All you need to know about Hong Kong payroll
Agenda: 1. Payroll 2. Social Security 3. Tax
Payroll
Payroll Tax year runs 01 st April to 31 st March. • • National Tax levied at rates between 2% an 17% and there is no tax-free threshold Majority of the onus regarding tax is held by the employee. Therefore • payroll related duties in Hong Kong are somewhat simplified. No income tax withholding at source duties and only one mandatory • Provident Fund contribution, which goes to the national pension scheme.
Payroll What tax obligation do I have as an Employer? •Keeping payroll records •Reporting remuneration paid to an employee •General •Continuous employment •New employment •On termination of his service (or death) •On his leaving Hong Kong for good or for a substantial period of time
Payroll Keeping payroll records your tax obligations commence when you hire the first employee. On hiring the employee, you have to maintain a record of that person's : • personal particulars (name, address, identity card or passport number with country of issue, marital status) • nature of employment (full time or part-time) • capacity in which employed (e.g. sales manager, salesman, worker, in-house lawyer, accountant, director) • amount of cash remuneration (regardless of denomination in domestic or foreign currency and remuneration paid overseas) • non-cash and fringe benefits (such as quarters, holiday journey benefits, share award, share option) • employer's and employee's contributions to the Mandatory Provident Fund (MPF) or its equivalent • employment contract and amendments to terms of employment • period of employment
Payroll You have to inform the Inland Revenue Department ("IRD") the following: • any change in the employee's personal particulars (such as change in residential and postal address, change in marital status) • any change in the employee's terms of employment (such as a change from full time to part-time) • the Hong Kong Identity Card No. of the employee Business owners are required to keep business accounting records, including payroll records, for at least 7 years. For details of what and how records should be kept
Payroll Reporting remuneration paid to an employee, general: • When you received an Employer's Return (BIR56A), you must complete it and lodge with IRD within 1 month even if a) you do not hire any employee (a Nil return should be made), b) the business has not commenced, or c) the business has ceased. • If you have employed persons who meet the conditions stated in item 1(a) of Notes and Instructions for Forms BIR56A and IR56B but do not receive an Employer's Return for the year of assessment 2015/16 by mid April 2016, you should request the IRD to issue a return. • A copy of the completed IR56B/56E/56F/56G should be provided to the employee concerned so as to facilitate the correct completion of his/her tax return. Also see Obligations of An Employer (IR56H)
Payroll The Hong Kong Identity Card No. of the employee If at the time when you complete your Employer's Return, an employee does not possess a Hong Kong Identity Card, e.g. the employee was recruited from overseas or seconded from an overseas corporation, you can fill in his/her passport number with country of issue. After filing the Employer's Return, you have to follow up with the employee. You should, soonest possible, write in to inform the IRD when the Hong Kong Identity Card No. of the employee is known.
Payroll Continuous Employment you have to report the employee on your Employer's Return (BIR56A and IR 56B) for 2015/16 if he is • single and paid an annual income of $120,000 or more • married (regardless of amount) • a part-time staff (regardless of amount) • a director (regardless of amount) New employment You have to file one copy of IR56E (green form or via Electronic Filing of Employer's Return) within 3 months of employing a person if you anticipate that the employee is likely to be chargeable to Salaries Tax.
Payroll On termination of his service (or death) • You have to file one copy of IR56F (blue form or via Electronic Filing of Employer's Return) one month before the date of termination of his employment. On his leaving Hong Kong for good or for a substantial period of time • You have to ascertain from the employee his expected date of departure. • You have to file two copies of IR56G (pink form or via Electronic Filing of Employer's Return) one month before the expected date of departure. • From the date of filing IR56G and until such time the employee has made tax clearance and can produce to you a "letter of release" issued by the IRD, you should withhold all amounts due to be paid to him (including salaries, commission, bonus, reimbursement of rent/expense, money or money's worth included).
Payroll Foreign employers in Hong Kong are covered by the obligations. • Under Double Tax Treaties there are no withholding obligations for income • tax for a foreign employer with no permanent establishment in Hong Kong. • Mandatory benefits including payment of holidays, statutory holidays, sick days all of which involve complex calculations and maternity allowances.
Payroll Employer's Obligations include: • Keeping payroll records You have to maintain payroll records of your employees and keep these records for at least 7 years. For details, see • What tax obligations do I have as an Employer? • Reporting remuneration paid to an employee You need to report remuneration paid to employees by submitting annual Employer's Return (BIR56A and IR56B) and the following Notification Forms: • IR56E (New employment) • IR56F (On termination of his service (or death)) • IR56G (On his leaving Hong Kong for good or for a substantial period of time)
Payroll Mandatory Provident Fund (MPF) The Mandatory Provident Fund is a mandatory formal system of basic • retirement protection. An employer must comply with all MPF-related legal obligations under the law. These include enrolling all qualifying employees in MPF schemes and making MPF contributions for them. The fund covers all employees and self-employed persons who are 18 and • over but under 65 years of age, unless specifically exempt under the MPFSO, are covered by the MPF System.
Payroll Mandatory Provident Fund (MPF) Employee can claim a tax deduction under Salaries Tax for the mandatory • contributions that he makes to an MPF scheme. The maximum deductible amount should not exceed the amount prescribed in the Inland Revenue Ordinance. However, any voluntary contributions made by him are not deductible. • As an employer, you can make voluntary contributions in addition to mandatory contributions for your employees.
Payroll Mandatory Provident Fund (MPF) Employees covered by statutory pension or provident fund schemes (e.g. • civil servants) Members of occupational retirement schemes regulated under the • Occupational Retirement Schemes Ordinance (ORSO) which are granted exemption from complying with MPF requirements under the Mandatory Provident Fund Schemes (Exemption) Regulation.
Payroll Mandatory Provident Fund (MPF) - Exemptions • People from overseas who enter Hong Kong for employment or self- employment: • For not more than 13 months or who are members of retirement schemes of a place outside Hong Kong. Employees of the European Union Office of the European Commission in • Hong Kong. Domestic employees and self-employed hawkers. • Employees who are employed for less than 60 days, excluding casual • employees as defined under the MPFSO, are also exempt from joining an MPF scheme.
Payroll Mandatory Provident Fund (MPF) As an employer, it is your legal obligation under the MPF System to enrol • your new employees into the MPF scheme you are participating. Except for exempt persons, you should enrol both full-time and part-time • employees who are at least 18 but under 65 years of age in an MPF scheme within the first 60 days of employment. As mentioned previously, enrolling your employees into an MPF scheme is • a legal obligation, and failing to do so is a criminal offence. The employer is liable to a maximum penalty of a $350,000 fine and imprisonment for three years.
Payroll Mandatory Provident Fund (MPF) To enrol an employee, simply provide an enrolment form for the MPF • scheme you are participating in to the employee. They will need to indicate their investment portfolio. After the scheme trustee has confirmed an employee’s membership of an • MPF scheme, it will issue a notice of participation to the employee. While opening an MPF account for your employees is a one-time job, • making contributions for them is not. You will need to remit contributions for your employees once every contribution period (generally the wage period). Many employers think that making contributions means paying up on time every month.
Payroll Mandatory Provident Fund (MPF) • Employers and employees are each required to make regular mandatory contributions of 5% of the employee’s relevant income to an MPF scheme, subject to the minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are $7,100 and $30,000 respectively. • The table below shows the amount of mandatory contributions for you and your employees.
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