As a rapidly growing market, Hong Kong can be an excellent place to establish a subsidiary and grow your business. However, Hong Kong’s extensive payroll regulations outlined in its Employment Ordinance can make hiring and Hong Kong payroll options complicated for companies unfamiliar with local laws and processes.
Taxation rules in Hong Kong
Most employees and employers are required to contribute to the Mandatory Provident Fund (MPF) for retirement. Contributions vary by salaries and the length of time employees have been with the company, although the minimum required amount is typically 5%. Employees automatically join your company’s MPF scheme after working for 60 days.
You don’t need to withhold income tax from your employees throughout the year. Instead, employees file the tax themselves and pay Hong Kong’s Inland Revenue Department (IRD) at the end of every fiscal year.
Hong Kong payroll options for companies
You have numerous Hong Kong payroll options that depend on the size of your company and how active you will be in Hong Kong.
- Larger companies often choose to run their own local payroll for their Hong Kong employees. Beforehand, you must register your Hong Kong subsidiary and hire employees in the country to handle payroll requirements. You’ll need extensive knowledge of Hong Kong employment regulations to ensure your compliance with all laws.
- If you do not want to run payroll yourself, you can hire a Hong Kong payroll processing company. As the employer you will still be responsible for immigration, tax, and payroll regulations, but a separate company can handle payments and more.
- If you do not want to set up a subsidiary in Hong Kong, you can streamline the entire hiring process, including payroll, in compliance with local laws by partnering with a Global Growth Platform™ like G-P.
How to set up a payroll in Hong Kong
First, you’ll need to register your business with the IRD within 1 month of your official start date. The IRD will administer your tax regulations and also collect taxes and make sure you are compliant. You’ll also need to submit an annual employer’s return as well as these forms:
- IR56E: Required to report all new hires and must be submitted within 3 months of employing an individual
- IR56F: Required to report any employee terminations and should be filed within 1 month of the employee’s last day of work
- IR56G: Required to report any employee leaving Hong Kong for a significant length
You are also expected to set up your MPF scheme. Under Hong Kong payroll regulations, any new employees must be enrolled in your company’s specific scheme. The employee can then choose their investment options.
Entitlement and termination terms
Employees in Hong Kong are guaranteed specific entitlements and termination terms. Certain employment terms must be agreed upon prior to commencement of employment, such as the employee’s compensation and benefits, wage period, termination requirements, and whether the employee is entitled to an end-of-year payment. It is best practice for these terms to be clearly outlined in a written employment contract.
For example, the required notice of employment termination varies depending on the length of the service.
There is no notice period required within the first month of probation, but after the first month, a 7-day notice period is required for the remainder of the probation period.
Once the probation period is successfully completed, or if no probation period was required, the employment contract may stipulate a notice period of no fewer than 7 days. However, if no notice period is stipulated in the employment contract, than a minimum notice period of 1 month shall apply.
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