Who this is for
- US citizens and green card holders who own shares in a Hong Kong limited company, whether they live in the US or Hong Kong
- US corporations that own a Hong Kong limited company
Not covered here
- Hong Kong profits tax returns, offshore claims and Hong Kong company law
- Form 5471 schedules line by line and the general section 962 calculation
- Late-filing relief for missed years
What does a US owner of a Hong Kong company file with the IRS?
A US citizen or green card holder who controls a Hong Kong limited company, or owns 10% or more of one that is a controlled foreign corporation (CFC), generally attaches Form 5471 to the personal return every year, even if the company pays no dividend. A sole owner usually controls the company, and it is a CFC because US shareholders own more than 50% of its vote or value. That generally brings its business profit onto the owner's US return each year, dividend or not (Form 5471 instructions; section 951A).
If non-US relatives or partners own most of the shares, the company may not be a CFC, and you may file Form 5471 only in a year you buy or sell shares. A US corporation that owns the company files the same Form 5471 with its own return. Whose shares count, and how a corporate owner is taxed, are in what US owners of foreign companies file.
| Filing | When it applies to a Hong Kong company owner |
|---|---|
| Form 5471 | Each year you meet a filing category, one form per foreign corporation; a sole owner is usually Category 4 (you control it) and Category 5 (you are a US shareholder of a CFC). |
| Form 8992 | Each year you are a US shareholder of a CFC, whether it has tested income or a loss. |
| FBAR (FinCEN Form 114) | When your foreign accounts, including accounts of a company you own more than 50% of or can sign on, total more than $10,000 at any time. Filed separately from the tax return. |
| Form 8938 | When your foreign assets pass your threshold: for a single filer living in the US, more than $50,000 at year end or $75,000 at any time; higher for joint filers and people abroad. Shares on Form 5471 count toward it but are not described again (Form 8938 instructions). |
| Form 1040 | Your salary, dividends and the CFC income inclusion. |
What makes a case not simple: the company claims its profits are offshore and pays no Hong Kong tax, you do the company's work while in the US, you are weighing a section 962 or check-the-box election, the company owns a subsidiary in mainland China, or earlier years were never filed. Missing a required Form 5471 can cost $10,000 per company per year.
Gather the share register, the company's financial statements and Hong Kong profits tax return, bank statements for every company account, a record of salary and dividends paid to you, and any loans between you and the company. The categories, family attribution and schedules are in what US owners of foreign companies file.
Is a Hong Kong limited company a corporation for US tax?
Yes, unless a private company elects otherwise. US regulations list the Hong Kong Public Limited Company as a corporation that can never change, and for Hong Kong that term covers any limited company not defined as a private company under Hong Kong company law (26 CFR 301.7701-2(b)(8)).
A private limited company is an "eligible entity". With no election, a foreign eligible entity whose members all have limited liability is treated as a corporation (26 CFR 301.7701-3(b)(2)). Shareholders of a Hong Kong limited company have limited liability, so the default is a corporation, even with one owner. A one-owner company is not automatically disregarded.
Can I check the box to make my Hong Kong company disregarded?
A private limited company can file Form 8832 to be disregarded (one owner) or a partnership (two or more owners). Then the profit lands directly on the owner's return, and Form 8858 replaces Form 5471 for a one-owner company.
The election is hard to undo and changes more than forms:
- Deemed liquidation. Changing an existing corporation to disregarded is treated as the company distributing all its assets and liabilities to you in liquidation (26 CFR 301.7701-3(g)). That is generally a taxable exchange of your shares in the year of the change: gain up to the company's untaxed accumulated profits is treated as an ordinary dividend (section 1248), and only the rest is capital gain.
- Repeat-election lock. After a change, the entity generally cannot elect again for 60 months.
- Self-employment tax. Business profit of a disregarded company is reported like your own business, and self-employment tax rules are generally the same at home or abroad (Publication 54).
Election timing, Form 8858 and the year you close or sell are in which information form a foreign company needs.
Hong Kong taxes only Hong Kong profits. Does the US tax offshore profits?
Yes. Hong Kong charges profits tax only on profits arising in or derived from Hong Kong, so a Hong Kong company can earn profits abroad that Hong Kong does not tax (Hong Kong Inland Revenue Department). The US does not follow that line. A CFC's business profit is generally net CFC tested income to its US shareholders whether Hong Kong taxed it or not (section 951A).
For an individual owner, the inclusion is taxed at ordinary rates, up to 37%, in the year the company earns it. US corporations may deduct 40% of it and credit most of the company's foreign tax on it; an individual gets both only by electing under section 962 to be taxed as if a corporation. Passive income such as interest and dividends, and some related-party sales or services, fall under an older set of CFC rules (subpart F) instead, also taxed in the year earned. The section 962 comparison is in what US owners of foreign companies file.
Profit from work you do while in the US is different. Performing personal services in the US can be a US trade or business of the company (section 864(b)). Its US-source business income is left out of tested income (section 951A(c)(2)) and taxed to the company itself, which files Form 1120-F (Form 1120-F instructions). With no treaty, the company also owes a branch profits tax of 30% on those earnings unless it reinvests them in the US business (section 884). Where the work is done decides which rule applies.
An offshore claim saves Hong Kong tax, not US tax. Without a section 962 election, an individual owner gets no US credit for the company's Hong Kong tax; that tax only reduces the amount included. So an offshore claim leaves the US bill about the same or slightly higher.
Does Hong Kong profits tax reach the US high-tax exception?
Generally no. CFC income can be excluded from net CFC tested income, by election, only if it bears an effective foreign tax rate above 18.9%. Hong Kong's corporate profits tax rates are lower:
| Hong Kong corporate assessable profits | Profits tax rate |
|---|---|
| Up to HK$2,000,000 | 8.25% |
| Above that | 16.5% |
Rates from the Hong Kong Inland Revenue Department. Even the higher rate is below the US threshold. The effective rate is measured on income computed under US rules, so only a calculation on US-measured income shows whether the exception could apply.
No US–Hong Kong tax treaty: what does that change?
The US has no income tax treaty with Hong Kong. The IRS treaty list includes China but not Hong Kong (IRS treaties A to Z). Three results follow:
- Dividends are not qualified. A foreign corporation's dividends are qualified only if it is in a US territory, can claim a qualifying comprehensive US treaty, or its shares trade on an established US market (Publication 550). A private Hong Kong company meets none, so its dividends are taxed at ordinary rates, not the 20% maximum for qualified dividends. How the dividend itself is taxed, including profits already taxed under the CFC rules, is in dividends from your foreign company.
- No treaty tie-breaker. A green card holder living in Hong Kong cannot use a treaty to be treated as a US nonresident.
- No reduced rates or treaty relief. Double tax is limited only by the foreign tax credit (for the company's profits tax, only with a section 962 election) and, for salary, the foreign earned income exclusion. A green card holder can use the exclusion's bona fide residence test only as a citizen or national of a treaty country; otherwise only the physical presence test is open (Publication 54).
Salary or dividends from my Hong Kong company: how does the US see each?
Salary is taxed to you as wages, generally reduces the company's tested income, and may qualify for the foreign earned income exclusion if you live and work abroad. A dividend is taxed again as ordinary income, except where it is paid from profits already taxed to you under the CFC rules.
| Salary | Dividend | |
|---|---|---|
| Company's US-measured income | Generally deductible, so tested income is lower. | Not deductible. |
| Your US tax | Wages; foreign earned income exclusion up to $132,900 or foreign tax credit if you qualify. | Ordinary rates, not qualified, unless from previously taxed profits. |
| US Social Security and Medicare | Generally not due on wages for work outside the US paid by a foreign employer (Publication 54). | Not due. |
Where you do the work matters. Salary for work performed in the US is US-source and cannot use the exclusion. It is also wages for Social Security and Medicare, which the company must withhold, even though the employer is foreign (section 3121(b)). Choosing between the exclusion and the credit is in foreign earned income exclusion or foreign tax credit. Mandatory Provident Fund contributions are covered in foreign pension reporting.
My Hong Kong company owns a mainland China subsidiary: one Form 5471 or more?
More. The IRS instructions say to complete a separate Form 5471 for each foreign corporation that meets a filing category, and shares owned through your Hong Kong company count toward your ownership of its subsidiary (Form 5471 instructions). A subsidiary that is a corporation for US tax is usually a second CFC with its own tested income or loss, which nets with the Hong Kong company's.
A subsidiary classified as disregarded may instead need Form 8858 attached to the Hong Kong company's Form 5471. Mainland China rules are in a green card holder with a company in China.
What records from the Hong Kong company do the US forms need?
The Hong Kong financial statements and profits tax return are the starting point, not the answer. Form 5471 asks which kind of statements the income statement comes from, including audited statements under local accounting rules, and needs them in both Hong Kong dollars and US dollars at IRS translation rates (Form 5471 instructions). Profit then has to be adjusted to US tax rules for earnings and profits and tested income.
Beyond the items in the first section, bring the trial balance and general ledger, any offshore claim papers, the highest balance of each company account, dates of share issues or transfers, and the same records for any subsidiary.
Example
Amounts are in US dollars unless marked HK$, and are illustrative. Rates are rounded.
Owner in Los Angeles, offshore profits
A US citizen in Los Angeles owns 100% of a Hong Kong consulting company. It earns $300,000 profit on consulting done outside both Hong Kong and the US, which it treats as offshore, so it pays no Hong Kong profits tax and pays her nothing. The company is a CFC. She files Form 5471 and Form 8992, and about $300,000 of net CFC tested income goes on her Form 1040 at ordinary rates in the same year, with no foreign tax credit. If she did the work from Los Angeles, that profit could instead be the company's US business income, taxed on Form 1120-F, plus the branch profits tax. A later dividend of those profits is generally not taxed again for income tax, though it can still count for the net investment income tax unless she elected otherwise (dividends from your foreign company). A section 962 election might lower the current tax; it needs a side-by-side calculation.
Green card holder living in Hong Kong
A green card holder lives in Hong Kong and owns his company outright. The company earns $250,000 before salary and pays him $120,000 for work done in Hong Kong. The salary may be excluded under the foreign earned income exclusion if he meets the physical presence test, or he can claim a credit for Hong Kong salaries tax. The company pays Hong Kong profits tax at the lower tier on the remaining $130,000 (about $10,700, within the HK$2,000,000 band). About $119,300 is net CFC tested income on his US return, with no US credit for the company's $10,700 unless he makes a section 962 election. The effective rate is about 8%, well below the high-tax threshold, so the high-tax exclusion would not be available.
Owner who checks the box
A US citizen owner files Form 8832 to make a long-held company disregarded. The change is treated as a liquidation, so the company's accumulated profits and asset gains may be taxed to him that year. From then on he reports the business on Schedule C with Form 8858 instead of Form 5471, may owe self-employment tax, and generally cannot change back for 60 months.
Different for you?
- You never filed Form 5471 for past years: see late foreign company information returns and get cross-border tax help before filing anything.
- You are weighing a section 962 or check-the-box election: both are hard to reverse; compare them with cross-border tax help.
- You do the company's work from the US: part of the profit may be taxed to the company in the US instead of as CFC income; check it with cross-border tax help.
- You owned the company before getting a green card or moving to the US: the first US year brings new filings and may be worth planning before the move; get cross-border tax help.
- The company paid little or no Hong Kong tax on an offshore claim: the US tax each year may be larger than expected; plan it with cross-border tax help.
- Company bank accounts and signing authority: see the FBAR for company accounts abroad, or get FBAR help if past years were missed.
- You are selling or closing the company: see selling your foreign company as a US owner.
- The company owns a mainland China company, or you live there: see a green card holder with a company in China.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Foreign corporation ownership threshold for a US shareholder Voting power or stock value; also the basic stock threshold used in Form 5471 Categories 2 and 3 | 10% | IRS: Instructions for Form 5471 Checked |
| Ownership by US shareholders that makes a foreign corporation a CFC Of total combined voting power or total value, owned directly, indirectly or constructively by US shareholders (each a US person owning 10% or more) on any day of the year, 26 U.S.C. 957(a) | More than 50% | US Code: 26 U.S.C. 957 Checked |
| FBAR ownership level for an entity's accounts You have a financial interest in the foreign accounts of a corporation, partnership or other entity you own more than this share of, directly or indirectly | 50% | eCFR: 31 CFR 1010.350, Reports of foreign financial accounts Checked |
| FBAR filing threshold Total maximum value of all foreign financial accounts at any time in the calendar year; an FBAR is required when the total is more than this | $10,000 | FinCEN: Report Foreign Bank and Financial Accounts Checked |
| Form 8938 threshold, unmarried or married filing separately, living in the US, year end Total value of specified foreign financial assets on the last day of the tax year; also applies to married filing separately | $50,000 | IRS: Instructions for Form 8938 Checked |
| Form 8938 threshold, unmarried or married filing separately, living in the US, any time Total value at any time during the tax year; also applies to married filing separately | $75,000 | IRS: Instructions for Form 8938 Checked |
| Initial penalty for failure to file required Form 5471 information Per annual accounting period of each foreign corporation for information required by section 6038(a) | $10,000 | IRS: Instructions for Form 5471 Checked |
| Form 8832 repeat-election restriction A further classification change is generally restricted for this period after the prior election took effect; an initial election effective on formation is excepted | 60 months | IRS: Form 8832 instructions, lines 2a and 2b Checked |
| Highest federal income tax rate for individuals Top rate in the section 1 tables; also the rate used in the foreign tax credit high-tax test for an individual's passive income (Treas. Reg. 1.904-4(c)). | 37% Tax year 2026 | IRS: Revenue Procedure 2025-32 Checked |
| Domestic corporation deduction for net CFC tested income Section 250 deduction percentage for net CFC tested income and related section 78 amount, subject to the taxable-income limit | 40% Tax year 2026 | US Code: section 250 Checked |
| Branch profits tax rate Section 884(a) tax on a foreign corporation's after-tax US business earnings not reinvested in the US business (the dividend equivalent amount); a treaty may lower or change it. | 30% | IRS: Instructions for Form 1120-F, Section III Checked |
| Net CFC tested income high-tax threshold Effective foreign tax rate must be greater than this rate; the regulation derives it from 90% of the US corporate rate | 18.9% Tax year 2026 | eCFR: 26 CFR 1.951A-2(c)(7) Checked |
| Hong Kong two-tiered profits tax: assessable profits taxed at the lower rate First HK$2,000,000 of assessable profits; two-tiered rates apply from the year of assessment 2018/19 onwards. Amount in Hong Kong dollars. | HK$2,000,000 | Hong Kong Inland Revenue Department: Profits Tax Checked |
| Hong Kong profits tax rate for corporations on assessable profits up to the two-tier band Two-tiered rates, year of assessment 2018/19 onwards. | 8.25% | Hong Kong Inland Revenue Department: Profits Tax Checked |
| Hong Kong profits tax rate for corporations (normal rate, and above the two-tier band) Normal rate from year of assessment 2008/09; also applies to assessable profits above HK$2,000,000 under the two-tiered rates. | 16.5% | Hong Kong Inland Revenue Department: Profits Tax Checked |
| Top federal rate on most net long-term capital gain Applies above the upper 15% capital-gain taxable-income threshold; special gain categories can have different rates | 20% | IRS: Topic 409, Capital gains and losses Checked |
| Foreign earned income exclusion limit Maximum foreign earned income a qualifying person can exclude on Form 2555 | $132,900 Tax year 2026 | IRS: Tax year 2026 inflation adjustments Checked |
Primary sources
- eCFR: 26 CFR 301.7701-2, business entities and per se corporations
- eCFR: 26 CFR 301.7701-3, classification of eligible entities
- IRS: About Form 8832, Entity Classification Election
- IRS: Instructions for Form 5471
- IRS: Instructions for Form 8938
- IRS: Report of Foreign Bank and Financial Accounts (FBAR)
- IRS: United States income tax treaties A to Z
- IRS: Publication 550, Investment Income and Expenses
- IRS: Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- US Code: section 951A
- US Code: section 960, deemed paid credit
- US Code: section 864, trade or business within the United States
- US Code: section 884, branch profits tax
- US Code: section 1248, gain from sale of stock in a foreign corporation
- IRS: Instructions for Form 1120-F
- Hong Kong Inland Revenue Department: Profits Tax
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.