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HK Employer’s Return and IR56 – The Basics

This is a guest post by Adrian Lai, CPA/CIMA qualified business advisor and Founder and MD of Cornerstone Management Group, a digitally native accounting firm that book-keeps, innovates and integrates cloud systems. Adrian loves technology that improves business efficiency and has value-adding impact across small/medium business, both for and non-profit. 

Without doubt one of the most Sahara-like topics that one could be asked to write on, but, since a child, I was taught the finer art of guest etiquette – one which I am still learning.

In an attempt to add a splash of colour to a rather drab canvas, as an employer in Hong Kong, there’s a compliance matter known as Employer’s Return of Remuneration and Pensions (BIR56A) – let’s shorten it to “ER” for sake of word count.

Another piece of background information is that in Hong Kong, salaries are paid gross (i.e. no tax is withheld). Great for spending throughout the year but not when your tax bill arrives.

Essentially, the ER and associated forms (IR56B/E/F/G/M) is the method by which the Inland Revenue Department (IRD) collects salary and pension information about employees upon which each individual’s tax calculation and returns are issued.

Needless to say, the onus of completing the ER on a timely and accurate basis is on the employer.

Typically, the IRD will send the ER and associated forms on the first working day of April each year. If you are a first time employer and have not received the forms by mid-April, contact the IRD by completing from IR6163 and send it by snail mail or fax. Yes – it’s really #oldschool here.

There is a myriad of different forms from the IRD, but for small businesses, the most commonly used for are:

Statutory obligations of an employer to report remuneration paid to an employee

IR56 Hong Kong contribution table

Failure to comply with the above requirements is a serious offence which carries a fine of $10,000.

Reporting remuneration paid to an employee

Depending on the employment condition as prescribed in the table above, IR56B, IR56E, IR56F or IR56G (as appropriate) should be completed and filed for the relevant year of assessment for each of the following persons:

  • employees (including labourers, workers etc. whether daily paid or otherwise, and employees who have received remuneration through service company arrangements), whether resident in Hong Kong or not, whose total income is in excess of the basic allowance of the relevant year (if employed for less than a year, a proportionately reduced amount);
  • directors, married persons and part-time employees who were likely to have other income chargeable to Salaries Tax for the year, irrespective of the amount paid and whether resident in Hong Kong or not;
  • employees of any non-Hong Kong company who were assigned or seconded to your company during the year for duties in or outside Hong Kong;
  • persons to whom a pension was paid or accrued during the year. In case of those pensioners who have left Hong Kong permanently, only pensions in excess of the basic allowance of the relevant year need to be reported; or
  • former employees and former directors who, during the year, have realized gain by the exercise, assignment or release of any share option previously granted by the employer or by any other corporation in respect of their former employment with or former office in the employer. In the case of those former employees who did not have any other income chargeable to Salaries Tax for the year, only the gain realized in excess of the basic allowance of the relevant year needs to be reported. If share awards are vested in an employee after cessation of employment, an amendment to the IR56 form previously filed should be made by either filing a “Replacement” or a written notification of amendment.

 Reporting remuneration paid to persons other than an employee

(1) Local persons (Form IR56M)

If a company pays commission, fees or other remuneration to the following local individuals who are not the company’s employees or unincorporated businesses:

  • sub-contractors exceeding $200,000 per annum; or
  • consultants, agents, brokers, freelance artistes, entertainers, sportsmen, writers, freelance guides, etc. in excess of $25,000 per annum.
  • IR56M should be filed for each of the recipients together with the declaration form IR6036B.

(2) Non-resident entertainers/sportsmen (Form IR623)

Where payments are made to non-resident entertainers/sportsmen for any performance in Hong Kong, the sponsor or agent has to comply with the following requirements:

  • notify this Department via IR623 immediately when the non-resident arrives in Hong Kong; and
  • withhold an amount from payments made to the non-resident sufficient to produce the amount of tax due in accordance with sections 20A and 20B of the IRO and inform this Department accordingly

Self-submissions of the form can be done the old school way (mail/fax) or electronically via the IRD’s own eTAX portal, where you can also find more details.

Needless to say, the above is not meant to be a definitive guide but rather consider it a lamp in the gloomy dungeon of compliance.

Reach out to us at Cornerstone (www.cornerstone.hk) if you prefer talking to professionals who speak human and can help loosen those shackles.

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