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1 April to 31 March
at least 5%
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Pay your team in Hong Kong
Setting up payroll in Hong Kong
Income tax and social security in Hong Kong
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As one of the fastest growing economies in APAC and one of the world’s most important financial centers, Hong Kong has attracted multinationals for many years. The autonomous territory located in southeastern China offers international organizations a highly qualified workforce with excellent English skills, which significantly simplifies hiring local employees.
Processing payroll in Hong Kong, however, is not without challenges. Although there is no obligation for employers to withhold income tax from employee salaries and wages as part of the monthly payroll process, the compliance requirements linked to payroll are numerous.
Before they can start processing payroll in Hong Kong, employers need to register with several government bodies and authorities, including:
Registration with the Inland Revenue Department (IRD) to receive an employer tax file number
Registration for Employee Compensation Insurance (ECI) as outlined in the Employees’ Compensation Ordinance
Registration for the Mandatory Provident Fund (MPF) scheme - must be completed no later than 60 days after the employee started working for the organization
Employers are further required to inform the IRD of new joiners by submitting an employment commencement notification within the first three months of the employment.
Payments to employees in Hong Kong can be made from a foreign bank account, but MPF payments require a local bank transfer. It is therefore necessary to set up an in-country bank account before the first MPF contributions are due.
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There is no obligation for employers to withhold income tax from their employees’ salaries and wages, which considerably lessens the payroll burden on businesses. However, employers still need to fulfill several tasks linked to the mandatory social security contributions.
Income from employment is taxed at progressive rates ranging from 2% to 17%. Taxable employment income comprises all types of remuneration provided to the employee by the employer, including salaries and wages, commissions, gratuities, bonuses, leave pay and allowances – although there are some exemptions that apply to certain employer-provided allowances.
Special rules apply to fringe benefits and housing allowances, and employees are generally not liable for income tax for MPF contributions paid on their behalf by their employer. Employee-paid contributions to the MPF scheme are also exempt from income tax, up to a maximum of HKD 18,000 per year.
The employee’s tax burden can be reduced through certain deductions. The latter include employment expenses (to some extent), charitable donations, education expenses, qualifying contributions to the Voluntary Health Insurance Scheme (VHIS) and mortgage interest payments. There are also several personal allowances available, including allowances for children and other dependent family members.
There are no fixed criteria to determine residency. Instead, the Inland Revenue Ordinance states that individuals are to be considered residents of Hong Kong if they ordinarily reside in Hong Kong with only temporary absences. Regardless of whether the employee is considered as a resident or not, they are obligated to pay income tax on employment income sourced in Hong Kong, which generally also applies to employees under a foreign employment contract rendering services in Hong Kong.
However, there is a 60-day rule which applies to foreigners temporarily staying in Hong Kong for work purposes. The latter are exempt from paying local income tax on their employment income if they only spend 60 days or less in Hong Kong within a tax year. If, on the other hand, their stay in Hong Kong exceeds 60 days, they could become liable for paying local income tax.
2022 Tax Bands
Corresponding Tax Rates
Employers are not responsible for withholding income tax from employee wages and salaries during their monthly payroll process. Instead, individual income tax is assessed once a year. The amount due is paid in two installments and the payments are made directly by the employee.
For assessment purposes, both employee and employer are required to file an annual tax return detailing all the remuneration paid to the employee over the course of the respective tax year. The necessary forms are sent out by the Inland Revenue Department (IRD) in the beginning of May of each year. From the date of issuance, employers and employees have one month to complete the tax return and send it back to the IRD for the final assessment. There is an automatic one-month extension for electronic filing. The tax year runs from 1 April to 31 March.
Every employer with a permanent establishment in Hong Kong is required to make a contribution equal to at least 5% of the employee’s monthly earnings to a retirement scheme - additional voluntary contributions are possible. The scheme must be classified as a Mandatory Provident Fund (MPF) scheme as outlined by the Mandatory Provident Fund Schemes Ordinance. It is up to the employer to select an MPF trustee and employees changing jobs are required to change to the MPF provider chosen by their new employer.
A monthly salary cap of HKD 30,000 applies, i.e. neither employee nor employer pay contributions on the part of the salary exceeding HKD 30,000. Employees earning less than HKD 7,100 per month are exempt from making contributions – the employer contribution stays mandatory.
Employees are also required to contribute at a rate of 5%. However, new joiners are exempt from paying contributions during the first 30 days of employment as well as during the first incomplete payroll cycle that follows the 30-day period. Employers, on the other hand, become liable for MPF contributions starting from the first day of employment – unless the employment lasts for less than 60 days.
The calculation, deduction and payment of MPF contributions is the responsibility of the employer. Contributions must be paid on a monthly basis in respect of each pay period. The due date for the MPF payment is the 10th of the following month. Payments are made directly to the respective MPF scheme administration and must be accompanied by a monthly remittance declaration.
The Employees’ Compensation Ordinance further makes it mandatory for employers to take out insurance coverage against work injuries and occupational diseases. The legally required amount of insurance cover per event varies depending on the number of employees. Premiums are set according to the employee’s occupational risk and are paid solely by the employer.
Employees in Hong Kong are entitled to various benefits. These include:
Annual leave and public holidays: between 7 and 14 days of annual leave, depending on length of service; 13 statutory public holidays
Maternity leave: 14 weeks of maternity leave, which can begin up to 4 weeks before the expected due date; paid at four fifths of the employee’s daily average wages (capped at HKD 80,000)
Paternity leave: 5 days of paternity leave, which can be taken either consecutively or separately; the right to go on paternity leave begins 4 weeks before the expected due date and ends 14 weeks after the delivery; paid at four fifths of the employee’s daily average wages
Sick leave: 2 paid sick days per month during the first year of service; thereafter, four paid sick days per month of service (up to a maximum of 120 sick days); sickness benefits amount to four fifths of the employee’s daily average wages
For more information on employee benefits and other employment requirements in Hong Kong (including severance pay and termination procedures), check out our Global Hiring Guide.
Hong Kong’s minimum wage currently (November 2022) stands at HKD 37.50 per hour. In October, the Minimum Wage Commission announced a raise of the hourly minimum pay rate to HKD 40.00. The changes are expected to enter into effect in May 2023 – supposed they are approved by the Executive Council.
The Employment Ordinance mandates employers to provide employees with an end-of-year payment. Unless stipulated otherwise in the individual employment contract, the payment must be equal to the employee’s average monthly wages. The date of the payment is to be specified in the individual employment contract – otherwise, the payment is to be issued on the last day of the pay period or within the 7 days following the last pay period of the year.
Unless defined otherwise by the employee and the employer, the pay period is one month. The Employment Ordinance further mandates that employees must be paid either on the last day of the pay period or not later than 7 days after the end of the respective pay period.
Employees should be provided with a payslip for each pay period. Payslips can either be provided in hard form or electronically. Furthermore, employers are required to collect and maintain payroll records. The minimum retention period for payroll records is 7 years.
Learn about tax reporting, compensation laws, registration requirements and more in our free Payroll Guide for Hong Kong.
This country guide is for informational purposes only and should not be construed as legal advice. The content of this guide contains general information, and although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.
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