Previously, we introduced strategies for employers to fix their employee satisfaction in Hong Kong. In addition, when running a business, Hong Kong employers must constantly be aware of their various reporting obligations. Their obligations extend past disclosing their financial statements as Hong Kong employers must also disclose information regarding their employees in the form of an Employer’s Return. But what is an Employer’s Return? What is a BIR56A and Form IR56B? In this article, we look to provide guidance on how Hong Kong companies can comply with their reporting obligations as an employer.
What you will learn from this article:
5.1. Do I need to file an Employer’s Return for myself if I am a Company Director?
5.2. How can I pay myself salary if I am the Company Director?
5.3. Do I need to file an Employer’s Return for the staff I’ve terminated?
5.4. Do I need to file an Employer’s Return for my part-time staff and freelancers?
5.5. What should I do if my employee is leaving Hong Kong for good?
1. What is an Employer’s Return?
Employer’s Returns, also known as BIR56A and Form IR56B, are reporting disclosures issued annually by the Hong Kong Inland Revenue Department (“IRD”) to Hong Kong employers for the purpose of facilitating the IRD’s correct assessment of the employee’s salary tax liabilities for period April 1st to March 31st of each year. the year of assessment.
When completing an Employer’s Return, a Hong Kong employer must disclose the remuneration details and personal particulars of their employees. Relevant information includes the employee’s name, the nature of their employment and capacity in which they are employed, amount of cash remuneration and details such as non-cash and fringe benefits. Any changes to these details, as compared to the details outlined in the Hong Kong employer’s prior Employer Return, must also be disclosed. Upon completing an Employer Return, the form must subsequently be duly signed by the Hong Kong Company. The individual responsible for signing the Employer Return is dependent on the company type the Hong Kong Employer is.
Hong Kong Employers will be routinely issued hard copies of their Employer Returns by the IRD which they may complete and return via a physical delivery mode. However, starting from 25 September 2019 the IRD has begun allowing Hong Kong employers to utilise self-developed software to prepare and upload their Employer Returns and subsequent files. Hong Kong Employers who wish to submit their Employer Returns in this format should ensure that their self-developed software meets the requirements set out by the IRD. Employers may also utilize the IRD’s Employer’s Return e-Filing Services (“ER e-Filing Services”) to submit their Employer Return free of charge.
2. Salary Tax Calculation
As previously stated, the purpose of Employer Returns is to facilitate the IRD’s correct assessment of an employee’s salary tax liabilities. Hong Kong salary tax is imposed on the annual earnings and perquisites received from an employee’s work and employment in Hong Kong. To the extent that an employee performs services outside Hong Kong during the course of their employment, they may apply for complete/partial exemption from their salary tax liabilities for that particular year of assessment.
For the IRD to correctly assess this amount, Employers must provide the following sums in relation to their employees employment contracts:
- Employee’s remuneration package
- Housing Benefits
- Holiday journey benefits
- Termination payments
- Back pay, contract gratuities, deferred pay and arrears of pay
- Share awards and share options
- MPF and recognised occupational retirement schemes
3. When is the Deadline for Submitting an Employer’s Return and How Can I Extend the Deadline?
Normally, the IRD will issue an Employer’s Return to employers on the first working day of April each year. Even if a Hong Kong company has not hired any employees, has not commenced or has ceased during their year of assessment, they are required to complete and submit Form IR56B within one month from the date printed on the form.
If an employer requires additional time to prepare their IR56B, they may file for an extension with the IRD. The request for extension must be in written format and includes the employer’s file number, their company name, the year of assessment concerned, the additional time required and details to support the argument for an extension.
For a recently incorporated Hong Kong company, the BIR56A will be issued approximately 3 to 6 months after the Hong Kong company files their first audit.
The Inland Revenue Ordinance (“IRO”) imposes strict requirements on Hong Kong companies in relation to the timely and accurate filing of returns, including Employer Returns. Employer’s who fail to comply with the IRO’s reporting requirements, either by failing to submit their IR56B or reports false / inaccurate information without a reasonable excuse will be subject to penalties in accordance with section 80(1) of the IRO. For instance, in the event that an employer, who without reasonable excuse failed to comply with their obligation to submit an annual IR56B, they will be subject to a fine of HKD10,000 and the Hong Kong courts may order the employer to complete their obligations within a specified time.
5.1 Do I need to file an Employer’s Return for myself if I am a Company Director?
5.2 How can I pay myself salary if I am the Company Director?
Company Director’s may be remunerated for their services in either a salary or a director’s fee. A salary is a fixed regular payment, typically paid on a monthly basis. Director fees are paid at the end of a financial year, upon the Company’s shareholders approval and review of the performance of both the Company Director and the Company.
In Hong Kong, director fees are always subject to salaries tax, regardless of the nationality of the Company Director and whether the income was deemed to be derived outside of Hong Kong. As such, a Hong Kong employer must always declare the director’s fees made to the Company Director in their Employer’s Returns every April.
5.3 Do I need to file an Employer’s Return for the staff I’ve terminated?
Upon the termination of an employee, a Hong Kong employer must file an Employer’s Return for the terminated employee in question, specifically Form IR56F.
5.4 Do I need to file an Employer’s Return for my part-time staff and freelancers?
A Hong Kong Employer is obligated to report the remuneration details paid to not only full-time employees, but also part-time staff and freelancers. Part-time staff and their remunerations may be disclosed in IR56B. However, to the extent that the Hong Kong Employer has also engaged freelancers, they will be required to complete and submit Form IR56M.
Form IR56M will disclose remuneration paid to persons other than employees. Careful consideration should be made when disclosing payments made to local persons and non-resident entertainers / sportsmen.
5.5 What should I do if my employee is leaving Hong Kong for good?
If the employee of a Hong Kong company has left the city on a permanent basis, the Employer should complete IR56G not later than 1 month before the employee’s date of departure.
It is important to note that a Hong Kong employer should not make any payment of money or any other form of remuneration to the employee in question, for a period of 1 month from the date of notice on the IR56G.
What is the complete list of reportable items under IR56B?
Other than commonly known reportable items such salary, leave pay, bonus, director’s fee, commission. In total, the following items are also reportable items under IR56B:
1. Back pay
2. Payment in lieu of notice
3. Gratuities eg: lump sum payment on termination of service/contract of service excluding severance payment or long service payment (only the amount exceeding the statutory entitlement per Hong Kong’s Employment Ordinance is reportable)
4. Employer’s MPF/ORSO voluntary contribution received by the employee on termination of services (applicable to employees with less than 10 years of service-calculation subject to a proportionate rule)
5. Education benefits or educational costs reimbursed by the employer
6. Gain realized under a Hong Kong Company’s share option scheme
7. Perquisites in cash or being such nature that either they may be converted into cash or are money’s worth such as gift, employee’s membership with professional bodies paid or reimbursed by the employer
8. Cash allowances of any type
9. Payment contracted by the employee but paid by the employer eg: medical insurance premium if the policy owner/holder is not the employer
10. Amount paid by employer for holiday journeys enjoyed by the employee and/or his/her family members
11. Tips or other payment received by the employee from other parties (not employer) associated with the services under the employment
12. Housing allowances
13. Overseas Income
Hong Kong employers must constantly be aware of their various reporting obligations. It is a vital information for every employer in Hong Kong. After learning about Hong Kong’s Employers Return, we can now move on to our next article about Demystifying Employee Benefits.