US Individual Income Tax

If you’re a US expat living in China or Hong Kong then you are required to file a U.S. Individual tax return. The United States have residency tax laws, whereas China non-domiciles and Hong Kong have territorial tax laws. The US worldwide tax laws mean that American citizens have to pay tax on their worldwide income no matter where they live. The laws for Hong Kong, as well as non-residents of China only have to pay tax for income earned with Hong Kong and China respectively.

Does that mean I have to pay tax on the same income twice?

​It’s a given that you will pay tax on your income within China or Hong Kong. If income was earned within either of those countries then you are obligated to adhere to their tax regulations.

How to avoid paying income tax twice if I live in China

There is a tax treaty between the US and China. The tax treaty sets out which country is entitled to collect different types of taxes, and when. To be eligible for tax concessions under the treaty you must register with the  State Administration of Taxation (SAT). Even though there is a tax treaty, the rules are confusing and hard to interpret. A common example is the residency rule and what constitutes a residency in China. Depending on the situation, it could be 90 days or 183 days.

How to avoid paying income tax twice if I live in Hong Kong

Unfortunately there is no tax treaty between the US and Hong Kong. There are however options to avoid paying double tax. Expat Americans can use one of two strategies;

  • Foreign Income Exclusion –  this allows you to exclude your wages from your U.S. taxes. This rule is available to those who meet certain time-based residency requirements.
  • Foreign Tax Credit – This allows you to claim a credit for income taxes paid to Hong Kong or China.

Using the Foreign Income Exclusion rule is preferable because it means that income is taxed at Hong Kong or China rates, whereas the Foreign Tax credits rule you effectively pay US tax rates because you have to pay the IRS the difference.

What else do I need to know?

  • U.S. citizens with more than $10,000 in foreign bank accounts are subject to a Foreign Bank Account Report (FBAR) filing and reporting requirements. You have to file a FinCEN Form 11 to FinCEN.
  • Whether you’re working in China or Hong Kong, the laws are complex. You’ll need a qualified taxation specialist to navigate through all the regulations and come up with the best tax strategy for your situation.

Get in touch

If you’re an expat U.S. citizen living and working in China or Hong Kong, and need to lodge your tax return, then talk to us. Our team of CPA’s specialize in U.S. Individual tax returns for expat Americans. We understand the regulations, exclusions, deductions of both jurisdictions. We use a number of strategies to minimize your tax while keeping you compliant. For an obligation free quote, or to talk to one of our expat taxation specialists, get in touch with us today.