Is there a tax treaty between the US and Hong Kong?
No, there is no tax treaty between the United States and Hong Kong. This means that US expats and lawful permanent residents living in Hong Kong cannot claim treaty benefits that would otherwise be available in countries with tax treaties, such as being treated as a non-resident alien for US tax purposes.
As a result, US expats in Hong Kong are taxed on their worldwide income and cannot defer employer contributions to the Mandatory Provident Fund (MPF) or the growth within the MPF from US taxation.
How is my income from Hong Kong taxed in the US?
Active Income (Profits, Salary)
Active income sources such as salary and profits are taxed the same as if you were in the US at ordinary marginal income tax rates, depending on your total taxable income and filing status.
Income sourced in Hong Kong is also taxed, which, coupled with lack of a tax treaty can open you up to being double taxed. There are, however, exemptions you can apply for to reduce or in some cases cancel out your taxes paid in Hong Kong.
Passive Income (MPF, Dividends, Capital Gains)
Taxes pertaining to passive income are more complex as different types of income are taxed at different rates.
For US expats in Hong Kong, passive income sources like dividends, interest, rent, and royalties are taxed at ordinary marginal income tax rates.
Capital gains are separated into short-term and long-term categories, and taxed according to how long the capital assets were held. Capital assets sold after being held for longer than one year are designated as long-term capital gains, and are taxed at preferential rates of 0%, 15%, or 20%, depending on your total taxable income and filing status.
This is in contrast to assets sold after being held for shorter than one year, which are taxed at ordinary marginal income tax rates.
How is my MPF taxed as a US expat?
Since Hong Kong does not have a tax treaty with the US, employer contributions are still considered as taxable income and will be taxed at ordinary marginal income tax rates. This also includes any gains from your MPF portfolio if you are an employee at a Hong Kong company.
Do I have to report my bank account?
If the total value of your foreign financial accounts, including your Hong Kong bank accounts, exceeds US$10,000 at any point during the year, you must report them to the Financial Crimes Enforcement Network (FinCEN) by filing the FinCEN Form 114, also known as the Foreign Bank Accounts Report (FBAR).
What Tax Exemptions can I Apply for?
Although Hong Kong does not have a tax treaty with the US, there are two key benefits US expats can claim to reduce their tax bill.
FEIE (foreign earned income exclusion)
The FEIE allows you to exclude a portion of your active foreign-earned income, such as profits and salary, from US taxation, where the exclusion amount is adjusted annually for inflation, which in 2025 sits at US$130,000. Keep in mind that the FEIE cannot be applied to passive income.
To qualify for the FEIE, you must meet either the Physical Presence Test to prove that you’ve spent at least 330 full days outside the US within a 12-month period, or the Bona Fide Residence Test, which says you’ve resided in a foreign country for an entire tax year.
To apply, you’ll need to fill in Form 2555 with your annual federal income tax return, and any travel documents such as flight confirmation emails and boarding passes, and proof of a foreign address, and proof of foreign residency, such as utility bills and rent receipts on top of proof of the income you wish to exclude.
Foreign Tax Credit (FTC)
The Foreign Tax Credit compensates you for passive and active income taxes that you have already paid to the Inland Revenue Department of Hong Kong, and is a work-around for helping US expats in Hong Kong avoid double taxation by both Hong Kong and the US. At the same time, Hong Kong does not have a dividend tax or a capital gains tax, allowing US expats to maximize their FTC credits on their active income taxes.
To claim your FTCs, you’ll need to fill in Form 1116 with your annual federal income tax return, along with notices from the IRD about your profits tax return (BIR51), salaries tax return (BIR60), personal assessment (IR76C), or employer’s return (IR56B), whichever applies, and proof of tax payments.
Should I claim the FEIE or FTC?
A key point to remember is that you can only claim one type of benefit for a portion of your income tax, active or passive, meaning that you cannot claim FTC benefits to the portion of your salary tax that’s already been excluded via the FEIE.
Since taxes in Hong Kong are some of the lowest in the world, the FEIE is generally the most effective method to reduce or exclude your US tax bill entirely if you made US$130,000 or less in 2025.
For high-income earners that make above US$130,000 annually, you can exclude the maximum amount allowed by the FEIE, and then claim credits on the remaining amount. You will still be able to claim FTC on your passive income at the same time.
To use an example:
Let’s assume you have an annual salary of US$160,000, and the FEIE limit is US$130,000.
- Applying Hong Kong’s 15% standard tax rate, your salary tax would be calculated as:
- US$160,000 * 15% = US$24,000.
- To calculate your US tax liability, first you apply the FEIE:
- US$160,000 – US$130,000 = US$30,000 remaining
- Next you calculate the portion of your remaining taxable income as a percentage:
- $30,000 / US$160,000 = 18.75%
- The portion of your taxes that you can claim credits with then becomes:
- $24,000 (Total HK Tax Paid) * 18.75% = US$4,500, the amount you can claim with FTC
Where can I get help to deal with these taxes?
If all this sounds confusing and tedious, don’t fret. Our English-fluent expat CPAs can sort out taxes for you and other US expats in Hong Kong. Just drop us a message and we’d be happy to help out!
