US expats - government annuity in Hong Kong

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Topic Author
rxtra8
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US expats - government annuity in Hong Kong

Post by rxtra8 »

Hello All

I am a retired 71 yo US citizen living in Hong Kong. My wife, 61yo, is also a US citizen and a permanent resident of HK. DW is excited about a HK Government Annuity paying approx. 6% (guaranteed 213 months no matter what). I am a somewhat reticent to proceed because we really do not need the income (my pension and SS cover at least 2x what we need to spend- HK flat is paid off) plus I worry about any issues that the US IRS would have with this HK annuity/interest/etc.

My question for BH folks concerns any issues that a HK annuity might present to us dealing with the IRS or US government? Yes, we would definitely report the interest income. Also we are talking $500,000HKD (divide by 7.8 to get approx USD) for the annuity. We also have an excellent tax person in the US to help us deal with our expat IRS issues (next year will be our first year filing under these conditions).

Thanks for your time and consideration.
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
Topic Author
rxtra8
Posts: 138
Joined: Wed Jun 10, 2015 1:12 pm

Re: US expats - government annuity in Hong Kong

Post by rxtra8 »

Actually rethinking, I believe that annuity income from HK government annuity would be OK as long as we report but I am still concerned. I have asked about stocks and such in the past but I am not sure about a HK Govt annuity.
Thanks
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
Flashes1
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Re: US expats - government annuity in Hong Kong

Post by Flashes1 »

How confident are you that the CCP will support the HK government annuity?
Karamatsu
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Re: US expats - government annuity in Hong Kong

Post by Karamatsu »

Since you have a tax accountant that you trust and who is familiar with international issues, you should probably ask him/her to investigate this because there are lots of landmines hidden in the tax code that are specifically designed to explode when an expat (or other investor in foreign assets) wanders by. There's also no one-size-fits-all answer because even in normal situations, much depends on the text of bilateral tax treaties. And then, HK isn't really a "normal" situation these days, given the moves in Washington to sanction the PRC and eliminate special treatment for HK over well-known issues. So, much better to have an expert review the code and the treaty and look up special regulations that may exist, or be in the works, that would apply specifically to HK/PRC.

Meanwhile, why do you suppose they chose 213 months? There are a lot of curious superstitions about numbers in Asia so I just wonder if there's some nuance that makes 213 better than, say 216 (eighteen years even)? Or is it just that the term had fixed starting/ending dates and you'd be getting in with 213 months left to go?
Topic Author
rxtra8
Posts: 138
Joined: Wed Jun 10, 2015 1:12 pm

Re: US expats - government annuity in Hong Kong

Post by rxtra8 »

Karamatsu wrote: Fri Dec 03, 2021 6:21 pm Since you have a tax accountant that you trust and who is familiar with international issues, you should probably ask him/her to investigate this because there are lots of landmines hidden in the tax code that are specifically designed to explode when an expat (or other investor in foreign assets) wanders by. There's also no one-size-fits-all answer because even in normal situations, much depends on the text of bilateral tax treaties. And then, HK isn't really a "normal" situation these days, given the moves in Washington to sanction the PRC and eliminate special treatment for HK over well-known issues. So, much better to have an expert review the code and the treaty and look up special regulations that may exist, or be in the works, that would apply specifically to HK/PRC.

Meanwhile, why do you suppose they chose 213 months? There are a lot of curious superstitions about numbers in Asia so I just wonder if there's some nuance that makes 213 better than, say 216 (eighteen years even)? Or is it just that the term had fixed starting/ending dates and you'd be getting in with 213 months left to go?
Thanks for the replies. Honestly I'd rather not do the annuity but my wife has brought it up a couple of times. I will have to send off an email to our tax guy and follow up with your suggestions; hopefully he can shed some light on the issue. As far as the 213 number, my wife said there is a table which is based on age of annuitant which produced the number.

As to the previous post about worries concerning the Chinese government and the annuity being owned by a US Citizen, I am not that concerned. Anything can happen but there are many expats in HK from many countries and the biggest concern for them appears to be the 21 day quarantine; cannot travel and/or see family abroad easily. Aside from issues expounded upon in the press, these issues are not evident to most on the ground. If anything the government officials I have come in contact with, dealing with immigration (mine) and health care (Covid Booster shot for me), they have been quite accommodating and flexible. For the booster shot they were very careful checking my US records and having a tech and MD agree before proceeding. Plus no charge!

My main concern with the annuity is getting tangled up with the US IRS and I will follow up with our tax guy.

Thanks again for the replies.
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
AlohaJoe
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Re: US expats - government annuity in Hong Kong

Post by AlohaJoe »

rxtra8 wrote: Thu Dec 02, 2021 11:28 pm My question for BH folks concerns any issues that a HK annuity might present to us dealing with the IRS or US government?
First you'd need to check whether this annuity would be considered a PFIC.

Second you'd need to check whether there are any accrued earnings that aren't distributed. You can be liable for tax on accrued but not distributed earnings. i.e. you have to come up with the money from somewhere else. Google "section 1275 foreign annuity".

That said, my guess is that this particular annuity is probably not going to cause any particular head aches.
sidwin516
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Re: US expats - government annuity in Hong Kong

Post by sidwin516 »

Lol they will never choose 214 because 4 phonetically sounds like death in mandarin. I worked for the largest networking company in the world and we had to skip version 13 because of superstition on English countries and 14 because of china. I’m surprised they didn’t chose 218 lol
Topic Author
rxtra8
Posts: 138
Joined: Wed Jun 10, 2015 1:12 pm

Re: US expats - government annuity in Hong Kong

Post by rxtra8 »

AlohaJoe wrote: Sat Dec 04, 2021 2:15 am
rxtra8 wrote: Thu Dec 02, 2021 11:28 pm My question for BH folks concerns any issues that a HK annuity might present to us dealing with the IRS or US government?
First you'd need to check whether this annuity would be considered a PFIC.

Second you'd need to check whether there are any accrued earnings that aren't distributed. You can be liable for tax on accrued but not distributed earnings. i.e. you have to come up with the money from somewhere else. Google "section 1275 foreign annuity".

That said, my guess is that this particular annuity is probably not going to cause any particular head aches.
Thanks for the reply and the points are noted. Something to check out. I will have to quiz DW for more info on this deal as she is the one pushing to buy.
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
Topic Author
rxtra8
Posts: 138
Joined: Wed Jun 10, 2015 1:12 pm

Re: US expats - government annuity in Hong Kong

Post by rxtra8 »

sidwin516 wrote: Sat Dec 04, 2021 11:28 am Lol they will never choose 214 because 4 phonetically sounds like death in mandarin. I worked for the largest networking company in the world and we had to skip version 13 because of superstition on English countries and 14 because of china. I’m surprised they didn’t chose 218 lol
That can be a factor. The building that I live in is missing some floor numbers; 4 is always an issue. Also many years ago when many Chinese folks from Taiwan were moving into the very expensive San Marino area (near LA) they were getting that city to change address numbers to avoid the dreaded "4". BUT in this case DW showed me the table that determines the guaranteed length of the annuity.

Thanks for the reply.
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
Chip
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Re: US expats - government annuity in Hong Kong

Post by Chip »

sidwin516 wrote: Sat Dec 04, 2021 11:28 am Lol they will never choose 214 because 4 phonetically sounds like death in mandarin. I worked for the largest networking company in the world and we had to skip version 13 because of superstition on English countries and 14 because of china. I’m surprised they didn’t chose 218 lol
My wife (a gweilo) was assigned a phone extension of 444 in her HK office. I guess they figured she wouldn't know or wouldn't care. :D
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