When your Hong Kong company begins to grow, you encounter an additional headache of payroll management while adhering to all the statutory requirements. This is a time-taking process, as all payroll components including remittances, benefits, allowances, taxes and other deductions must be carried out judiciously.
Salaries Tax in Hong Kong
Though companies in Hong Kong are lucky in one way, as they are not obligated to deduct income tax from their employees. In fact, in Hong Kong, all individuals have to file tax returns (salaries tax is 15%) by submitting the Form BIR60, if they receive it from the Inland Revenue Department (IRD). They must complete, sign and file it in time even if there’s no income to report. From this year, three supplementary forms to tax returns – BIRSP1 to BIRSP3 – have been introduced, which must be filed along with the Form BIR60.
Here it must be mentioned that in Hong Kong, individuals, as well as companies, are charged tax on all income and profits generated from business activities carried out in Hong Kong. So no taxes are levied on profits from business activities done overseas, even if those are remitted to Hong Kong. Also, notably Hong Kong makes no distinction between residents and non-residents. So a non-resident may have to pay taxes in Hong Kong if the business activities are carried out in the city, while a resident may escape taxation if the profits remitted were due to activities carried out overseas.
Social Security in Hong Kong
While income tax is not a worry for employers, an important consideration of payroll management in Hong Kong for employers are social security contributions, which they are required to deduct. These deductions must be then reported to the IRD.
In general, social security obligations in Hong Kong involve mandatory, and sometimes, voluntary contributions.
Mandatory Provident Fund in Hong Kong: Mandatory contributions are towards the Mandatory Provident Fund (MPF), regulated by Hong Kong’s Mandatory Provident Fund Schemes Authority (MPFA). In addition, there are retirement schemes set up voluntarily by employers to provide retirement benefits to their employees such as ORSO schemes, or statutory pension or provident fund schemes (such as those for civil servants or public school teachers).
As regards to MPF, employers in Hong Kong have a legal obligation to enroll all employees into the MPF scheme the company is participating in (though there are some exemptions). The employee completes a MPF enrolment form, select the desired investment portfolio, and then the employer submits the form to the trustee of the Fund.
Important considerations as regards to MPF in Hong Kong include:
- Employees and employers both make regular mandatory contributions calculated at 5% of the employee’s relevant income to an MPF scheme. This is subject to the minimum and maximum relevant income levels, which for a monthly paid employee, are $7,100 and $30,000 respectively. Here according to the Employment Ordinance of Hong Kong, ‘relevant income’ includes wages, holiday pay, bonuses, commissions, allowances, and gratuities, but excludes severance payments or long service payments.
- Employers and employees can top up mandatory contributions if they so desire.
- The total mandatory contributions – adding both employees and employers contributions – must be deposited with the MPF trustee. This payment should be done on or before the contribution day, which generally is 10th day of each month for monthly-paid regular employees. A remittance statement indicating the amount must also be submitted to the trustee.
- Each employee must be given a monthly pay-record that includes the contributions made to the MPF trustee, within seven working days of the contribution day.
Requirements of Payroll Management in Hong Kong
Overall, companies have the following payroll management requirements in Hong Kong.
Keeping payroll records: When you hire an employee, you have to maintain a record of that person’s personal particulars, nature of employment, capacity in which employed, remuneration, fringe benefits, employee’s and employer’s contributions to MPF, employment contract and its terms, as well as period of employment. Companies in Hong Kong are required to keep all its bookkeeping and accounting records, including the payroll records, for at least seven years.
Reporting remuneration paid to an employee: All employers are required to submit an annual Employer’s Return (BIR56A and IR56B) to report an employee remuneration, along with the form:
- IR56E: must be submitted to the IRD within three months of hiring a new employee
- IR56F: must be submitted to the IRD at least one month before the employee’s last day of work
- IR56G: must be submitted to the IRD when an employee leaves Hong Kong for a substantial amount of time
Why engage us
With so much of considerations (as listed above) to take care of, working with experienced corporate services provider like us to carry out your company’s payroll management in Hong Kong, is advisable. It will not only speed up the process but will also ensure accurate and timely delivery of information to the authorities so that your company remains compliant with all the statutory requirements. Moreover, when you engage us, you get:
- Exhaustive and up-to-date domain knowledge: We have extensive knowledge of the payroll practices, and constantly changing payroll legislations along with the requirements of IRD in Hong Kong. Our professionals render domain expertise and ensure that government remittances such as MPF are paid on time, and the payroll information is kept confidential off-site.
- Propitiatory software with a range of options: Our proprietary payroll and expense claim management software alleviates the administrative burden while giving your company the benefits of customisation, and scalability. We also provide a range of services, including to single-employee businesses to over 50 plus employees companies. We also have the option for payroll only service, as well as remote services.
- Dedicated services: We give you continuity and familiarity with a dedicated account manager, who will set-up your payroll system initially. He or she will then receive attendance data and instructions on any specific changes on a monthly basis (or as per your pay-day requirement), and sends payroll computations for your approval. Once the approval is received, the manager will distribute all payslips along with submission of all statutory payments to the authorities.