6 Ways to Prepare Your Finances to Move to Hong Kong

Moving to Hong Kong can be an exciting adventure, but it’s also a significant financial decision that requires careful planning. Whether you’re relocating for work, family, or the vibrant lifestyle, ensuring your finances are in order before you move is crucial. Here are six essential steps you should take to make your transition as smooth as possible.

1. Review Investments for Unfranked Dividends

When it comes to your investments, unfranked dividends can be a tricky subject. Unlike franked dividends, which come with a tax credit because the company has already paid tax on the income, unfranked dividends don’t offer this benefit. As an Australian moving to Hong Kong, you’ll need to consider the impact of withholding tax on these dividends.

What Are Unfranked Dividends?

Unfranked dividends are payments made by Australian companies to their shareholders without any tax credits attached. This means you’ll be liable to pay tax on the full amount of these dividends. When you move to Hong Kong, the situation can become more complicated due to international tax rules.

Withholding Tax Implications

Australia imposes a withholding tax on unfranked dividends paid to non-residents. This means that when you move to Hong Kong, the Australian government will still take a slice of your dividend income before it reaches you. This could in many cases by 30% of the unfranked dividend amount, whilst the fully franked dividends would not attractive this tax.

Steps to Take

• Review Your Portfolio: Before you move, take a close look at your investment portfolio. Identify which dividends are unfranked and consider the tax implications.
• Seek Professional Advice: Speak to a financial adviser who can help you understand your tax obligations and explore strategies to minimise your tax liability. They might suggest shifting your investments to those that offer franked dividends or other tax-efficient options.
• Restructure if Necessary: Depending on your advisor’s recommendations, you might want to restructure your portfolio to reduce your exposure to unfranked dividends and avoid unnecessary tax hits.

2. Plan for Your Deemed Disposal

Deemed disposal is another financial concept that can catch you off guard if you’re not prepared. When you leave Australia, the Australian Taxation Office (ATO) may treat certain assets as if they were sold on the day you depart. This can trigger capital gains tax (CGT) liabilities, even though you haven’t actually sold anything.

Understanding Deemed Disposal

Deemed disposal applies to assets that you own and take with you overseas. For tax purposes, the ATO considers that you’ve disposed of these assets at their market value on the day you become a non-resident. This means you could owe CGT on any increase in value since you first acquired the asset.

Calculating Capital Gains Tax

To calculate your CGT, you’ll need to know the cost base (what you paid for the asset) and its market value on the deemed disposal date. The difference between these amounts is your capital gain, and you’ll be taxed accordingly.

Managing Your CGT Liability

• Assess Your Assets: Identify which assets might be subject to deemed disposal. Common examples include shares, unit trusts, and ETFs.
• Valuation: Get accurate valuations for these assets to determine their market value at the time of your move.
• Plan Ahead: If you anticipate a significant CGT liability, consider planning your move at a time when your assets are valued lower or selling them before you leave Australia to lock in your gains and manage your tax bill.
• Utilise CGT Exemptions: Some assets may be eligible for a discount on the realised taxable gains.

3. Optimise Your Home Loan Structures

Your home loan is likely one of your biggest financial commitments, so it’s crucial to review and optimise it before you move to Hong Kong. Moving abroad can affect your loan terms, interest rates, and even your ability to make payments.

Review Your Current Home Loan

Take a close look at your current home loan agreement. Understand the terms, interest rates, and any potential penalties for early repayment or refinancing.

Consider Refinancing

Refinancing your home loan can be a smart move before relocating. By doing so, you might secure a better interest rate or more favourable terms that can save you money in the long run.

Speak to Your Lender or Mortgage Broker

Contact your lender or mortgage broker to discuss your plans to move to Hong Kong. They might offer special arrangements or advice for managing your loan while you’re overseas. Some lenders have specific policies for expatriates, which could work to your advantage.

Fixing Interest Rates

If you’re worried about fluctuating interest rates, consider fixing your interest rate before you move. This can provide peace of mind by ensuring your repayments remain consistent, even if market rates change.

Offset Accounts and Redraw Facilities

Check if your home loan has an offset account or redraw facility. These features can help you reduce interest payments and access extra funds if needed. Make sure you understand how to manage these accounts from abroad.

Steps to Optimise Your Home Loan

• Review Loan Terms: Understand your current home loan terms, including interest rates and repayment conditions.
• Consider Refinancing: Explore refinancing options to secure better terms or lower interest rates.
• Utilise Features: Make the most of offset accounts and redraw facilities to manage your loan efficiently.

4. Set Up a Budget

Creating a budget is a fundamental step in preparing for your move to Hong Kong. Knowing what to expect in terms of living costs can help you plan effectively and avoid financial stress.

Research the Cost of Living

Hong Kong is known for its high cost of living, particularly when it comes to housing. Spend time researching what you can expect to pay for rent, utilities, groceries, transportation, and other daily expenses.

Housing Costs

Rent is likely to be your biggest expense in Hong Kong. Prices can vary significantly depending on the neighbourhood and type of accommodation you choose. Consider factors like proximity to work, schools, and public transportation when budgeting for housing.

Transportation

Public transportation in Hong Kong is efficient and relatively affordable. However, if you plan to own a car, be prepared for high costs associated with parking, insurance, and maintenance.

Healthcare

While Hong Kong has excellent healthcare facilities, it’s essential to budget for health insurance and any out-of-pocket medical expenses. Ensure you understand the coverage provided by your insurance plan.

Education

If you have children, factor in the cost of schooling. International schools in Hong Kong can be expensive, so it’s important to budget accordingly.

Daily Expenses

Groceries, dining out, and entertainment costs can add up quickly. Research average prices and include a buffer in your budget for unexpected expenses.

Creating Your Budget

• List Income and Expenses: Start by listing all sources of income and expected expenses.
• Categorise Expenses: Break down your expenses into categories such as housing, transportation, healthcare, education, and daily living.
• Include a Buffer: Add a buffer for unexpected expenses to avoid financial surprises.
• Review Regularly: Regularly review and adjust your budget as you settle into your new life in Hong Kong.

5. Consider Contributions to MPF, VPF, and Superannuation

When moving to Hong Kong, it’s essential to understand the local retirement savings schemes and how they interact with your existing superannuation in Australia. Hong Kong has the Mandatory Provident Fund (MPF) and the Voluntary Provident Fund (VPF), which are similar to Australia’s superannuation system.

Understanding MPF and VPF

The MPF is a compulsory savings scheme designed to provide retirement benefits for employees and self-employed persons in Hong Kong. Contributions are made by both the employer and the employee, typically at a rate of 5% each, up to a maximum relevant income level. The VPF allows for additional voluntary contributions, which can help boost your retirement savings.

Comparing MPF/VPF and Superannuation

While MPF and VPF serve similar purposes to superannuation, there are key differences in terms of contribution limits, tax treatment, and investment options. Understanding these differences is crucial for making informed decisions about your retirement savings.

Deciding on Contributions

• Evaluate Your Options: Determine whether it makes sense to contribute to the MPF/VPF, continue contributing to your Australian superannuation, or do both. This will depend on factors such as your employment situation, financial goals, and tax implications.
• Seek Professional Advice: Consulting with a financial advisor who understands both the Australian and Hong Kong systems can help you navigate this complex area. They can provide tailored advice on optimising your retirement savings strategy.
• Consider Dual Contributions: If possible, contributing to both the MPF/VPF and your superannuation can provide diversification and potential tax benefits. Ensure you understand the contribution limits and tax implications for each system.

Steps to Take

• Understand MPF/VPF: Familiarise yourself with the details of the MPF and VPF schemes.
• Compare with Superannuation: Evaluate the pros and cons of each system and how they fit into your overall retirement plan.
• Seek Advice: Get professional advice to make informed decisions about your contributions.
• Plan Contributions: Decide on your contribution strategy and ensure you adhere to the relevant limits and regulations.

6. Plan Ahead to Manage Currency Risk

Moving to a new country involves dealing with a different currency, and managing currency risk becomes an essential part of your financial planning. Currency fluctuations can significantly impact your finances, especially if you have income or expenses in multiple currencies.

Understanding Currency Risk

Currency risk, or exchange rate risk, is the potential for financial loss due to changes in the exchange rate between two currencies. As an Australian moving to Hong Kong, you’ll need to manage the risk associated with converting Australian dollars (AUD) to Hong Kong dollars (HKD) and vice versa.

Impact on Your Finances

Currency fluctuations can affect various aspects of your financial life, including:

• Income: If you receive income in AUD while living in Hong Kong, a weaker AUD relative to HKD can reduce your purchasing power.
• Expenses: Conversely, if you have expenses in AUD, a stronger AUD can increase your costs when converting from HKD.
• Investments: Currency risk can also impact the value of your investments, especially if you hold assets in different currencies.

Strategies to Manage Currency Risk

• Use Hedging Instruments: Financial instruments such as forward contracts, options, and currency futures can help protect against adverse currency movements. These tools allow you to lock in exchange rates for future transactions, providing greater certainty.
• Maintain a Currency Diversified Portfolio: Diversifying your investments across different currencies can help mitigate the impact of currency fluctuations. This approach spreads the risk and reduces your exposure to any single currency.
• Regular Transfers: Instead of transferring large sums of money at once, consider making regular, smaller transfers. This strategy, known as dollar-cost averaging, can help smooth out the effects of exchange rate volatility.
• Stay Informed: Keep an eye on exchange rate trends and economic indicators that could impact currency movements. Staying informed allows you to make timely decisions and take advantage of favourable rates.

Steps to Manage Currency Risk

• Assess Your Exposure: Identify the areas of your finances that are affected by currency risk, such as income, expenses, and investments.
• Consider Hedging: Explore hedging instruments that can provide protection against currency fluctuations.
• Diversify Investments: Maintain a portfolio diversified across multiple currencies to spread the risk.
• Regular Transfers: Make regular currency transfers to average out exchange rate fluctuations.
• Stay Updated: Monitor exchange rates and economic trends to make informed decisions.

Conclusion

Moving to Hong Kong is an exciting and transformative experience, but it requires careful financial planning to ensure a smooth transition. By taking the time to review your investments, plan for deemed disposal, optimise your home loan structures, set up a budget, consider your contributions to MPF/VPF and superannuation, and manage currency risk, you’ll be well-prepared for the financial challenges and opportunities that come with living in a new country.

Remember, professional advice is invaluable when navigating these complex financial areas. A financial advisor with experience in both Australian and Hong Kong markets can provide personalised guidance and help you make the best decisions for your unique situation. With thorough preparation and the right strategies, you can confidently embark on your new adventure in Hong Kong, knowing that your financial future is secure.

Finally, don’t forget to download our Relocation to Hong Kong Guide here.

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.