As an international business hub, Hong Kong has long been regarded as an attractive investment destination. Companies from all over the world seek to leverage not only its favourable business environment and strategic location, but also its pool of skilled and qualified talent.
If you have recently launched or are considering establishing a Hong Kong company, it is essential to adhere to local employment laws and relevant compliance requirements. As an employer in Hong Kong, you are obligated to fulfil certain tax filing duties.
Every year, you are required to file an Employer’s Return with the Inland Revenue Department (“IRD”). The form contains important information, such as employee remuneration, additional benefits, and other allowances or deductions. The Employer’s Return enables the IRD to accurately determine your employees’ salary tax liabilities. Since non-compliance can lead to penalties and fines, it is vital to file your Employer’s Return correctly and promptly.
This article walks you through the content of the Employer’s Return, and the various filing and record-keeping obligations. In addition, it details the different methods by which you can submit the Employer’s Return.
Table of Contents
What is the Employer’s Return?
The Employer’s Return refers to the Employer’s Return of Remuneration and Pensions – also known as Form BIR56A. This is to be submitted together with Form IR56B, which you will need to complete for each of your employees. Form BIR56A serves as a cover page for all the IR56B forms, containing the following information:
- Company name
- Name of the individual who compiled the Employer’s Return
- Postal and business addresses
- Number of IR56B forms completed
- Format in which the IR56B forms are submitted, i.e., in hard copy or electronically either on a storage device or via the designated e-Filing Services
In Form IR56B, the following details must be disclosed:
- Employee’s particulars
- Employee’s gross salary income before any deductions, e.g., contributions to the Mandatory Provident Fund or other recognised retirement schemes
- Education benefits, i.e., any sums paid by the employer in relation to the education of an employee’s children
- Certain payments from retirement schemes
- Gains realised under share option schemes
- Amount of salaries tax withheld by the employer
- Pension payments made by the employer
- Other rewards, allowances, or perquisites, including share awards, tips, holiday journey benefits, and any sums accrued to the employee by virtue of his/her employment, but excluding reimbursed business expenses
- Housing benefits
Income generated from services rendered outside Hong Kong should be included in the calculation. In respect of housing benefits, you as an employer must have exercised “proper control and supervision” over the actual use of the provided place of residence. If not, the housing benefit shall be considered a cash allowance. In addition, the renumeration should be denominated in Hong Kong dollars. Where it is paid in another currency, the amount should be converted into Hong Kong dollars.
For whom should you complete the Employer’s Return?
When it comes to completing the Employer’s Return in Hong Kong, it’s crucial to understand who falls under the definition of an “employee” according to the Inland Revenue Department (IRD).
Meaning of “employee”
The IRD defines an “employee” as:
- An individual employed by a Hong Kong company who
- Works full time or part time;
- Is a Hong Kong or non-Hong Kong resident; and
- Provides services in or outside Hong Kong.
- An individual assigned or seconded to a Hong Kong company by its foreign parent company or subsidiary, who provides services in or outside Hong Kong.
- A “relevant individual” under section 9A of the Inland Revenue Ordinance (“IRO”), who provides services under circumstances comparable to those of employment but operates under a service contract.
As an employer in Hong Kong, you will be obligated to file an Employer’s Return for employees who are:
- Single and earn an annual income of HKD 132,000 or above (whether resident in Hong Kong or not).
- Married (irrespective of income and place of residence).
- Part-time staff (irrespective of income and place of residence).
- Directors (irrespective of income and place of residence).
- Employed by a non-Hong Kong company but are assigned or seconded to your company to carry out duties in or outside Hong Kong.
In addition, you must file an Employer’s Return for pension recipients, and former employees and directors who have realised gains in connection with a share option scheme.
Employees working offshore
As indicated above, you must file an Employer’s Return for employees rendering services outside Hong Kong. Supplemental information can be furnished in the remarks section regarding working arrangements. For instance, Employee X based in the Shenzhen office worked in Hong Kong for fewer than 60 days in aggregate during this tax year.
Where an employee is paid in part by a non-Hong Kong subsidiary for the portion of services rendered outside Hong Kong, you should report the total amount of remuneration paid by you as well as the non-Hong Kong subsidiary in item 11 of Form IR56B.
Freelancers and sub-contractors
If you have engaged the services of non-incorporated local service providers, you must file the IR6036B and IR56M forms. Local persons who are non-incorporated service providers and not your employees include individuals, partnership businesses, and sole proprietorships. They generally act in the capacity of sub-contractors, consultants, agents, brokers, and freelance artists or entertainers or sportsmen, etc.
You are only required to report the renumeration if the income:
- Exceeds HKD 200,000 yearly for a sub-contractor, or
- Exceeds HKD 25,000 yearly for a consultant, agent, broker, freelance artist, entertainer, sportsman, writer, guide, etc.
If you have engaged the services of non-resident individuals who are not your employees, you must submit Form IR623P. You are required to report payments made to non-employee, non-resident persons rendering services or exercising their profession in Hong Kong. For example, such individuals include arbitrators, consultants, visiting counsel, and lecturers.
What other obligations do you have as an employer?
As an employer in Hong Kong, you have additional obligations beyond filing the Employer’s Return:
As an employer, you have an obligation to keep and maintain payroll records of each employee. Your tax responsibilities begin as soon as you take on your first employee. It is indispensable to keep precise, complete, and accurate records so that you can fill in the Employer’s Return correctly.
Additionally, it is a statutory duty to retain payroll records for a minimum of seven years.
You are required to record the following information on each employee:
- Personal particulars, including name, marital status, address, identity card, or passport number with place of issue.
- Mode of employment, i.e., full time or part time.
- Job position, e.g., sales director, procurement manager, salesperson, etc.
- Amount of income, including that paid outside Hong Kong.
- Additional non-cash and fringe benefits, including housing benefits and share options or awards.
- Contributions made to the Mandatory Provident Fund or other recognised retirement scheme.
- Employment contract and any revisions to the terms of employment; and
- Employment period.
In addition, you are mandated to notify the IRD where there is:
- A change to the employee’s personal particulars.
- A change to the employee’s terms of employment, e.g., from full-time to part-time mode.
- As soon as the Hong Kong identity card number of the employee becomes known (for employees who did hold a Hong Kong Identity Card at the time when you completed the Employer’s Return).
Additional filing requirements
It is important to note that even if you do not employ any personnel, or business has not started or has shut down, you will be required to file Form BIR56A with the IRD within one month of receiving it.
- New employees
You must submit one copy of Form IR56E to the IRD within three months of hiring a new employee if the person is likely to be subject to salaries tax.
- Employees leaving Hong Kong for good or an extended period of time
First, you should ascertain the employee’s approximate date of departure. Then, you must submit two copies of Form IR56G one month before the expected departure date. Until your employee obtains a “letter of release” from the IRD, you should withhold all sums payable to him. These include salaries, commission, bonuses, etc. The “letter of release” serves as proof that the employee has discharged all his/her tax obligations satisfactorily.
- Employees upon termination (or death)
You are required to file one copy of Form IR56F one month before the termination date.
When is the deadline for submitting the Employer’s Return?
Usually, the IRD issues the Employer’s Return to employers on the first working day of April every year. You must complete and file it with the IRD within one month of the date of issuance. Given the relatively tight time frame, it is imperative that you start compiling all the relevant payroll records for the particular tax year well in advance. In Hong Kong, the tax year begins on 1 April and ends on 31 March of the following year.
As indicated in the previous section, separate deadlines apply to the other filing requirements, for example, in respect of new employees.
To request an extension, you must do so in writing, stating your company’s particulars, your file number, the relevant tax year, the amount of extra time required, and the reasons for the extension.
How can you submit the Employer’s Return?
To allow employers maximum flexibility in meeting their filing obligations, the IRD provides three ways to file the Employer’s return.
- Both BIR56A and IR56B in hard copy
You can complete the entire Employer’s Return in paper format and deliver the hard copies to the IRD. The individual who signed the BIR56A must also sign the IR56B forms with a wet-ink signature. Only the official IR56B form provided by the IRD on their website or via the Fax-A-Form Service is accepted.
- BIR56A in hard copy and IR56B in soft copy
You can store the completed IR56B forms on a CD-ROM, DVD-ROM, or a USB flash drive. Together with the signed Control List (cover page) and the BIR56A in hard copy, send the IR56B forms in soft copy to the IRD. The IR56B records must be prepared using the IRD’s special software. The storage device on which the IR56B records are saved shall be kept by the IRD.
- Employer’s Return e-Filing Services
Two modes are available if you opt for the e-Filing route:
- Online mode
It is necessary to create an online eTAX account to file the Employer’s Return electronically. The account holder must be a designated Authorised Signer. This role can only be assumed select individuals, including directors, company secretaries, and managers. The Authorised Signer must be the one to sign and submit the Employer’s Return via his/her eTAX account.
- Mixed Mode
Introduced in 2018, the mixed mode enables employers to appoint an individual to upload the IR56B record files without having to submit them via the Authorised Signer’s eTAX account. The Authorised Signer is only required to sign the one-page Control List before submission.
In August 2022, the upload limit was increased to 5,000 sets of records per upload under both modes. Additionally, the capacity of the IRD’s Form Preparation Tool was optimised and expanded, allowing for the preparation of up to 2,000 sets of forms.
What happens if you fail to comply?
The IRO imposes stringent requirements as regards filing and reporting on employers. Strict adherence to the rules under the IRO is required. You may incur penalties for failing to fulfil your filing obligations or making an inaccurate return. An employer who fails to comply with filing requirements without a reasonable excuse is liable to a fine of HKD 10,000.
What can CW do for you?
Preparing the various forms for submission to the IRD and ensuring compliance with the whole host of regulatory requirements can be very burdensome and time consuming. It can also take up valuable resources, pulling your focus away from your company’s core revenue-generating activities. With our professional assistance, you can rest assured that your Employer’s Return for each and every employee will be completed accurately and in full compliance with all relevant laws and regulations.
Contact us to learn more today.