What should business owners understand about salary tax returns (BIR60) in Hong Kong?

Running a successful business is probably the easiest in Hong Kong because of the straightforward and liberal tax systems followed here. All employers and employees are liable for taxes in Hong Kong. The Salary Tax Return must be filed annually within the stipulated time to ensure the company’s proper functioning. If you are the company owner, you are required to gather your employee’s information, such as his details, wages/pay, PF, and any agreement signed between the company and him. These details are then submitted to the Inland Revenue Department (IRD) for assessment. In this article, you will further learn how to file a salary tax return, what is BIR60 tax return for business owners and employees, whether there is any employer obligation on salary tax return, and also what the penalties of non-compliant with salary tax return conditions are.

Salary Tax Return (BIR60) in Hong Kong

BIR60 in Hong Kong is mandatory to be filed for every individual who is earning from a company. The earnings are inclusive of your salary and pension. You first need to report all of your earnings, profits, and rental income, if any, to the Inland Revenue Department. You can claim deductions or allowances after the submission of all your records. 

What is Salary Tax Return (BIR60)?

Salary Tax is also referred to as income tax or personal tax. You can be either a business owner or an employee to be liable for a salary tax return. The earnings from the director’s fee are also considered income. If you are not liable to pay the tax, you will not receive the BIR60 form from the IRD in the first place. And later, when your earnings become taxable, you should notify the IRD immediately.

Types of tax return

The three types of tax returns regulated in Hong Kong are the Profit tax return, Property tax return, and Salary tax return. The profit tax return is imposed when you generate a profit using internal sources. The Property tax is the one you pay for owning physical or intellectual properties in Hong Kong. Finally, the salary tax return is what you need to file when you earn an income from or through the resources of Hong Kong. Read on to know what type of income is chargeable in Hong Kong.

Chargeable income in Hong Kong

The following income received from internal sources is chargeable according to BIR60 in Hong Kong:

• Salaries/Income/Payouts
• Pensions, retirement benefits, bonuses and commissions
• Rental allowance and fringe reduction benefits
• Vacation allowance, leave pay and termination pays
• Tips and back pay
• Director’s fee

The non-chargeable incomes are severance payments, long service payments, and jury fees.

Who should file a salary tax return (BIR60)?

If you are an individual generating a certain amount as your income for your services in Hong Kong, you are liable to file Salary Tax Return. The employers of every company are required to file the Employer’s return using the form BIR56A. If you are a company director, you will pay your salary tax based on the remuneration you receive and if you are self-employed, you are just liable to pay profits tax.

When to file a salary tax return (BIR60)?

Firstly you must ensure you receive the IRD notice for filing a salary tax return by the 1st of May if you are a salaried employee. This form must be filed and submitted within 5 months of issuance of the notice from IRD. If your employees have not received any such notice, you must notify the IRD by the 31st of July after the assessment year. Once you receive the BIR60 form, you need to submit it in a month. Sole proprietors have 3 months to submit the form. For newly incorporated companies, the BIR56A forms are issued at least 3 to 6 months after completing their first audit.

File salary tax return (BIR60) in Hong Kong

To know how to file your salary tax return in Hong Kong, you first need to be aware of the varied tax rates that could be imposed on you based on your income.

Hong Kong Progressive tax rates

Progressive taxes are levied based on the income you receive in a particular period with an increased tax rate for every HKD50,000 you earn. The first HKD 50,000 will be taxed at 2%, the next 50,000 at 6%, the next at 10%, then 14%, and finally 17%. For example, if your income is HKD120,000 after all the deductions, your first HKD50,000 is taxed at 2%, the next at 6%, and the remainder of 20,000 will be charged at a 10% rate.

Hong Kong Standard tax rates

Salary tax return in Hong Kong is levied at a standard rate of 15% for employees earning an average income excluding all deductions and allowances. If your assessable income exceeds the HKD200,000 limit, your taxes will be levied at a standard 15% rate.

Tax reduction

Tax reduction in Hong Kong has evolved since 2017. The reduction rate for your income, including profits tax, salary tax, and taxes levied based on the assessment done annually over the years, is as follows.

• Till 2017, if all the above-mentioned income inclusive of the taxes were over HKD20,000, you would receive a reduction of 75%.
• In 2018, if the taxes were over HKD30,000, the reduction rate was 75%
• In 2019 and 2020, if the taxes were over HKD20,000, the tax reduction was at 100%
• From the year 2021, all your taxes over HKD10,000 were eligible for a reduced rate of 100%.

How to calculate salary tax in Hong Kong?

The salary taxes of any employee in Hong Kong is based on his annual income. Firstly, you must know your net income, which can be calculated by subtracting deductions and allowances from your total income. The allowances can be self (HKD 132,000), house allowance, married person allowance, or those of any dependants.

Total earnings – deductions – all the allowances = Net Income.

If the net income exceeds the HKD 200,000 limit, you will be paying a  standard tax rate of 15%.

How to file a salary tax return (BIR60)?

You must update the Inland Revenue Department regarding the employee payroll and the amount that they can pay as salary tax using the form IR56E, 3 months after they sign the employment contract. After the IRD receives the form, you will receive the salary tax return with a stipulated date. All you have to do is complete and submit the form. You can do it either using online facilities or a paper filing method.

E-filing allows no exemptions and requires you to submit the completed form in 2 months. If you are a sole proprietor and generate over HKD 2,000,000 in revenue, you can opt for e-filing to file your BIR560 in Hong Kong. Remember to create an e-tax account before you initiate the filing process. Paper filing requires you to get an original copy of the BIR60 form from IRD and submit it within 2 months of the issue date.

Employer’s obligations on salary tax return in Hong Kong

As an employer running a successful business, you must first ensure at least the records of seven years of the following company information are maintained:

•  The data on all the employees like their ID proofs, job titles, job role, the pay they receive, Mandatory Provident Funds, Contracts or agreements and their tenure, must be gathered and submitted to the Inland Revenue Department.
• The remuneration paid to the employees and any changes in the same should be updated to the IRD immediately.
• You must ensure that your Employer’s Return (IR56B) should match the employee’s income maintained in the IRD records.

Penalties of non-compliant with salary tax return (BIR60)

As a business owner, you are required to notify the Inland Revenue Department of all the details about taxable income in a specified time. If you fail to do so or face a delay, you will be liable for penalties of non-compliant with salary tax return according to section 80(1):

• If it is your first offense, you are liable to pay 10% of taxes.
• For the second offense, the liability rises to 20% of the tax amount.
• For your third offense and delaying longer than 5 years to file your salary tax return, you will be required to pay a 35% tax amount.
• Further delays or non-compliance will lead to a penalty of HKD 10,000.

Exemption

Hong Kong follows a territorial tax system allowing you to pay only for your earnings involving the utilization of internal resources. You are eligible to claim tax exemptions if your case falls under any of the following scenarios.

• Only employment income is subject to salaries tax – If only a part of your earnings was made in Hong Kong, you need to pay the tax amount only for the part. Similarly, you need to file a salary tax return for the employment income you receive only as long as you stay in Hong Kong.
• Overseas employees do not need to pay tax for a year of assessment – If your income is not a part of the assessable earnings of your company, you can claim tax exemption. Or if you have not resided in Hong Kong for more than 60 days you can apply for an exemption. For all the services done outside Hong Kong, you are free of tax liabilities. In some cases, one or a few of your employees may serve in another region for a particular period. For the certain year that he serves outside HK, the employee can enjoy tax exemption.
• Seafarers and aircrews – You do not have to pay the salary tax if you are on your transit days( a period where you land in HK but remain within the border and passport boundary) working for aircrews or as Seafarers. The people working in these areas are not required to file salary tax returns if they were in HK for not more than 60 days during an assessment year.

Need help filing your tax return in Hong Kong?

It can be a daunting task to remember all the details and simultaneously run and maintain a never-ending list of records as a business owner. In such cases, assistance from professional service providers like Startupr can save you time and effort. If you have any queries regarding filing your BIR60 in Hong Kong or need help maintaining your financial accounts, contact us today!