Batgung

Question: What about taxes? Will my income be severely affected by this in Hong Kong?

Mr Tall replies: No. Hong Kong's tax system can be summarized in one phrase: 16% flat salaries tax. Okay, I'll explain that just a bit -- Hong Kong's income/salaries tax system (the two terms are synonymous) is one of the world's simplest. No one is subject to more than a total rate of 16% tax on his income. There are personal exemptions (currently HKD100,000) and exemptions for children, other dependent relatives you're caring for, etc. The majority of people in Hong Kong pay no income tax at all. That said, many (perhaps most) expats here receive salaries that do incur much or all of the 16% top rate.

And there's more good news. There's no tax on capital gains, e.g. sales of stocks/bonds/property (although there is a tax called the 'stamp duty' imposed on property sales).

All in all, the tax burden here is low, and preparing tax returns takes most Hong Kong people literally just a few minutes.

I am thinking of moving to Hong Kong and am currently reviewing my salary package. Are 'housing allowances' subject to income tax?

Mr Tall replies: My understanding (from my own situation; consult a tax expert if you want something definitive!) is that allowances that are earmarked by your employer for 'housing', AND that are spent on RENT, are tax-exempt, within certain limits per year (which I don't know). If you buy a flat and have a mortgage, and therefore don't pay rent, any such allowance is taxable as straight-up cash income.

Odaiwai adds: Mr Tall is right -- if your employer refunds your actual rent then you won't pay tax, but if they pay you even a few cents more, then (in theory at least) you will be liable to tax. Your employer must keep records, and you will need to provide the rental receipts.

Mortgage interest is deductible, but only the first HK$100k per annum, and this is supposed to be a short-term concession (I think it was originally limited to 7 years but it was extended in the last budget).

How do property taxes work in Hong Kong? Who exactly pays the property taxes when I buy or rent a flat or other home?

Mr T replies: Property taxes here are known as 'Government Rates'. They are irritatingly expensive, but not extortionate. According to the Inland Revenue webpage, you pay 16% a year of your property's 'net assessable value'. How this is calculated is a bit obscure; I'll over-simplify it and say that you pay about 16% of the amount you could get in rent for your property in a year. Just keep in mind that you're not assessed according to your flat's market sale value. From my experience, it seems you don't end up having to pay quite as much as the definition from the Inland Revenue suggests.

If you're renting, you'll often find the phrase 'rates included' in ads for rental properties, but you'll have to pay them if the landlord doesn't (this is something for flat-hunters should always check).

Odaiwai adds: Just to clarify a little further -- the rates will usually be several thousand Hong Kong dollars a year, payable quarterly.

But don't US citizens have to pay US tax wherever they live in the world?

A reader replies: Yes, US citizens' income tax liabilities are based on worldwide income. But if you live/work overseas, you can get an income tax exclusion up to $80,000 of your income. Which means you save a lot in paying Uncle Sam. There are also things such as foreign tax credits, but that really works better if you work in a country with a higher tax rate than the USA (like Germany or Italy); HK tax is lower, so you're better off just paying Inland Revenue and probably taking the exclusion.

Mr Tall adds: There's no escaping this for US citizens like me. It infuriates me sometimes, in that I'm still liable for tax when I haven't lived in the States for well over a decade, but there are no signs the US government will ever change this policy. Perversely, what does come up every few years in Congress (according to my tax accountant) is the possibility that the exclusion will be eliminated. This hasn't happened, but it would have a very, very bad effect on US expats in Hong Kong if it did!

Finally, if doing my Hong Kong salaries tax return is incredibly easy, doing my US taxes is the polar opposite. I get it done professionally, at a cost of about HKD10,000 per year. It's money well-spent, in my opinion: my returns are literally book-length. They're fine evidence of the breathtaking complexity of the US tax code.

See also Mr Tall's article on doing his Hong Kong tax return.