For Hong Kong employers, running a business requires not only smart business strategies and a good team, but also a full understanding of and compliance with various tax requirements, including the need to understand their tax liabilities. This involves a number of aspects such as reporting and maintaining employee compensation, as well as the amount of tax payable. Whether you’re a start-up or an established company, you can’t afford to ignore this topic. In this article, we will provide you with an in-depth analysis of the tax responsibilities of employers to avoid possible tax risks.
Keeping Employee Payroll Records
The main tax responsibility of an employer in Hong Kong is to ensure that all payroll records of employees are properly maintained. These records include but are not limited to wages, bonuses, commissions, pensions, and any other forms of remuneration. Under Hong Kong tax law, employers are required to keep these records for at least seven years:
Personal details such as name, address, Hong Kong Identity Card or passport number and its place of issue, marital status.
Employment status, including whether full-time or part-time.
Positions held, e.g. sales manager, salesman, laborer, in-house lawyer, accountant, director, etc.
Remuneration paid in cash or otherwise, whether in Hong Kong dollars, foreign currencies, or outside Hong Kong.
Non-cash and other fringe benefits, e.g. housing, vacation travel, share awards, share purchase rights, etc.
Contributions to MPF schemes (or similar schemes) paid by employees and employers.
Employment contracts and subsequent modifications.
The period of employment.
In addition, you will need to provide the Inland Revenue Department with some updated information, including:
Changes to an employee’s personal information, such as a new residential address, contact address or marital status.
Changes in employment conditions, e.g. from full-time to part-time.
The employee’s Hong Kong Identity Card number.
Employers must prove that they have paid the employee’s salary and these records will be examined during the tax audit.
Reporting Employee Payments
Not only do employers need to keep all payroll records, they also need to report all payroll paid to employees to the Inland Revenue Department of Hong Kong (IRD) on a timely basis, including completing and submitting the Employer’s Return (BIR56A) within a specified period of time (within 1 month of receipt of the tax return).
Even if you do not employ any employees, you must still mark the “none” box on the BIR56A form.
Whether or not your business is open for business.
Whether you have suspended or closed your business.
If you have not received your annual employer’s tax return, it is your responsibility to notify the IRS and request a copy.
Provide your employees with a copy of the completed IR56B / 56E / 56F / 56G forms so that they can complete their tax returns correctly.
Different Employees or Employment Situations
1. Continuing Employees
Employers are required to report the following employees on the annual employer’s tax return (Forms BIR56A and IR56B):
Single employees with annual gross receipts of $132,000 or more
Married employees, regardless of their income
Part-time employees, regardless of earnings
Company directors, regardless of income
2. New Employees
If you employ an employee who may be subject to salaries tax, you need to submit a Form IR56E (or submit IR56E through the Employer Electronic Tax Return System) within 3 months.
3. Cessation of Employment (or Death) of Employee
You need to submit a Form IR56F (or IR56F through Employer Electronic Filing System) within 1 month before the employee ceases to be employed.
4. Employee leaving Hong Kong permanently or permanently
For employees who intend to leave Hong Kong on a long-term or permanent basis, you need to:
Know their expected departure date
Submit two copies of Form IR56G (or submit IR56G through the Employer Electronic Filing System) within one month before their expected departure date.
From the day you submit the IR56G forms, you must not pay them any form of remuneration (including salaries, commissions, bonuses and reimbursement of rents/expenses, whether in cash or in kind) until they have completed their tax clearance and have produced to you a Consent to Release Form issued by the Inland Revenue Department before you can make payment to them of the withheld amount. The above information is for reference only. If you have any enquiries about tax return (personal tax return, corporate tax return, accountant tax return), you are welcome to contact our professional consultants and we will provide you with a free quote and consultation service in due course.