All you need to know about Hong Kong payroll Agenda: 1. Payroll - - PowerPoint PPT Presentation

All you need to know about Hong Kong payroll

Agenda:

• 1. Payroll
• 2. Social Security
• 3. Tax

Payroll

Payroll

• Tax year runs 01st April to 31st 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
• ver 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

• n 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.

Payroll Mandatory Provident Fund (MPF)

Each month, after remitting contributions to their trustee, employers should also provide each employee with a monthly pay-record within seven working

• days. The information required to be shown in this written record includes:
• the amount of the employee’s relevant income
• the amounts of both employer’s and employee’s mandatory

contributions

• the amounts of both employer’s and employee’s voluntary

contributions, if any

• the date on which contributions were paid to the trustee

Payroll Mandatory Provident Fund (MPF)

• Employers offering both occupational retirement schemes and MPF

schemes must provide options to existing members and new eligible staff, if applicable, to choose between the two schemes.

• "Relevant income" refers to all monetary payments paid or payable by you

to your employees, including wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites or allowances (including housing allowance or other housing benefit), but excluding severance payments, long service payments, payments in lieu of notice and compensation for

• ccupational injuries.

Payroll Mandatory Provident Fund (MPF)

• The mandatory contributions for the previous contribution period should

be remitted to your MPF trustee on or before the contribution day. Generally, for monthly-paid employees, the contribution day is the 10th day of each month. If the contribution day falls on a Saturday, a public holiday, a gale warning day or a black rainstorm warning day, the next following day will be considered the contribution day.

Payroll Mandatory Provident Fund (MPF)

• If you are an employer in the construction or catering industry, please

investigate using the links below how to calculate contributions for casual employees under Industry Schemes Employer support can be found on the following websites: http://www.mpfa.org.hk/eng/main/ http://www.gov.hk/en/residents/taxes/salaries/allowances/deductions/mpf. htm

Payroll Hong Kong Payslip

Payroll Hong Kong Payslip Continued

Hong Kong Payroll

Table of Rates

Link to Allowances, Deductions and Tax Rate Table http://www.ird.gov.hk/eng/pdf/pam61e.pdf

Efficient as always the government produce a great little guide for all individuals liable for tax in Hong Kong! Just a little big to display on one slide!

Social Security

Social Security

• The overall objective of social security in Hong Kong is to provide for the

basic and special needs of the members of the community who are in need of financial or material assistance.

• The above objective is achieved through a non-contributory social security

system administered by the Social Welfare Department. It comprises the Comprehensive Social Security Assistance Scheme, Social Security Allowance Scheme, Criminal and Law Enforcement Injuries Compensation Scheme, Traffic Accident Victims Assistance Scheme and Emergency Relief.

Tax

Tax

Employee income chargeable to salaries tax can be broken down in to the component's below and should be reported:

• Salaries, wages, leave pay, directors fee, commission, bonus. (item 11(a)

to (e) of IR56B)

• Payment in lieu of notice accrued on or after 1 April 2012. (item 13(d) of

IR56F and item 11(d) of IR56G)

• Back pay, end-of contract/other gratuities, ex-gratia payments, terminal
• awards. (item 11(f) of IR56B) Full details on this can be found by

following http://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/i ndex.htm#bk

Tax

• Certain payments from Retirement Schemes. (item 11(g) of IR56B) please

follow the link for more detail: http://www.ird.gov.hk/eng/tax/ere_mpf.htm

• Salaries Tax paid by employer. (item 11(h) of IR56B)
• Education benefits. (item 11(i) of IR56B)
• Gain realized under share option scheme. (item 11(j) of IR56B) please

follow the link for more details: http://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/o ptions.htm

• Tips paid by customers (item 11 (k) of IR56B

Tax

• Holiday Journey Benefits. (item 11(k) of IR56B) please follow the link for

more detail: http://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/holi day.htm

• Pension (item 11 (l) of IR56B) Example : If the employee retired on

30.11.2014 and received pension afterwards – report on his IR56B

• salaries from 1.4.2014 to 30.11.2014 under item 11 (a), and
• pension from 1.12.2014 to 31.3.2015 under item 11 (l).
• The provision of a place of residence to the employee. (item 12 of IR56B)

please follow the link for more detail: http://www.ird.gov.hk/eng/tax/ere_house.htm

• Income received by the employee from an overseas company, whether paid

in Hong Kong or overseas. (item 11 and item 13 of IR56B) please follow the link for more detail: http://www.ird.gov.hk/eng/tax/ere_inc_out.htm

Tax

Related Information to be aware of:

• Departmental Interpretation and Practice Note No. 10, The Charge to

Salaries Tax http://www.ird.gov.hk/eng/ppr/dip.htm#a10

• Departmental Interpretation and Practice Note No. 16 Salaries Tax :

Taxation of Fringe Benefits http://www.ird.gov.hk/eng/ppr/dip.htm#a16

Tax

Employee income non chargeable to salaries tax can be broken down in to the component's below:

• Severance Payments as provided in the employment ordinance
• Long Service Payments
• Jury Fees
• Compensation arising from an injury

Further details can be viewed by following the links: http://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/termi nation.htm http://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/#SPLS P/

Tax

• Sums paid to individuals as severance payments or long service payments

strictly in accordance with the provisions of the Employment Ordinance (EO) are not assessable to salaries tax. The amount not assessable to salaries tax should be computed after deduction of :

Tax

• The employer need not report the sums computed as above on Form IR56F
• r 56G and you need not report them on BIR60. However, the employee

and the employer have to report sums that were paid in excess of your statutory entitlement.

• Details of an employee's entitlement to severance payment or long service

payment under EO are available on the website of Labour Department http://www.labour.gov.hk/eng/public/ConciseGuide.htm Computation of the Non-assessable Amount

• No contract gratuity, OR scheme benefit or MPF scheme benefit to offset

statutory entitlement.

• Non-assessable amount = Statutory entitlement calculated under EO.

Tax

• An employee was made redundant. He was entitled to a severance

payment of $80,000 under EO. His employer paid him $100,000. If the employee was not entitled to any contract gratuities, OR scheme benefits or MPF benefits, the employee’s tax position would be as follows: Contract gratuities based on length of service to offset statutory entitlement

• Non-assessable amount = Statutory entitlement calculated under EO –

contract gratuities

Tax

• Same facts as in Example 1, except the employee was entitled to contract

gratuities of $100,000 based on length of service.

• As the contract gratuities exceeded the statutory entitlement under EO

(i.e. $80,000), the employer strictly would not need to pay him any severance payment. The employee’s tax position would be as follows: All contract gratuities relating to the employee’s years of service for which the severance payment is payable should be taken into consideration. The employee may apply for relating back in respect of the gratuities to reduce the tax liability. Further information is available through the following link: http://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/ba ckpay.htm

Tax

• An employee was dismissed. He received OR scheme benefits of $150,000

attributable to employer’s contributions and was entitled to long service payment of $200,000 under EO. His employer reduced the long service payment by OR scheme benefits and paid him $50,000.

• The employee’s tax position would be as follows:

Tax

• Regarding the OR scheme benefits, if the employee has worked for less

than 10 years and the scheme is a recognized one, the amount attributable to contributions of the employer that exceeds the proportionate benefit (Note) would be assessable to salaries tax.

• Where the employee has worked for 10 years or more, recognized OR

scheme benefits of $150,000 would be exempt.

• If the scheme is an unrecognized one, the amount $150,000 attributable to

contributions of the employer would be assessable to salaries tax. MPF scheme accrued benefits (excluding the part attributable to employee’s contributions) to offset statutory entitlement

• Non-assessable amount = Statutory entitlement calculated under EO – MPF

scheme accrued benefits

Tax

• An employee was made redundant. Severance payment under EO was

$200,000. Accrued benefits attributable to employer’s contributions (both mandatory and voluntary) held in the MPF scheme were $160,000. The employer reduced the severance payment of $200,000 by the accrued benefits of $160,000 and paid a sum of $40,000 to the employee.

• The employee’s tax position would be as follows:

Tax

• Regarding the accrued benefits, the employee is taken to have received

from the MPF scheme the accrued benefits attributable to voluntary contributions of the employer if the accrued benefits are retained within the MPF scheme or transferred to another MPF scheme.

• Where the employee has worked for less than 10 years, the amount

attributable to voluntary contributions of the employer that exceeds the proportionate benefit (Note) would be assessable to salaries tax.

• Where the employee has worked for 10 years or more, accrued benefits of

$160,000 would be exempt.

• Note: More information on proportionate benefit is available through the

following link: http://www.ird.gov.hk/eng/ppr/dip.htm#a23

Tax

How to calculate the taxable benefit of a place of residence

• If a flat is provided, a notional benefit, called "rental value" (RV), should be

added to income.

• The RV is calculated at 4%, 8% or 10% of the net income after deducting
• utgoings and expenses (excluding self-education expenses), depending on

the type of accommodation provided.

Tax

• To ensure correct computation of the RV, you have to advise the Inland

Revenue Department ("IRD") the type of accommodation provided and the relevant period very clearly.

• The employee may opt to substitute the "Rateable Value" of the

property for the RV, if to do so can reduce the amount of ultimate amount of tax to be paid.

• If the employee is required to pay rent to the employer, that payment

can be deducted to arrive at the RV. We call this "rent suffered".

• To know more about how item 12 of IR56B is to be completed, please

study the following 3 examples (IR56E/F/G carries the same format):

Tax

Tax

Tax

Tax

Tax

• Different types of termination payments may be made either under the

terms of the employment contract or the Employment Ordinance. Here we will learn about what the employee and the employer should report as taxable income when employment has been terminated.

Tax

Payment in Lieu of Notice

• From 1 April 2012 onwards, any payment in lieu of notice that accrued to

the employee from the employer, whether paid under an explicit contract term or under an implied contract term (e.g. section 7 of the Employment Ordinance) will be assessed to tax. Section 7 of the Employment Ordinance provides that either the employer or the employee may terminate a contract of employment by agreeing to make a payment in lieu of notice to the other party. The amount of payment necessary to terminate an employment contract is equal to the amount of wages which would have been accrued to the employee during the period of notice.

Tax

• The employer is required to report the payment in lieu of notice on the

"Notification by an employer of an employee who is about to cease to be employed" (Form IR56F) or the "Notification by an employer of an employee who is about to depart from Hong Kong" (Form IR56G) and you have to report it on your Tax Return - Individuals (BIR60) from 1 April 2012

• nwards. If the employee has been given sufficient notice of termination

and receives income during the notice period, the income during the notice period is a normal reward derived from employment and should also be assessed to salaries tax.

• Further information on the topic can be viewed:

http://www.ird.gov.hk/eng/faq/cer.htm#q20

Tax

Payment in Lieu of Leave/Holiday

• Any salary received as an employee while on leave is part of their income

and is taxable. This is called “leave pay”. However, if employment is terminated and leave has been earned but not taken, the employer may wish to make a cash payment in lieu of leave to eliminate the accumulated leave balance. Cash in lieu of leave is similar to the salary paid when employees take leave, and is thus taxable. The employer must report it on Form IR56F or 56G and it must be reported on BIR60.

Tax

• An employee is entitled to annual leave upon completion of one year’s
• service. Sometimes for business reasons leave may be deferred. If

employment is terminated the entitled leave may be taken before the cessation date. However, if the employer asks the employee to forego this

• ption and tops up the payment for this earned but untaken leave with a

cash payment as compensation, the topped-up payment is in nature similar to leave pay and should be reported by both the employee and the employer.

Tax

• Back pay, contract gratuities, deferred pay and arrears of pay are

generally assessable under salaries tax. Here we will learn more about reporting such payments on the tax return and how such lump sum payments can be related back.

Tax

Assessment and Relating Back

• Back pay, contract gratuities, deferred pay and arrears of pay resulting

from an award of salary or wages are taxable, regardless of whether they are received during the course of employment or upon or after cessation

• f employment. However, employees can apply to have such lump sum

payments related back to the service period for which they are made. Where that period exceeds 3 years, the amount will be related back at a constant rate over 36 months ending on the date of entitlement to the payment or the last date of employment, whichever is the earlier.

• Application to have a lump sum payment related back can be made when

the employee files their tax return. The Inland Revenue Department will

• nly relate back the lump sum if it will reduce the overall tax liability.

Tax

Tax

Tax

Tax

Tax

Tax

Tax

Tax

Tax

• Employee’s can calculate their tax liability under salaries tax or personal

assessment by using a simple Tax Calculator developed by the Inland Revenue Department.

• The tax payable figure produced by the Tax Calculator is for their

information only. Its correctness always depends on whether they have entered the correct income figure, deductions, marital status and the number of dependants. The Inland Revenue Department accepts no liability whatsoever for any loss or damage which may be incurred by its use.

• The Tax Calculator can indicate whether it is to the employee’s advantage

to elect joint assessment if the sum of incomes and deductions are (where applicable) are inputted.

Tax

Personal Assessment

• If an employee and/or their spouse had income chargeable to property tax

and/or profits tax, the Tax Calculator can indicate whether it is to their advantage to elect for personal assessment. Employee’s should input the total income and deductions for their spouse and themselves in the input page.

Tax

Filing under eTAX

• The Internet Filing function can also compute employees tax liability if

they are filing a current year return. From May 2009 onwards, immediately before a submission is due or after they have lodged their tax return electronically, the system will estimate their salaries tax payable automatically according to the information supplied in the tax return and show them the amount of salaries tax payable under each instalment after deducting the provisional tax charged for the year.

Tax

• How is Salaries Tax is computed
• Salaries Tax payable is calculated at progressive rates on net chargeable

income or at standard rate on the net income, whichever is lower.

• Net Chargeable Income = Total Income - Deductions - Allowances
• Net Income = Total Income - Deductions
• A year of assessment runs from 1 April to 31 March of the following year.
• Provisional Salaries Tax for a year is usually based on the income less the

allowances of the preceding year.

Tax

Tax Computation

• To calculate the tax payable under salaries tax or personal assessment,

employees should select the link for the relevant year of assessment. Select their marital status and input the total income and other information on the input page. Then press the ‘Compute’ button at the bottom. Another page will appear and show them their estimated tax liability.

• Calculating Your Tax under Salaries Tax Per 2016-17 Budget Proposals:
• 2016/17

http://www.ird.gov.hk/eng/ese/st_comp_2016_17_budget/stcfrm.htm

• 2015/16

http://www.ird.gov.hk/eng/ese/st_comp_2015_16_budget/stcfrm.htm

Tax

Tax Computation Calculating Employee Tax under Personal Assessment Per 2016-17 Budget Proposals 2016/17http://www.ird.gov.hk/eng/ese/pa_comp_2016_17_budget/pacfrm.h tm 2015/1 http://www.ird.gov.hk/eng/ese/pa_comp_2015_16_budget/pacfrm.htm

Tax

Tax

Tax

Calculated on an annual basis. Net chargeable income, i.e. assessable income after deductions and allowances, is charged at progressive rates, from 2-17%, although the standard rate of tax is 15%.

Tax

Tax

Tax

Tax

Tax

Annual Income Levels at Which Salaries Tax Payers Enter the Standard Rate Zone

Tax

Tax

Tax

Tax

Please contact The Global Payroll Association with questions or to leave feedback, which is always welcome

Thank you for watching