[chaser3]

All,

I know there are numerous threads on this issue, but I was hoping for some advice so I can get things set up correctly.

I will be moving to HK in late march for work. I work with a smaller company and am heading the expansion into the Asia market. This means I will be setting up a brand new corporation and will be the only employee in HK.

My company is very flexible on package structure (salary, housing allowance) so I was wondering what would be the best scenario for tax reasons and to maximize income.

Here is my scenario:

Salary will be approximately $65,000 USD
Company provided housing allowance $3500 USD/month
Moving in late march so I will not qualify for Bona Fide residency until end of 2010.

Variable:
Company willing to sign lease and pay for apartment. Is this better or worse than taking a housing allowance equal to $40,000?


Thanks!

[PDLM]

First up, do you have a visa (or right of abode)?

I don't understand you comment about "Bona Fide residence" - as far as Hong Kong is concerned you are resident here as soon as you move here. The tax year here runs April-March.

On housing it depends: would you be able to keep any excess from the US$3500 (HK$27,300) housing allowance if you ended up renting a cheaper place? If so then you should probably get the housing allowance paid to you and in your contract as housing allowance. Your employer is also required to report it as such to Inland Revenue at the end of the tax year and to "exercise control" that you do actually spend it on rent. Any amount in the contract as housing allowance but not actually spent on rent will be taxed as salary.

If the employer will only actually pay what the rent costs and you can't keep any excess then I would try to get the lease signed in their name. It makes no difference to you from a tax point of view - you will still pay tax on it with the taxable value being 10% of your salary, i.e. US$6,500 per year (meaning you pay a bit under US$1000 in tax for your housing), regardless of how much the rental actually is - yes really, an unusual arrangement.

The benefit of the lease being in the company's name is that if, for whatever reason, the role does not work out and you need to move on then sorting out the lease commitment (minimum normally 13 or 14 months) is their problem not yours.

[chaser3]

The bona fide resident comment had to do with US tax law and how they view expats abroad. Apparently, you need to be out of the country for an entire tax year (Jan-Dec) to qualify for the foreign income exemption. Due to our move date I don't think I will qualify until December 2010. I also heard that you can request extensions on your US tax filing until you meet the requirement and save on the tax. I am still not quite sure how this works, but hey nobody said this would be easy right? Any insight on this issue would also be helpful

Thanks for you insight into the housing allowance. I guess my other concern is if I am given a total package of say $65kUS + $45kUS that brings me to total compensation of $110kUS. As far as I know as a US citizen I am only allowed around $92k of tax exempt income. I am not quite sure how the US treats the housing exemption and if it is separated from ordinary income. Would I be taxed in the US as if I earned 110k in foreign income or are both numbers low enough to qualify for the salary and housing exemptions?

[PDLM]

I don't know, because I'm not from the US. But there must be something on the IRS website about this - it looks pretty comprehensive.

[backpacker]

you don't have to wait until the end of 2010 to qualify for Bona Fide Residence status as it applies to a 12 consecutive month period and not based on a calendar year. So if you are are coming to HK in Late March, you can still file your 2009 tax return before April 15, 2010 since you have been in HK for 12 consecutive months and get a pro-rated exemption for the salary you have earned from Late march 2009 to Dec 2009. Again, you have to be away for the US for 330 days of out the 12 month though to get the tax exemption.