Reporting Hong Kong Accounts, MPF & Investments on FBAR

Reporting Hong Kong Accounts, MPF & Investments on FBAR

FBAR Reporting of Hong Kong Accounts, MPF & Investments 

Over the past few years, the Internal Revenue Service has significantly increased enforcement of foreign accounts compliance to ensure US Persons with overseas accounts, assets, investments, and income properly report to the IRS. We represent many taxpayers each year who have either relocated to Hong Kong or previously resided in Hong Kong and now reside in the US — and have a significant amount of unreported assets — such as bank accounts, investment accounts, pension accounts (MPF and Hong Kong pension plans that predate the introduction of the MPF), mutual funds, life insurance policies and more. With the recent surge in the number of cases involving FBAR penalties (both willful and non-willful), it is important that US persons residing in either Hong Kong or the United States who have assets in Hong Kong properly disclose their financial accounts to the Internal Revenue Service on the FBAR and other international information reporting forms. Let’s go through some of the basics of reporting Hong Kong bank accounts, MPF, and other investments on FBAR (FinCEN Form 114).

US Person Definition

US Persons includes more than just individuals — it also includes entities — but the focus of this article is for individuals.

US persons with accounts in Hong Kong who may have to file FBAR, including:

FBAR Reporting Basics

When a US Person has accounts in Hong Kong, they have to report the accounts, when the annual aggregate total of all accounts combined exceeds more than $10,000. The due date is April 15 but is on automatic extension until October (this rule is subject to change).

Largest Banks in Hong Kong

There are many different banks and other Foreign Financial Institutions located in Hong Kong. Here are some of the more common institutions.

      • Standard Chartered Bank (Hong Kong)

      • Bank of China

      • HSBC Hong Kong

      • Hang Seng Bank 

Expats Still Report FBAR

When a US person resides in Hong Kong — and even if they are considered a permanent resident of Hong Kong — but they have not formally expatriated from the United States — they are still considered a US person and must still report the annual FBAR. If a taxpayer qualifies as a foreign resident under the Streamlined Foreign Offshore Procedures (aka Expat Amnesty) they may qualify for a full penalty waiver.

Hong Kong Foreign Bank Accounts & FBAR

Even though the United States and Hong Kong have not entered into a bilateral tax treaty, many foreign institutions in Hong Kong including Heng SengHSBC, Citibank report account holder information to the US government by way of the FATCA Agreement that was entered into between both countries. It should be noted that even if a Hong Kong bank account does not generate any income — or that income is exempt from tax in Hong Kong (as it is in most Asian countries) — it is still taxable in the United States and reported on the 1040 tax return.

Hong Kong Mutual Funds and FBAR

It is very common for investors in Hong Kong to have different types of investment funds, such as mutual funds, ETFs, and SICAVs. Even if the funds are not technically in an account, mutual funds are reportable on the FBAR, Form 8938, and Form 8621.

Term Deposits, Fixed Deposits, and CDs 

Most all types of bank accounts are reportable on the FBAR. This includes ancillary types of accounts at Banks such as term deposit accounts, fixed deposit accounts, and CDs. In addition, the interest generated on these accounts is generally taxable in the US.

Stock Investment Accounts in Hong Kong

There are various different types of stock investment accounts in Hong Kong. And, even though certain Taxpayers with residence or citizenship in Hong Kong may receive tax-related benefits under foreign tax laws  — whether or not there taxable — they are still reportable on the FBAR.

In addition, unless the PFIC rules apply — accrued but non-distributed income in a Stock Investment Accounts is taxable.

Hong Kong & Mutual Funds, ETF, SICAVs

When a US Person Taxpayer has foreign investment accounts in Hong Kong such as Mutual Funds, ETFs, and SICAVs — they may have an FBAR reporting requirement when the threshold is met. The value of the investment accounts is aggregated with the value of the other accounts to determine the annual threshold value for reporting is met.

With investment funds, there is the additional issue of potential PFIC reporting on Form 8621.

Hong Kong Insurance Policies and FBAR Reporting

In countries such as Hong Kong and Singapore, life insurance policies — which serve primarily as investment wrappers — are a common type of investment scheme More often than not, these types of life insurance policies do not qualify as traditional life insurance under the US tax code, and therefore income accumulates within the policy may be taxable. From a reporting standpoint, foreign life insurance policies with a cash value or surrender value are generally reported on the FBAR, Form 8938, Form 720, and possibly Form 8621.

MPF is a Reportable Financial Account

For US persons who either currently or previously worked for an employer in Hong Kong  — they may have a Mandatory Provident Fund (MPF) — which is similar to a 401K (kinda sorta). The extent of the reporting and taxation of the MPF may be determined based on the value, the type of income being generated, and whether or not there are mutual funds underlying the MPF. Not only is the MPF reportable on the FBAR — but it is also reported on other forms such as Form 8938 — and possibly Forms 8621 and/or 3520/3520-A.

FBAR Amnesty Program Summary

The FBAR Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.

Some of the more common programs include:

Can I Just Start Filing FBAR This Year Instead?

No, unless the current year is the first year you had an FBAR Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an FBAR Quiet Disclosure. The IRS has warned taxpayers that if they get caught in an FBAR Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.

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