What Do Employers Need To Know About Salaries Tax Returns (Form BIR60)?
In Hong Kong, if you are a director of a Hong Kong company or receive a pension in Hong Kong, you would need to pay Salaries Tax each year. In this article, we will give you an overview on Salaries Tax, and points that you need to take note of as a Hong Kong employer.
A point to note, figuring out taxes you need to pay in Hong Kong as a company owner might be confusing. Our experienced Hong Kong Chartered Accountants will help you put together paperwork, check numbers, and file annual returns on time.
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What Is Salaries Tax?How To Calculate Salaries Tax in Hong Kong?
How To File Salaries Tax?
When To File Salaries Tax?
What Are Employers’ Obligations Towards Salaries Tax Returns?
Are There Any Exemptions of Income or Relief From Salaries Tax?
If I Am a Business Owner and Give Myself a Salary, How Do I Report It in the BIR60 Tax Return?
What Is Salaries Tax?
In Hong Kong, tax on income from employment and director’s fees is known as salaries tax, and the tax authority which collects tax in Hong Kong is the Inland Revenue Department (IRD).
When the Inland Revenue Department sends you a tax return (BIR60 Individual Tax) form for filing, you must complete and submit it by the deadline even if you have no income liable for Salaries Tax. Likewise, if you have income chargeable for Salaries Tax but did not receive a tax return, you should notify the IRD.
Salaries Tax is paid on chargeable income that an individual earns. If you own a business and work for yourself, you are considered self-employed and the tax that you need to pay is the Profits Tax.
Chargeable income include:
- Salaries, wages and director’s fees;
- Commissions, bonuses, leave pay and end-of-contract gratuities and payments in lieu of notice accrued on or after 1 April 2012;
- Allowances, perquisites and fringe benefits such as cash allowances, education benefits and holiday journey benefits;
- Salaries tax paid by employer;
- Termination payments and retirement benefits;
- Pensions;
- Back pay, gratuities, deferred pay and pay-in-arrears;
- Stock awards and share options;
- Tips received;
- Rental value of a place of residence provided by the employer.
These incomes however, are not liable for Salaries Tax. They are known as non-chargeable income:
- Severance Payments and Long Service Payments
- Jury Fees
A year of assessment starts from 1 April of the previous year to 31 March of the following year.
How To Calculate Salaries Tax in Hong Kong?
In Hong Kong, Salaries Tax is charged according to how much one earns annually. The more income is earned, the more tax is payable. This is known as a progressive tax rate.
Salaries Tax is charged on:
Net Chargeable Income = Total Income - Deductions - Allowances
**Deductions include donations to approved charities, contributions to a Mandatory Provident Fund (MPF) scheme and allowances such as basic allowance for self (HKD $132,000 per year), allowances for spouse, and/or dependants.
Taxpayers could choose to be charged at a standard of 15% if their yearly chargeable income exceeds HKD $200,000. However, their chargeable income would be calculated as follows:
Net Income = Total Income - Deductions (without deductions for personal allowances)
Hong Kong Progressive Tax Rates
Year of Assessment from 2018/2019 onwards (until superceded):
| Net Chargeable Income | Rate | Tax | |
|---|---|---|---|
| $ | $ | ||
| On the First | 50,000 | 2% | 1,000 |
| On the Next | 50,000 | 6% | 3,000 |
| 100,000 | 4,000 | ||
| On the Next | 50,000 | 10% | 5,000 |
| 150,000 | 9,000 | ||
| On the Next | 50,000 | 14% | 7,000 |
| 200,000 | 16,000 | ||
| Remainder | 17% |
Hong Kong Standard Tax Rate
| Year of Assessment | Rate |
|---|---|
| 2014/2015 onwards till superceded | 15% |
Tax Reduction
| Year of Assessment | % of Tax Reduction | Maximum Per Case ($) | Applicable Tax Types |
|---|---|---|---|
| 2014/15 to 2016/17 | 75% | 20,000 | Profits Tax, Salaries Tax and Tax under personal assessment |
| 2017/18 | 75% | 30,000 | Profits Tax, Salaries Tax and Tax under personal assessment |
| 2018/19 | 100% | 20,000 | Profits Tax, Salaries Tax and Tax under personal assessment |
| 2019/20 | 100% | 20,000 | Profits Tax, Salaries Tax and Tax under personal assessment |
| 2020/21 | 100% | 10,000 | Profits Tax, Salaries Tax and Tax under personal assessment |
For 2020/2021, there would be a one-off reduction of 100% the final tax for profits tax, salaries tax and tax under personal assessment, for year of assessment 2019/2020, at a cap of HKD $20,000. This was approved by Hong Kong’s Legislative Council in June 2020.
Alan is married and lives with his wife and one son aged 10 years old. He is the sole breadwinner of the family. Alan receives HKD $530,000 in total assessable income for the year of assessment 2020/2021, HKD $30,000 of which is his year end bonus. He contributed HKD $15,000 to the Mandatory Provident Fund for that year. He also gave HKD $2,000 to charity which is tax deductible. He would need to pay the following in Salaries Tax.:
| Salaries Tax Computation | HKD | HKD |
|---|---|---|
| Salaries | 500,000 | |
| Bonus | 30,000 | |
| Total assessable income | 530,000 | |
| Less: Concessionary deductions | ||
| Charitable donations | (2,000) | |
| Retirement scheme contributions | (15,000) | (17,000) |
| Net income | 513,000 | |
| Less: Allowances | ||
| Married person’s allowance | (264,000) | |
| Child allowances | (120,000) | (384,000) |
| Net chargeable income | 129,000 | |
| Tax at progressive rates: | ||
| First HKD 50,000 @ 2% | 1,000 | |
| Next HKD 50,000 @ 6% | 3,000 | |
| Remainder HKD 29,000 @ 10% | 2,900 | |
| Tax payable | 6,900 |
How To File Salaries Tax?
All taxpayers need to file their annual tax returns with the Inland Revenue Department (IRD). The IRD would notify and send individuals the BIR60 tax return form by the 1st of May each year, for the year of assessment 1 April of the previous year to 31 March of that year.
There are two ways a taxpayer could file his or her tax return form, either by paper filing in physical hardcopy, or by e-Filing.
Paper Filing:
Step 1: Use the original BIR60 form.
Those who choose to file by physical hardcopy must only use the original BIR60 form sent to them by the Inland Revenue Department.
Step 2: Fill in the form and send it to the IRD by 1 month from the date of issue of the BIR60 form.
By e-Filing:
Step 1: Make sure you fulfill the requirements for creating an online eTax Account.
Requirements include not claiming any exemption or not earning more than HKD $2,000,000 gross for their sole-proprietorship.
Step 2: Create an eTax Account.
Step 3: Fill in the online form and submit it within 2 months from the date of issue of tax return form.
If you do not have any income to report, you should declare zero income in your tax form and return it to the IRD nonetheless.
When To File Salaries Tax?
The Inland Revenue Department of Hong Kong normally sends out the BIR60 Salaries Tax forms on the first working day of May each year, with the submission deadline printed on each form.
For the first time taxpayer, a Salaries Tax return would usually be given 5 months after his employer notifies the IRD of his employment (submission of form IR56E by the employer), or when the taxpayer himself notifies the IRD that he is employed and would be liable to Salaries Tax.
On the other hand, employees who work in Hong Kong but have not received their tax return, must inform the IRD by 31 July of the year following that year of assessment.
Individuals usually have one month to complete and submit their Salaries Tax BIR60 form filings. If the taxpayer solely owned any unincorporated business during the year of assessment, he would have 3 months from the date of issue of the Tax Return, and those filing online receive an additional month of extension for filing.
What Are Employers’ Obligations Towards Salaries Tax Returns?
As an employer, with regards towards Salaries Tax Returns, you are required to submit Employer’s Return (IR56B) every fiscal year. You need to keep and ensure that these information are correct from your employees:
- Personal particulars: Name, address, identity card or passport number with place of issue, marital status;
- Nature of employment: Full-time or part-time;
- Job title: e.g. sales manager, salesman, worker, in-house lawyer, accountant, director;
- Amount of salary paid: Both in domestic or foreign currency; also salary given outside Hong Kong;
- Non-cash or additional benefits: Such as housing or accommodation, vacation allowances, stock awards and share options;
- Employer's and employee's contributions to the Mandatory Provident Fund (MPF) or its equivalent;
- Employment contract and amendments to terms of employment;
- Period of employment.
The total income reported by the employee should match with your Employer’s Return. You should keep these records for at least 7 years.
Are There Any Exemptions of Income or Relief From Salaries Tax?
Hong Kong employs a territorial concept for its tax system, meaning, Salaries Tax is charged on all income earned in or coming from Hong Kong.
You can apply for full or partial exemption of income or claim for tax credit when filing your Salaries Tax Return – Individuals (BIR60) and its Appendix if you satisfy one of the following conditions:
Only part of your employment income was sourced in Hong Kong
As Salaries Tax is imposed only on income earned in Hong Kong, if you earn part of your income outside of Hong Kong, you would only be charged for income earned in Hong Kong.
Jenna’s annual income for the year of assessment 2020/2021 was $730,000.
She was in Hong Kong for only 100 days of that year.
Therefore, her assessable income would be $730,000 x 100/365 = $200,000.
All services were rendered outside Hong Kong during the year
Unless you are a civil servant a crew member of a ship or plane, you do not need to pay Salaries Tax for a year of assessment where you worked overseas. Income for services rendered in Hong Kong (for citizens who work overseas and are only in Hong Kong for visits) not exceeding a total of 60 days in the year is also excluded from tax.
Seafarers and Aircrews
Seafarers and aircrews (including masters and commanders) are exempted from Salaries Tax if they were present in Hong Kong 60 days or less for that year of assessment, or 120 days for two consecutive years.
“Transit days”, days where the crew member landed in Hong Kong but did not pass through the Hong Kong Border and Passport Control, are counted as days present in Hong Kong.
Part of your income has already been charged to tax in any other territory outside Hong Kong during the year
Income Exemption
If you are employed both in Hong Kong and overseas, and you have paid taxes on the income you earned overseas, you would only be liable for income you earn in Hong Kong under Salaries Tax. (Evidence of foreign tax payment is required.)
Mark is a consultant, and he works in Hong Kong and Singapore.
His total income for the year of assessment 2020/2021 was $300,000.
One-third of his income ($100,000) was from his consulting work in Singapore.
He had paid tax similar to Hong Kong’s Salaries Tax in Singapore on the income of $100,000, thus his assessable income in Hong Kong would be $200,000.
Tax Credit
Hong Kong has a comprehensive avoidance of double taxation agreement or arrangement ("CDTA") with a number of countries such as Macao, United Kingdom, and India. Foreign tax paid in those countries would be a credit against Hong Kong tax payable, i.e., your Hong Kong Salaries Tax would be reduced by the amount of tax you paid in those CDTA countries.
You could also refer here for more details on Changes in Tax Treatments which would qualify you for lower or exempted taxes.
If I Am a Business Owner and Give Myself a Salary, How Do I Report It in the BIR60 Tax Return?
As a business owner, if your business is a sole-proprietorship or partnership, it would be charged as “Profits Tax” and not “Salaries Tax”.
For sole-proprietorship business, the salary that you pay yourself should not be reported under Part 4 (Salaries Tax) of the BIR60 form, but it would be under business profits -Item 7 (Assessable Profit) in Part 5 (Profits Tax) of the form.
Similarly for a partnership business, the salary that you pay yourself would be declared as business profits and reported in Profits Tax Return (BIR52), and should not be reported again under Part 4 (Salaries Tax) of the BIR60 tax return form.
You do not need to file the Employer's Return of Remuneration and Pensions form(IR56B) for yourself nor for your spouse when either of you draw salary from your sole-proprietorship or partnership business.
We hope that you have a clearer picture of Salaries Tax with regards to your obligations as an employer, in time for this year’s upcoming tax filing season. If you need any secretary services in Hong Kong, do drop us a line for a chat.