Tax Time

It's tax time in Hong Kong and I have completed Shelly's first tax return.

(It's actually a few weeks past tax time, but there are provisions for first-year tax payers so that we're not actually late. We pay taxes here based on an April 1 - May 31 fiscal year calendar, not the calendar year.)

As Americans, we're "privileged" to pay taxes to the US, even though we haven't lived there for nearly two years. The US is one of one two or three countries that requires its citizens to file a tax return based on income earned overseas, which means we get to file two returns. (It's true that our tax liability to the IRS usually ends up at zero or near zero, but the fact that we have to file and report overseas income really chaps my hide, so to speak.)

The best things about filing taxes in Hong Kong are that 1) the tax rate is just 15%, and 2) the return is really, really easy to complete. For example, here's exactly how I completed Shelly's return this evening:

7:00: Turn on the TV. Turn on Prison Break.
7:13: First commercial break. Gather a pencil, Shelly's tax forms and the calculator on my mobile phone.
7:16: Watch TV.
7:27: Second commercial break. Start reading the instructions. Fill out return.
7:32: Watch TV.
7:44: Third commercial break. Double-check my work. Determine it is correct.
7:46: Finished watching TV show.

Total time: approximately six minutes.

Just for comparison, I kept track of how long it took me to do our US tax return in March. Granted, our US return involves a rental house, a small business and a variety of forms we have to fill out because we live overseas, but I spent more than 12 hours gathering materials, reading instructions and filling out forms. And the truth is, that 12 hour period was probably less than it would take most other people, because, well, I am a highly-trained, IRS-authorized enrolled agent. Plus, I used H&R Block's Tax Cut software so I wouldn't have to make all the calculations by hand.

What makes the Hong Kong return so easy? Well, on Shelly's return (I won't have to file one until next year), I filled out precisely three lines: how much money did you make, how much was the value of the housing provided by your employer, and how much did you give to charity? Inland Revenue will calculate tax liability for us and send us a bill.

The downside to paying taxes in Hong Kong, besides the actual act of paying taxes? Hong Kong doesn't have withholding tax like we do in the US. This means that when we get our 15% tax bill, we'll have to pony up that much cash. Fortunately, we're the type of people who can save money, so it won't be a big deal. Most people I know in Hong Kong put away 16 or 17% from each paycheck, which guarantees they'll have enough to pay their tax bill at the end of the year with a bit leftover for a night out.