 HKD is 2%. Additional income up to 100,000 HKD is taxed at a rate of 6%. Salary up to 150,000 HKD is taxed at 10%. Additional income of up to $200,000 is taxed at 14%. Finally, any extra salary over 200,000 HKD is taxed at 17%.
If you earn income from property, such as by renting out a house or apartment that you own, you might have to pay property taxes in Hong Kong. Property taxes in Hong Kong are assessed at a flat rate of 15%.
Income derived from non-corporate trade or business may be subject to the profits tax in Hong Kong. In many cases, this kind of income comes from self-employment. It is taxed at a flat rate of 15%.
Corporate Taxes
Are you a U.S. expat opening a corporation in Hong Kong? Maybe you took over an existing corporation. If so, you must consider corporate taxes in Hong Kong. Corporate profits are typically taxed at a flat rate of 16.5%. Corporate taxes can be complicated, especially when dealing with a large corporation that generates a lot of revenue and income. It is wise to speak to a tax professional to avoid mistakes and errors.
Capital Gains and Losses
If you own certain kinds of assets in Hong Kong, you might be calculating some capital gains and losses. A capital gain refers to an asset’s increase in value over its original purchase price or value. For example, if you purchased an asset for 1,000 HKD and it is now worth 1,500 HKD, you have a capital gain of 500 HKD. The flipside of capital gains is capital loss. If an asset decreases in value and is sold for a price lower than what you paid for it, it is a capital loss.
In the United States, taxpayers are taxed on capital gains, while losses may be taken as a deduction. This is not so in Hong Kong. Instead, capital gains are not subject to taxation. However, this also means that capital losses may not be taken as deductions.
Options to Reduce or Minimize Your American Tax Obligations as an Expat in Hong Kong
Facing tax obligations in two countries is not just expensive. It is also legally complex. Minor mistakes or calculation errors might land you in hot water in one or both countries. A tax professional can help you identify possible credits, exclusions, and other tax breaks to try and reduce your financial obligations and save you money. To make matters more complicated, there is no tax treaty between the United States and Hong Kong, and it can be harder to defer certain taxes in Hong Kong.
Foreign Tax Credit
One option is to claim a foreign tax credit. This may apply in cases where a U.S. expat living in a foreign country has paid foreign taxes in that country. The tax they paid may be taken as a deduction or credit on their United States income taxes. For example, if you paid a total of $3,000 USD in income taxes in Hong Kong, you may be able to claim this credit and take a $3,000 deduction on your U.S. taxes. Typically, only taxes on income may qualify for this credit. However, if you choose to claim either one of the exclusions mentioned below, you may not also claim a foreign tax credit. As such, you should talk to a tax professional about which option works best for you.
Foreign-Earned Income Exclusion
Depending on the source of your income, you may be able to claim a foreign-earned income exclusion on your U.S. taxes. To be eligible, you must have income derived from a foreign source and your tax home must be in another country, like Hong Kong. In short, the exclusion allows you to exclude from your U.S. taxes the income you earn from foreign sources, at least up to a certain amount. In 2024, the limit is $126,500. For many, this might encompass all their income in Hong Kong, meaning they can exclude everything they earn from their U.S. taxes.
What exactly is considered foreign-earned income? Generally, it includes income earned while living and working in a foreign country. Even if the business you work for is based in the United States, your income may still be considered foreign-earned if you earned it while living and working in Hong Kong. However, you may not claim this exclusi0on if you live in Hong Kong while working for the U.S. government.
Exclusion of Foreign Housing Expenses
If you are a tax resident of Hong Kong, you may be able to claim a foreign housing exclusion or deduction. This exclusion or deduction is based on how much money you spend on housing in Hong Kong. There is a difference between taking this as an exclusion versus a deduction. You may take it as an exclusion if your housing is provided by your employer or your employer pays you a certain amount of money specifically to cover housing costs. To take it as a deduction, your housing expenses must be paid for with self-employment earnings.
Housing expenses may include reasonable costs paid or incurred for housing in another country. You may include your own housing costs in addition to costs for spouses and dependents who live with you. Generally, overly extravagant housing expenses may not be included. The limits of this exclusion or deduction may depend on your specific situation, and you should speak to a tax professional as soon as possible.
What to Do if You are an American Expat with Assets in Hong Kong
If you are an American expat with assets in Hong Kong, you might have to report information about those assets to the IRS when you file your taxes. While capital gains on assets are not taxed, this does not mean that you do not have to report anything.
Under the Banking Secrecy Act, you must report certain foreign financial information regarding accounts and assets to the IRS. You may do this by submitting a Report of Foreign Bank and Financial Accounts (FBAR). You may be required to submit this information if you have authority over or financial interest in accounts or assets outside the U.S. that are worth an aggregate value of at least $10,000 at any time during the tax year. FBAR reports may be filed using Form 114 through the Financial Crimes Enforcement Network (FinCEN).
You might also have to file information and reports under the Foreign Account Tax Compliance Act (FATCA). Under this law, taxpayers must report financial assets and holdings outside the United States. These requirements are imposed in addition to FBAR requirements. You must report foreign financial interests, accounts, and holdings with an aggregate value of at least $50,000 on Form 8938. Your reporting threshold might differ depending on your specific situation, such as if you are single or married or filing separately from your spouse. It is best to speak to a tax professional about any foreign accounts or assets you might have and how they should be reported. Failing to report foreign assets might lead to big trouble with the IRS.
Speak to Our Team at US Tax Help for Help with Your Taxes
For help with your tax situation, call US Tax Help at this link – get in touch and talk to our tax CPAs for American expats in Hong Kong.