Hong Kong salaries tax tops out at 15% for almost everyone, and it doesn’t touch your bank interest, dividends or gains. That’s great locally and awkward for a US citizen, because there isn’t much Hong Kong tax to credit against the IRS. What usually saves the day is the housing exclusion, and Hong Kong has the highest housing limit the IRS publishes.
Here’s how we set up a Hong Kong return, roughly in the order clients ask about it.
Do I still file a US return from Hong Kong?
Yes. Citizenship, not residence, drives US filing, so you file a Form 1040 every year your worldwide income is over the threshold: $15,750 for a single filer under 65 in 2025, $400 of net self-employment income, and just $5 if you’re married filing separately. That last one catches a lot of people married to a Hong Kong spouse who isn’t American. Income you exclude still counts towards the threshold.
There’s also no tax treaty to fall back on. The US and Hong Kong have a shipping-income agreement and a FATCA agreement, and nothing that covers salaries, pensions or investments. Every bit of relief comes from ordinary US law.
How does the April–March Hong Kong tax year fit the US calendar year?
Badly, but it’s manageable. Hong Kong’s year of assessment runs 1 April to 31 March, so calendar 2025 straddles two Hong Kong years: nine months of 2025/26 and three months of 2024/25. For the salary side we work from your payslips or your employer’s January-to-December figures, not from the annual IR56B, which covers the Hong Kong year.
The tax side matters if you claim the foreign tax credit. Hong Kong doesn’t withhold salaries tax from pay; you pay after assessment, together with provisional tax for the following year, typically in January and April. We usually put clients on the accrual method for the credit, which counts the Hong Kong tax for the year ending 31 March 2025 on the 2025 US return, instead of chasing whatever happened to be paid in the calendar year.
The deadlines, for tax year 2025:
- 15 April 2026: any US tax owed is due. Interest runs from here even if you file later.
- Early May 2026: the IRD issues the 2025/26 BIR60, usually due back within a month (longer if a tax representative files it).
- 15 June 2026: automatic US filing date if you live and work outside the US on 15 April.
- 15 October 2026: US filing date with Form 4868, and the automatic FBAR extension.
For conversions we use the IRS yearly average rate for 2025, HK$7.796 per $1. The peg keeps the rate in a tight band, so the average and the rate on any given day are rarely far apart.
FEIE or foreign tax credit for Americans in Hong Kong?
Our default in Hong Kong is the foreign earned income exclusion (Form 2555) together with the foreign housing exclusion, with the foreign tax credit picking up any income left over.
The reason is the rates. Salaries tax is the lower of two calculations: progressive rates of 2%, 6%, 10% and 14% on successive HK$50,000 bands and 17% above that, after a basic allowance of HK$132,000; or a standard rate of 15% on net income, rising to 16% on the part over HK$5 million from 2024/25. Hong Kong often knocks a one-off amount off the bill too (up to HK$1,500 for 2024/25). On a typical expat salary, 15% rarely covers the US tax, so the credit alone leaves you paying the IRS the difference.
The FEIE excludes up to $130,000 of 2025 wages. The housing exclusion then covers rent, utilities and similar costs above a base of $20,800, up to the Hong Kong limit in IRS Notice 2025-16 of $114,300. So a full-year resident can exclude up to $93,500 of housing on top of the $130,000. Both are prorated if you only qualify for part of the year, and you qualify through the bona fide residence test or 330 days abroad in 12 months.
Two catches. If you claim the FEIE and later revoke it, you generally can’t use it again for five years. And excluded income still pushes the rest of your income into higher brackets, which is why the leftover slice in the example below is taxed at 24% and 32%.
What happens to my employer-paid flat?
This is where the two systems really part ways. If your employer pays the rent or reimburses it under a proper housing arrangement, Hong Kong doesn’t tax the rent. It adds a rental value, normally 10% of your other employment income for a flat, whatever the flat costs. A cash housing allowance you spend as you like is simply salary.
The US ignores the 10% convention. The full rent your employer pays is wages on your 1040. The housing exclusion is what brings it back down, and because the Hong Kong limit is so high, most rents fit under it.
Example: say you earn HK$1.2 million with your rent paid
Say you’re single, earn a salary of HK$1,200,000 (about $153,900 at HK$7.796) and your employer pays HK$40,000 a month on your flat, HK$480,000 a year (about $61,600). We’ll treat a full Hong Kong year at 2025/26 rates as a stand-in for calendar 2025.
In Hong Kong, the rental value is about HK$120,000, so assessable income is about HK$1,320,000. After the HK$18,000 MPF deduction, the progressive calculation gives about HK$180,900 (about $23,200), a little under the HK$195,300 that 15% would give.
In the US, foreign earned income is the salary plus the full rent, about $215,500. The FEIE takes out $130,000 and the housing exclusion another $40,800 ($61,600 less the $20,800 base). About $44,700 is left, and after the standard deduction, stacking puts US tax on it at about $7,150. The Hong Kong tax on that slice, about $4,800, is creditable. The US bill ends up around $2,300.
Using only the foreign tax credit, US tax on the whole amount would be about $41,000 against $23,200 of credit, leaving roughly $17,800 to pay. Illustrative and rounded; a real return uses your actual payslips and each Hong Kong assessment.
Here’s where the two systems disagree most:
| Item | Hong Kong | US return |
|---|---|---|
| Salary | Salaries tax, 15% cap for most people | Taxable; FEIE up to $130,000 |
| Employer-paid rent | Rental value, usually 10% of other pay | Full rent is wages; housing exclusion up to the $114,300 limit |
| Bank interest, dividends, gains | Not taxed | Taxed at normal US rates, nothing to credit |
| MPF mandatory contributions | Employer share tax-free; employee share deductible up to HK$18,000 | Not a US-qualified plan (see below) |
| Sale of your own flat | No capital gains tax | Taxable above the $250,000 / $500,000 exclusion |
How does the IRS treat my MPF?
Most employees pay 5% of relevant income into the Mandatory Provident Fund, capped at HK$1,500 a month on pay of HK$30,000 or more, and the employer matches it. New arrivals are exempt if they’re only allowed to stay 13 months or less, or if they belong to a retirement scheme outside Hong Kong, which is why some secondees never join.
The MPF isn’t a US-qualified plan, and the IRS has never said exactly how to treat it. This is the one place on this page where we have to hedge. Some preparers treat it as a foreign grantor trust; some ignore it until withdrawal. We lean towards treating it as a foreign employer plan, a nonexempt employees’ trust under section 402(b). Your own contributions get no US deduction, the employer’s mandatory contributions count as wages when made (they vest immediately, and the FEIE usually covers them), and we don’t file Form 8621 for the funds inside. Growth is generally taxed when you draw it out, though higher earners can be taxed on it yearly. We report the account on the FBAR and Form 8938, rely on Rev. Proc. 2020-17 to skip Forms 3520 and 3520-A, and apply the same treatment every year.
Are Hong Kong funds and ETFs PFICs?
Usually, yes, and this is the trap we see most often. The unit trusts your bank’s relationship manager sells, the Tracker Fund and other HKEX-listed ETFs, and the funds inside an investment-linked insurance policy are generally passive foreign investment companies. Each needs Form 8621, and without a mark-to-market or QEF election a gain is spread back over the years you held it, taxed at the top US rate for each year, with an interest charge on top. Hong Kong charges nothing on the same gain, so there’s no credit to soften it.
Before you buy funds in Hong Kong
Individual shares, including Hong Kong-listed ones, aren’t PFICs just for being foreign. If you want funds, hold US-domiciled ones in a US brokerage account that accepts Hong Kong residents. If you already hold local funds, bring them onto Form 8621 now and make a deliberate call on an election. The longer they sit unreported, the more the default rules cost.
I’m freelancing in Hong Kong. Why is my US bill so high?
Because the US has no totalization agreement with Hong Kong. Self-employed Americans owe 15.3% US self-employment tax on net earnings, and neither the FEIE nor the foreign tax credit touches it. Paying into the MPF as a self-employed person doesn’t change that. Employees seconded by an American employer usually stay on US payroll and keep paying Social Security and Medicare, which is the same rule seen from the other side.
Example: take Dan, a freelance designer in Hong Kong
Take Dan, a US citizen who runs his design work as a sole proprietor in Hong Kong. His 2025 net profit is HK$600,000, about $77,000. He files his Hong Kong return and pays whatever the IRD assesses on the business.
On his 1040, the FEIE covers the whole profit, so his US income tax is $0. Self-employment tax still applies: $77,000 × 92.35% × 15.3% comes to about $10,900, and his Hong Kong tax can’t be credited against it.
The one consolation is that he earns US Social Security credits. Illustrative and rounded.
Selling a flat in Hong Kong: why the US still taxes the gain
Hong Kong has no capital gains tax, so a flat you lived in can be sold with no local tax at all. The US taxes the gain above the section 121 exclusion of $250,000 ($500,000 married filing jointly), provided you owned it and lived in it for two of the last five years. On a flat bought years ago the excess can be large, and there’s no Hong Kong tax to credit. A flat you let out gets no exclusion, and the US also recaptures depreciation. The peg means the currency adds little to the gain, which is one thing Hong Kong owners don’t have to worry about.
Reporting Hong Kong bank accounts: FBAR and Form 8938
If your non-US accounts together topped $10,000 at any point in 2025, you file an FBAR. That covers your HSBC or Hang Seng current and savings accounts, brokerage accounts, the MPF, and accounts you can sign on for work. Form 8938 goes with your 1040 once foreign assets pass $200,000 at year end or $300,000 at any time ($400,000 and $600,000 married filing jointly). Hong Kong banks report US account holders to the IRS under the FATCA agreement, which is why they asked for your SSN when you opened the account. Our FBAR guide goes through it, or we can file it for you.
What changes when I leave Hong Kong?
Your employer has to tell the IRD at least a month before you leave and hold back your final pay until you get tax clearance, so settle your last assessment early. You can withdraw your MPF once in a lifetime on permanent departure, with a statutory declaration that you won’t come back to live or work. Hong Kong generally doesn’t tax the mandatory benefits. The US generally taxes the growth portion in the year you take it, so we plan that year with your other income in mind.
If you’re moving back to the US, check your state too; our state tax guide covers it.
What we’d do for you
For most clients in Hong Kong, we build the calendar-year salary from payslips, claim the FEIE and the Hong Kong housing exclusion, credit Hong Kong tax on whatever’s left, and report the MPF and bank accounts on the FBAR and Form 8938. If you hold local funds, we handle the PFIC filings. If you’re behind, our Streamlined guide explains how to catch up without penalties. See how expat filing works.