U.S. Taxes for Americans in Hong Kong

In addition to worldwide income reporting requirements, there are several important U.S. tax considerations for American citizens (and Green Card holders) living and working in Hong Kong.

Foreign Earned Income Exclusion and Housing

Hong Kong is considered a high-cost housing destination for purposes of the Foreign Earned Income Exclusion (FEIE). In fact, Hong Kong has one of the world’s highest housing cost limitations for the foreign housing exclusion amount. For tax year 2024, the adjusted housing limitation was $114,300, which yields a maximum excludable/deductible housing amount of $94,060. In addition to rent, deductible expenses may include certain non-capital expenditures such as utilities and the rental of personal property.

Tax Treaty Considerations

The United States does not have a tax treaty with Hong Kong. Depending on circumstances (e.g., salary levels), this may lead to double taxation on certain types of income. It is also important to note that Hong Kong is not covered under the existing U.S.–China Tax Treaty.

Totalization Agreement

The United States does not have a totalization agreement with Hong Kong. This is an important consideration when evaluating the creditability of employment taxes paid in Hong Kong, such as contributions to the Mandatory Provident Fund (MPF).

Social Insurance and Pension Schemes / Mandatory Provident Fund (MPF)

The Hong Kong government provides several social insurance schemes, including the MPF. The MPF is managed by private custodians, and both employees and employers must contribute a minimum amount based on earned income.

From a U.S. tax perspective, local tax treatment of contributions does not necessarily apply under U.S. law (local deductibility or special treatment does not control U.S. treatment; U.S. rules govern U.S. taxability). Key considerations include:

• Contributions: Employee and employer contributions may need to be reported as U.S. gross income.
• Earnings: Whether earnings inside the plan can be deferred for U.S. tax purposes, or must be currently included in taxable income.
• Distributions: Whether distributions (e.g., upon retirement or leaving Hong Kong) must be reported as U.S. gross income.

These accounts may also trigger U.S. foreign asset reporting obligations, such as the FBAR (FinCEN Form 114) and Form 8938 (Statement of Specified Foreign Financial Assets).

Passive Foreign Investment Company (PFIC) – Form 8621

A Passive Foreign Investment Company (PFIC) is a foreign corporation that primarily generates passive income or holds assets that do so. PFIC rules can apply to investments such as foreign mutual funds, ETFs, unit trusts, and pooled funds. U.S. taxpayers with PFIC investments may be required to file Form 8621. The determination depends on ownership percentages and other factors.

Foreign Earned Income Exclusion (FEIE) vs. Foreign Tax Credit (FTC)

Many U.S. expats ask about the advantages of the FEIE versus the FTC. While the answer depends on individual circumstances:

• The FTC is generally more beneficial in high-tax jurisdictions (Hong Kong is relatively low-tax).
• In some cases, it is advantageous to claim both the FEIE and FTC, particularly when certain types of income are not eligible for the FEIE.

Eligibility and benefit levels depend on factors such as:

• Total foreign earned income
• Where and when the income was earned
• Whether the taxpayer actually or constructively received the income (e.g., pension contributions)

Tracking and allocating foreign taxes properly is essential to ensure maximum efficiency and avoid double taxation.