Employer Tax Contributions

| Tax Type | Rate MPF contributions are tax-deductible for employers.

Filing & Compliance

• Annual Employer's Return (BIR56A and IR56B forms) is issued by the Inland Revenue Department (IRD) on the first working day of April and due within one month.
• Specific forms (IR56E, IR56F, IR56G) must be filed for new hires (within 3 months), termination of employment (1 month before), or employee departure from Hong Kong (1 month before).
• Employers must maintain accurate payroll records for at least seven years.

In Hong Kong, employee tax deductions primarily revolve around Mandatory Provident Fund (MPF) contributions and limited allowable expenses.

Mandatory Provident Fund (MPF)

• Mandatory Contributions: Both employers and employees contribute 5% of the employee's relevant income, capped at HKD 1,500 per month per employee. The employee's portion is deducted directly from their salary. For the employee, these mandatory contributions are tax-deductible up to HKD 18,000 annually.
• Voluntary Contributions (TVC): Employees can make additional voluntary contributions to a separate MPF TVC account. These are tax-deductible up to HKD 60,000 per year when combined with qualifying deferred annuity premiums.
• Employer Contributions: Employer contributions are capped at 15% of the employee's total emoluments. While not a deduction from the employee's salary, this impacts the overall cost of employment for the employer.

Allowable Deductions & Expenses

• Self-Education Expenses: Expenses for employment-related courses are deductible up to HKD 100,000 per year. These must be directly related to the employee's current role or career advancement within their field.
• Approved Charitable Donations: Donations to approved charities are deductible. Details of eligible charities and the deduction mechanism can be found on the Inland Revenue Department website.
• Home Loan Interest: While not strictly an employment-related deduction, home loan interest payments can be deductible under personal assessment, potentially impacting an employee's overall tax burden.
• Other Expenses: Very few other expenses qualify for deduction under salaries tax due to stringent requirements (wholly, exclusively, and necessarily incurred in producing assessable income). Some business travel and entertainment expenses may qualify under very limited circumstances but are rarely deductible in practice.

Tax Rates & Calculation (Salaries Tax)

Hong Kong operates a progressive tax system for salaries tax with two tiers.

• Standard Rate: Up to net income of HKD 5 million, the applicable rates range from 2% to 17%. A two-tiered system applies for the 2024/25 assessment year onwards, impacting those with net incomes over HKD 5 million. The portion exceeding HKD 5 million is taxed at 16%. This impacts roughly 12,000 taxpayers.

• Personal Assessment: Employees can opt for personal assessment which considers total income from all sources (including employment, property, and investments) rather than solely employment income under salaries tax. This allows a broader range of deductions and potentially a lower overall tax burden.

Key Dates & Procedures

• Tax Year: The Hong Kong tax year runs from April 1st to March 31st.
• Tax Returns: Employers typically withhold salaries tax and remit it to the Inland Revenue Department. Individuals must also file annual tax returns. Deadlines vary depending on the filing method (online, by post, etc.).
• Further Information: The Inland Revenue Department (IRD) website provides comprehensive information and resources regarding tax obligations for both employers and employees.

General Information on Employment in Hong Kong

• No Social Security Tax: Hong Kong does not levy a separate social security tax. The MPF system serves as the primary retirement savings framework.
• Territorial Taxation: Hong Kong follows a territorial tax system, meaning only income derived from Hong Kong is subject to taxation. However, employment is considered Hong Kong employment even if the individual performs services outside Hong Kong for less than 60 days during the assessment year unless the employment contract is negotiated and enforced outside Hong Kong, the employer is non-resident, and remuneration is paid outside Hong Kong. In case of non-Hong Kong employment, income is subject to Hong Kong salaries tax for services rendered in Hong Kong exceeding 60 days during the assessment year.
• Accommodation Benefit: If the employer provides accommodation, it constitutes a taxable benefit ranging from 4% to 10% of the employee's other taxable income, depending on the accommodation type.

This information is current as of today's date, February 5, 2025, and is subject to change based on future legislative amendments or updates by the Hong Kong Inland Revenue Department. It is advisable to consult the IRD website or a tax professional for the latest information and personalized advice.