Hong Kong’s population exodus continues, with the number of emigrants reaching record highs and the number of local immigrants reaching its peak since 1997. Whether you are a business/technical migrant, on working holiday or studying abroad, you are responsible for clearing your tax bill and informing the Inland Revenue Department and your employer if you leave Hong Kong for more than a month, otherwise you may be fined. Don’t want to be stuck with tax before you leave Hong Kong? You may want to take note of this article to learn more about the essentials of “tax clearance outside Hong Kong” in one go.
What is ‘tax clearance outside Hong Kong’?
As the name suggests, tax clearance is the payment of tax and is usually only applicable to taxpayers who intend to leave Hong Kong for more than one month. Under section 55 of the Inland Revenue Ordinance (IRO), even if the person intends to return to Hong Kong in the future, he is still required to notify the Inland Revenue Department (IRD) of his tax liability and settle his tax return before he leaves Hong Kong.
The following three conditions should be met before leaving Hong Kong.
An employee who is liable to pay salaries tax.
Those who have sold their property and are required to pay income tax on the profits.
Those who have closed their business and are required to pay income tax on their profits.
Why do I need to “clear” the tax?
You may be wondering why you have to clear tax even if you are only temporarily absent from Hong Kong. What is the point of going through all the trouble? In fact, the Inland Revenue Department has considered the following reasons behind the requirement of the Inland Revenue Ordinance.
- Tax exemption liability
In order to prevent people from leaving Hong Kong, those who fail to clear their taxes may be subject to a level 3 penalty (described in the next paragraph).
- Helping to retrieve MPF funds
Before moving overseas, employees are required to submit relevant documents to their MPF trustees in order to complete the “early withdrawal of MPF benefits before age 65” procedure. Therefore, tax clearance is generally a necessary part of the process to facilitate the withdrawal of MPF benefits.
- Possible tax refund
Lastly, tax clearance may lead to a tax refund. Since tax is cleared when you leave Hong Kong, it means that you have overpaid provisional tax for the previous year of assessment and you will generally be able to get a refund of some of the provisional tax paid.
Easy procedures for clearing tax before leaving Hong Kong
- advise your employer and the Inland Revenue Department of your intention to leave Hong Kong (at least one month’s notice, confirmation of departure date).
- The employer must submit an IR56G form and the employee must have a copy of the form, which should be temporarily withheld from the final salary.
- The Inland Revenue Department (IRD) will issue a tax return (BIR60) which the employer must complete and submit together with the relevant documents (this can be done in person at the tax office to speed up the process)
- the Inland Revenue Department will issue a “Notice of Tax Payment”.
- Pay the tax on the date specified in the notice and look out for a copy of the ‘Consent to Release’ letter (normally the Inland Revenue Department will also mail it to the employer and employee).
- The final salary will not be paid until the employer receives the Consent Letter.
What are the consequences of not clearing the tax?
In addition, if a taxpayer fails to pay the tax before leaving Hong Kong, both the taxpayer and the employer may be held liable, and the offender may be liable to a Level 3 fine of HK$10,000, or the Inland Revenue Department may apply to the court for an injunction to prohibit the person concerned from leaving Hong Kong.
The above information is for reference only. If you have any questions or enquiries regarding tax returns (personal tax returns, corporate tax returns, accountant tax returns), you are welcome to contact our professional advisors and we will provide you with a free quotation and consultation service in due course.