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Tuesday, February 4, 2020

Various compliances and tax filing rules of Hong Kong US Tax


If you are an American living permanently or temporarily in Hong Kong, you need to bear in your mind that there are some obligatory taxation-related and filing-related compliances that you need to adhere to, as a true US citizen and Green Card holder.


Here are details of Hong Kong US Tax rules and regulations:

Non-compliance

1.      It is mandatory that as a US permanent resident or citizen, it becomes mandatory for you to submit annually your expatriate tax returns.  This annual return needs to be filed using the FinCEN Form 114 (FBAR) with the US Government.  This form is about disclosing your assets, irrespective of your present country of residence. Assets here typically mean an aggregate balance of more than USD 10,000 in any bank account that is non-US in nature.   This is mandatory even if the balance exceeds only once in a year and it applies even when this account has no income or earnings.  It is good to remember here that if the filing of this important form or information is missed, it is interpreted as non-compliance and hence you can attract huge penalties.
2.      Other obligatory reporting includes providing specific information if you are associated with a pension scheme, if you are a trust beneficiary or if you are an entrepreneur in Hong Kong or if you are an investor with a collective investment scheme. These declarations are not really associated with any tax deductions or filing but if you fail to miss the deadline for submission of the reports, you can attract penalties.

US Taxation of Hong Kong Income

The US Government levies tax on the income earned by its citizens and permanent residents abroad. Since you are also taxed within Hong Kong, there are ways to help you with this double taxation aspect.

1.      US Government’s Foreign Earned Income Exclusion provision. Under this provision, you are allowed to exclude an amount of USDD 105.900 from your foreign income and avoid being taxed on this amount. In 2019, further changes were made to this provision. Now, you can include your housing costs like rent paid and few other additional provisions to increase the exclusion limit to USD 203,256.
2.      Though the use of Tax Credit provision, you are given a credit for the tax that you paid locally to the Hong Kong government. The credit is a reduction that you get on the tax that you need to pay the US Government taking into account the tax paid by you in Hong Kong. There are two ways to go about this process – either the paid basis or accrued basis. The paid format is a better one but in order to use this plan optimally, you need to align it properly with the taxes paid in Hong Kong.

There are complex computations and calculations required for US Expat Tax in Hong Kong. You need to plan your taxes well in order to minimize your tax liability. If you have just moved into Hong Kong, things can get even more complicated.

 For being eligible for tax exclusions you need to plan your travel to US in a particular way or your arrival in Hong Kong needs to be planned optimally for maximizing you tax savings. Ensure that you get in touch with an experienced and credible taxation planners and advisors in Hong Kong to optimize tax filing and compliances under US Taxation of Hong Kong Income rules and regulations.

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