Other BriefingsNavigating Hong Kong’s Annual Employer’s Return: Compliance and Best Practices
The Annual Employer’s Return filing in Hong Kong begins on the first working day of April and should be completed within one month. Hong Kong employers are advised to start preparations early and allocate sufficient resources to meet this tight deadline. Non-compliance with the Annual Employer’s Return filing requirements may result in avoidable penalties.
With the Hong Kong tax year 2023/2024 drawing to a close on March 31, 2024, the peak season of Annual Employer’s Return Filing is approaching. For Hong Kong employers, proactive and adequate preparation is important to ensure they complete the Annual Employer’s Returns for their employees timely and compliantly.
In this article, we will introduce you to the salaries tax filing obligations in Hong Kong, guide you on how to report the Annual Employer’s Return to the Hong Kong tax authority in compliance, and share Dezan Shira’s insights into overcoming challenges related to Annual Employer’s Return filing.
What is the Annual Employer’s Return filing in Hong Kong?
Hong Kong operates under an independent tax system, distinct from the Chinese mainland. Consequently, the salaries tax law and tax filing requirements in Kong Kong differ significantly from those in the Chinese mainland.
Unlike the Chinese mainland, employers in Hong Kong are not obligated to withhold or report the salaries tax for their employees to the Hong Kong tax authority. Nevertheless, both employers and employees in Hong Kong are required to file relevant information to the Inland Revenue Department (IRD) that is related to salaries tax.
For employers in Hong Kong, they must report the remuneration paid to an employee to the Inland Revenue Department (IRD) by submitting the required forms, among which the Annual Employer’s Return holds particular significance.
| Various Forms Involved During the Employment Relationship Management | ||
| Form Type | Employment Condition | Statutory Period for Submission |
| IR56E | For new-hired employees | Within 3 months of the employee’s commencement of employment |
| IR56B | Annual Employer’s Return for employees still under employment as of March 31 | Within 1 month |
| IR56F | For employee cessation of employment (or death) | Not later than 1 month prior to the employee’s cessation of employment |
| IR56G | For employee departure from Hong Kong for good or substantial period | At least 1 month before the expected departure date of the employee |
At the end of each tax year (which concludes on March 31), the Hong Kong IRD issues a BIR56A form to employers. This typically occurs on the first working day of April. Employers are then required to complete and file the returns to the IRD within one month. The BIR56A form is required to be submitted to the IRD together with the IR56B forms for reporting the remuneration paid to the employees during the tax year.
This is the so-called Annual Employer’s Return filing process in Hong Kong. It applies to all employees still under employment as of March 31.
What kind of employees are subjected to the Annual Employer’s Return?
Employers in Hong Kong are required to prepare and submit the Annual Employer’s Returns to the Hong Kong IRD for the following employees:
- Unmarried (single/ widowed/ divorced) employees who have been paid an annual income in excess of Basic Allowance during the tax year;
- Married employees (regardless of amounts);
- Part-time staff (regardless of amount); and
- Directors (regardless of amount).
The definition of “employees” goes beyond full-time employees. It includes:
- Persons employed by a Hong Kong company, including:
- Full-time or part-time employees;
- Hong Kong residents or non-Hong Kong residents; and
- persons who provide services in or outside Hong Kong.
- Employees assigned or seconded to a Hong Kong company by its overseas holding company or subsidiary.
- “Relevant individuals” under section 9A of the Inland Revenue Ordinance, i.e., persons who render personal services under employment-like conditions but have entered into service contracts in the name of service companies owned by them.
Do employers still need to file for an Annual Employer’s Return if they do not hire any employees?
Yes, when a Hong Kong company receives a BIR56A form issued by the IRD, the company must complete and submit it to the IRD within one month even if the business has not commenced, it does not hire any employee, or the business has ceased. Under these conditions, the company is required to complete a “NIL filing” of the annual employer’s return to the IRD.
What if the company has eligible employees but does not receive the BIR56A form from the IRD？
If a company hires employees that fall into the scope of the Annual Employer’s Return filing but does not receive an Employer’s Return (BIR56A form) issued by the IRD when a tax year ends. The company should request the IRD to issue an annual employer’s return.
What to file in the Annual Employer’s Return?
The Annual Employer’s Return focuses on the remuneration paid to each employee during the tax year.
If an employee joins a company midway through the tax year and remains employed until the last day of that tax year, the company must prepare the Annual Employer’s Return. This report covers the remuneration paid from the employee’s start date until the end of the tax year. Meanwhile, the employment period in the tax year is required to be reported to the IRD accurately. However, the company is not obligated to report remuneration received by the employee from other employers before their employment with the company.
Employers must meticulously prepare an annual remuneration summary for employees based on the 12 categories of income specified in the IR56B form:
- Salary/Wages
- Leave Pay
- Director’s Fee
- Commission/Fees
- Bonus
- Back Pay, Payment in Lieu of Notice, Terminal Awards, or Gratuities
- Certain Payments from Retirement Schemes
- Salaries Tax Paid by Employer
- Education Benefits
- Gain Realized Under Share Option Scheme
- Other Rewards, Allowances, or Perquisites
- Pension
Employers should be aware that each category of income has specific requirements. Ensuring compliance with these requirements is essential when reporting employees’ income.
For example, in Hong Kong, housing benefits arising from employment are considered part of the employee’s employment income. However, the salaries tax treatments vary depending on the specific housing benefits arrangements. Employers often provide “rent-free accommodation” or “subsidized accommodation” to help employees save on Hong Kong salaries tax. In such cases, the employer must report “particulars of place of residence provided” to the IRD. These particulars include:
- Address of the provided residence
- Nature of the residence (e.g., apartment, house)
- The period during which the accommodation was provided
- Rent amount (if applicable)
- Method of rent payment
By providing this information, the IRD can accurately assess salaries tax for employees in accordance with the Inland Revenue Ordinance.
Besides remuneration, employers shall provide or update the personal particulars of each employee on IR56B. These particulars include but not be limited to:
- Hong Kong identity card/passport number
- Position within the company
- Marital status
- Spouse information
- Residential address
Ensuring accurate reporting of both income and personal details is essential for compliance and transparency.
How to file the Annual Employer’s Return?
The Annual Employer’s Return can be completed through either paper filing or e-filing.
Paper filing
Under paper filing, employers should take the following steps:
- Step 1: Prepare both the BIR56A and IR56B forms in paper format.
- Step 2: Arrange for the signature of the Company Director, Company Secretary, or any other authorized signer.
- Step 3: Affix the company chop (official seal) to the forms.
- Step 4: Once the forms are signed and stamped, submit the completed paper forms to the IRD.
Please note that the IRD would only accept the original BIR56A form and IR56B form with the standard format provided by the IRD. Photocopies/ fax copies/ scanned copies are not acceptable.
E-filing
Employers may prepare an Annual Employ’s Return data file and then submit it through the internet under either online mode or mixed mode. However, a qualified data file is important for processing E-fling. For online mode, the employer shall register an eTax account and submit the data file through the eTax account. Mixed mode is a bit flexible, however, the authorized signer has to sign and submit a control list generated by the system and submit it together with the duly signed BIR56A to the IRD.
What if a company finds it unable to submit the Annual Employer’s Return by the due date?
In practice, some employers may find it challenging to meet the tight filing schedule for the Annual Employer’s Return. If a company anticipates that it cannot submit the return by the due date, it needs to submit a written extension application to the IRD in advance, to avoid penalties.
The application letter should clearly state the reasons for the extension and specify the additional time needed. It’s important to note that the extension application is subject to review and approval by the IRD. If the extension is granted, the IRD will issue a letter notifying the company of the approved extension period.
What are the penalties for failing the Annual Employer’s Return filing?
Failure to comply with the Annual Employer’s Return filing requirements is considered a serious offense. Employers who do not meet their obligations may face a penalty of a fine of HK$10,000 imposed by the IRD.
Dezan Shira’s insights
The filing schedule for the Annual Employer’s Return is particularly tight, especially for companies with large headcounts. Typically, employers have only one month to complete the Annual Employer’s Returns. This timeframe includes the time for arranging signatures and affixing the company chop on the returns before submitting the returns to the IRD. Consequently, the actual time available for preparing the Annual Employer’s Return is quite limited.
Dezan Shira recommends that employers in Hong Kong take proactive steps to prepare for the Annual Employer’s Return well in advance. Waiting for the Hong Kong IRD to issue the BIR56A form is not necessary to kick off the preparation work. Here are some practical suggestions:
- Early preparation: Employers can start by preparing an annual remuneration summary and collecting employees’ personal particulars as early as possible before the tax year ends. By doing so, employers can streamline the process and avoid last-minute rushes.
- Resource allocation: Given the heavy workload associated with the Annual Employer’s Return, employers should allocate sufficient personnel and resources. Adequate staffing ensures accuracy and timely completion.
- Digital payroll system: Employers are also suggested to consider implementing a flexible digital payroll system. Such a system can significantly improve accuracy and efficiency during the Annual Employer’s Return filing process.
In addition, handlers responsible for the Annual Employer’s Return should be well-versed in the relevant filing requirements and procedures. Equally crucial is staying informed about any tax regulation updates related to this filing.
A solid and comprehensive knowledge of Hong Kong salaries tax enables handlers to navigate the nuances of Annual Employer’s Return reporting effectively. This understanding helps them identify how such reporting may impact their employees’ salaries tax assessments and, more importantly, avoid potential challenges from the IRD.
In practice, some employers encounter difficulties when they report gains under share options schemes, determine the tax treatment for various housing benefit arrangements or holiday journey benefits, or handle the Annual Employer’s Return for individuals who are assigned or seconded to work in the Hong Kong entity. Thus, being well-prepared and knowledgeable ensures compliance and minimizes risks.
In conclusion, reporting remuneration paid to employees accurately could be a challenge for many companies, especially when they offer comprehensive remuneration packages to their employees. We suggest companies in Hong Kong seek professional assistance for the Annual Employer’s Return filing if they have complicated cases.
With three decades of Asia experience, Dezan Shira’s HR and payroll team has accumulated an abundance of knowledge and expertise in local markets. Our certified HR and payroll specialists identify practical, compliant, and efficient solutions for clients. Should you have any questions regarding the Annual Employer’s Return filing in Hong Kong or other payroll issues, please contact hongkong@dezshira.com.
The information provided is for general purposes only and may not account for local variations. No liability is assumed for the completeness or accuracy of the information.
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Dezan Shira & Associates assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Haikou, Zhongshan, Shenzhen, and Hong Kong. We also have offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Dubai (UAE) and partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh, and Australia. For assistance in China, please contact the firm at china@dezshira.com or visit our website at www.dezshira.com.
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