US Taxes - American working in Japan and Moving to HK

I'm hoping to find someone else on this forum who is American and previously worked in Japan and moved to HK. I'm curious if I can expect an increase in tax savings as a resident of HK compared to Japan. Let me explain the background to this question.

I am currently living and working in Japan. I will most likely be relocating to Hong Kong (local contract to local contract move). Salary/compensation will more than likely stay the same. So to make things simple, let's just assume my salary is based on a US dollar amount and currently converted to JPY. Upon moving to HK, the same US dollar amount will be converted to HKD and that will be my base compensation. I don't know if this will be a good or bad thing for me (as obviously HK apartments are much higher in rent compared to Tokyo), but perhaps other costs are lower and it will balance out? I guess this is a separate question to this post, but if anyone wants to add comments on that, I'd appreciate it to.

So assuming, for the US tax purchases, my yearly take home amount is the same. What I would like to know is, after all is said and done, and taxes paid, will I end up having kept more of my money earned for the year being a HK based employee or Tokyo.

In Japan, the tax rates are similar to the US, so more than likely you won't owe taxes to the US government, because you will have paid the rate percentage on your income similar to what the US worker would be paying (the requirement of being a US citizen - which all of us overseas workers obviously dislike).

Now, in HK, the tax rate is 15%, that's all nice and good, however being a US citizen, the IRS still requires us to still pay what they consider our fair share. So if our tax bracket and liability at our income level in the US is 40%, then we would technically still owe the difference (40-15 = 25% tax liability). Now, there are other benefits, which we take advantage of, such as the foreign earned income credit and the housing allowance deductions, which lower the taxable amount. But I'm unsure how that all plays out given HK's tax rate is say 15% versus what one would pay in Tokyo (30-40%). So in the end, would I keep more of my yearly earned income in HK compared to Japan, or would I end up paying the same amount in taxes overall and there is no benefit?

Good question. I've lived in HK for some time, but not Japan. However, just doing some calculations using my income level and comparing total taxation (HK plus US obligations) to Japan plus US obligations using 35% for Japan, I calculate that the HK tax liability was lower by more than 10% (of my total income). I think this result may vary with income level, as the Foreign Income exclusion is ~$103K USD. If this represents only a small fraction of your income, then the results may be rather different. But, I believe that it's likely that you'll have more money in your pocket. Do you end up owing the IRS much in the way of Federal Taxes, or does your foreign tax credit cover most of this? In HK, you'll get a lower tax credit, but you'll pay out far less in local taxes than you will have in Japan (~20% difference). You will get a housing exclusion depending on how much your rent is, and HK has no VAT/sales tax, so this may be a small help. Probably best to check with an accountant...

Good luck!

Thank you Osprey57. Really appreciate the answer and time taken. Your math and logic seems sound to me and it's what I was expecting. I haven't had the chance, but I'm planning to run through the taxes I submitted for last year and make some changes (as if I were living in HK and paying HK taxes) to see what I would have ended up paying.

That should be able to give me a fairly good idea of what I can expect. I'll share what I find. Thanks!

my friend mario zavatti, an italian american gave up his american citizenship and become neutralized as a hong kong citizen because hong kong has an open immigration policy (if you reside in hong kong continuously for seben consecutive years and declare hong kong as your primary place of residence.) he travels to us canada with a hong kong passport without any problem

seven consecutive years

Thanks EURASIRGEON16291629. Yep, I know a few others that have done this as well. Once you are making a certain amount of money, holding that US passport is just a liability and loss of income. It would be a difficult decision to give it up, but I guess if I was making that kind of annual income, and calculated the benefit of not be a US passport holder, I think I'd gladly give it up.

This is also why the US government to trying to make it harder for its citizens to give up their passport. They hate losing that free income.