Featuring a skyline studded with neon lights and skyscrapers, Hong Kong is a global financial hub and one of the most open economies in the world. A former British colony, Hong Kong sovereignty was transferred back to China in 1997. Despite this reunion, multinational organizations expanding into both China and Hong Kong may be surprised to learn that, from a payroll perspective, the two geographies have completely different rules and structures. If your company is looking to become an occupant of one of the many Hong Kong skyscrapers, you will need to know these key Hong Kong payroll facts.
Although both Hong Kong and China share the same chief of state, the President of China, mainland China is governed by communist one-party rule while Hong Kong has a limited democracy. Hong Kong is considered a Special Administrative Region (SAR) of The People’s Republic of China with a great deal of autonomy from mainland China. Economically, Hong Kong has a more capitalist-oriented system historically, unlike mainland China. Each region operates different currencies: Hong Kong uses the Hong Kong Dollar while China uses the Chinese Yuan.
It is a regulatory requirement for any person who carries on business in Hong Kong to apply for business registration within one month from the commencement of business. The Inland Revenue Department of the Hong Kong Government (IRD) provides a one-stop shop service regarding registrations needed for the business set up. The IRD is responsible for administering the various tax regulations, and they undertake the collection and compliance functions for the government.
Employers are required to report Employee remuneration by submitting an annual Employer’s Return (BIR56A and IR56B) and the following Forms:
• IR56E: Required submission to IRD for reporting of New Employee (New Hire)
–Must be submitted within 3 months of employing an individual
• IR56F: Required submission to IRD for reporting of Employee Termination
–Should be filed at least one month before employee’s last day of work
•IR56G: Required submission to IRD for reporting of Employee leaving Hong Kong for substantial amount of time
The MPFA regulates the operations of mandatory provident fund (“MPF”) schemes and occupational retirement (“ORSO”) schemes. This is similar to a 401K set-up in the US, except that it is mandated by the government. Both of these schemes are retirement protection schemes, but they operate differently. Employers in Hong Kong have a legal obligation under the MPF system to enroll new employees into the MPF scheme the employer is participating in (there are some exemptions). The employee would need to complete an MPF enrollment form for the company’s scheme. They would then elect their investment portfolio. The completed form should be provided to the employer to then submit to the trustee, thus enrolling the employee in the MPF account.
Employers and employees are each required to make contributions (via payroll) of 5% of the employee’s applicable income (salary, bonuses…etc.), subject to minimums and maximums. Contributions, for monthly-paid employees, should be submitted by the 10th of the following month.
ORSO schemes are retirement schemes set up voluntarily by employers to provide retirement benefits. The rules of the scheme are drawn up by the employer.
There is no income tax deducted from the employee in Hong Kong payroll.
Full-time employees are granted 12 statutory holidays. An employee is entitled to an additional 7 days of paid leave after 1 year of continuous employment. Over time, paid leave will continue to increase to at least 14 days, achieved at 9 years of service.
An eligible female employee can receive 10 weeks of paid maternity leave if certain criteria are met. In 2015 a new scheme was introduced for paternity leave. An eligible male employee is entitled to 3 days of paternity leave if certain criteria are met.
The above facts just scratch the surface of Hong Kong Payroll. If you would like to obtain further information on Hong Kong payroll or anyone of the 150+ countries Celergo covers, please contact us.