Hong Kong is a special administrative territory of the People’s Republic of China and is located on the southern coast of the mainland, bordered to the north by the city of Guangdong, and by the South China Sea on all other sides. Formerly a colony of the British Empire, Hong Kong was returned to China in 1997 but still maintains a separate political and economic system. Thanks to an investment-friendly climate, low levels of government intervention, and an attractive tax system, Hong Kong has become one of the world’s most important financial hubs, and the world’s seventh-largest trading entity, with high levels of personal income and a GDP of $320.9 billion in 2016. Following rapid industrialisation in the 20th century, the services sector has grown to dominate Hong Kong’s economy, accounting for almost 93% of the territory’s economic output. Major industries include financial services, professional and producer services, logistics, and tourism, while the creative industries, communications, medical and educational services have grown in importance in the 21st century. The connection between Hong Kong’s economic profile and its regional and global trade links make it an extremely attractive location for international business: in 2018, the World Bank ranked Hong Kong 5th on its Ease of Doing Business Survey.
Investors interested in Hong Kong should consider the following factors:
Hong Kong is one of the world’s most business-friendly cities. Free market policies, the rule of law and free flow of information means a level playing field for all companies. The territory enjoys a world-class business infrastructure and easy recruitment of skilled workers. The government of Hong Kong welcomes inward investment, providing foreign investors with attractive low levels of Taxation and Political Stability. Incentives to invest in certain industries are available from the Economic Analysis and Business Facilitation Unit (EABFU), a department within the Financial Secretary's Office.
Hong Kong is one of the top countries in the world for setting up a business, thanks to the simplicity of the process. When establishing an entity in Hong Kong, choosing the name of your business can be nearly as important as deciding on a legal entity. A company name must be searched at the Hong Kong Companies Registry to find out whether the name of your choice has been taken – before it can be approved.
The next step is decide on the kind of legal entity you would like to select for your business in Hong Kong. The following documents are available online at the CR’s e-Registry with the correct fees:
Online applications for Company Incorporation and Business Registration can normally be processed within an hour. If you submit your application in hard-copy form, the Certificate of Incorporation and Business Registration Certificate will normally be issued within four working days.
The next step in establishing a business is to open a bank account. This process is straightforward but will require the registration and incorporation certificate.
In Hong Kong, it is not mandatory to make payments to employees or authorities from an in-country bank account. Both salary and 3rd party payments can be made on behalf of the client using bank transfers. Bank transfers within the same bank will usually take place within the same day - or the next day from bank to bank. International transfers can take between 3 and 7 working days.
The working week in Hong Kong is Monday to Friday from 9:00am to 6:00pm. There are no statutory provisions, which prescribe maximum working hours. The EO does however provide that AND, in addition to paid statutory (public) holidays, an employee is entitled to not less than one rest day in every period of seven days.
Located on land extending from the southern coastland into the South China Sea, Hong Kong has long been regarded as a historic gateway to both the Chinese mainland, and continental Asia. Inhabited by indigenous people since prehistory, and conquered by the Qin dynasty in 214 BC, Hong Kong - which was then a collection of farming and fishing communities - was ceded to Britain after the First Opium War in 1841. Over the course of the 19th and 20th centuries, the territory became one of the most prosperous and significant commercial trading hubs in the world, and was eventually returned to China in 1997, and became a special administrative region. Reflecting its economic success, the city of Hong Kong is highly urbanised, with a high-density population and the highest number of skyscrapers in the world. The sights and spectacles of Hong Kong attract millions of tourists every year, but beyond the city, the territory is hilly and mountainous, with numerous areas reserved as country parks and nature reserves. Hong Kong’s climate is generally humid and subtropical, with mild winters and hot, dry summers.
Full Name: Hong Kong
Population: 7.409 million (HK Census and Statistics Department, 2017)
Major Language: Mandarin, English
Major Religion: Buddhism, Taoism
Monetary Unit: Hong Kong dollar
Main Exports: Electrical and electronic goods, clothing
GNI per Capita: US $42,940 (World Bank, 2016)
Internet Domain: .hk
International Dialling Code: +582
Good morning 早安
Good evening 晚上好
Do you speak English? 你会讲英语吗？
Good bye 再见
Thank you 谢谢
See you later 再見
Dates are usually written in the year, month and day sequence. For example: 2015 July 12th.
The Tax Year runs from 1st April to 31st March.
In Hong Kong, there is no income tax withholding at source, via payroll, throughout the tax year. Income tax, or ‘salary tax’ is however, charged progressively at a ate of 2-17% depending on salary amount. Alternatively, employees may choose to pay a flat 15% rate. It is the employee’s responsibility to file an annual tax declaration and pay directly to the Inland Revenue Department (IRD), the local tax authority.
Companies need to report remuneration paid to employees by submitting an annual employer’s return (BIR56A and IR56B).
Even though there is no income tax withholding at source, the Inland Revenue Ordinance (IRO) includes a provision that any person liable for tax who is intending to leave Hong Kong shall notify the Inland Revenue Department (IRD) not later than 1 month before the expected date of departure. Upon receipt of the notification, the IRD will decide whether the person leaving is required to settle all tax liabilities prior to departure. The employer of the individual is also required to give notification to the IRD of the impending departure of that employee at least 1 month before the expected departure date. At the same time, the employer must also temporarily withhold payments of salaries and all other moneys to that employee until the IRD issues a “letter of release”.
The Mandatory Provident Fund (MPF) is a compulsory saving scheme (pension fund) designed by the Hong Kong government as a major protection scheme for aged and retired residents. The system is mandatory for all employees in Hong Kong who have an employment contract of 60 days or more, and applies also to the self-employed between ages 18 and 65. Foreign citizens who work in Hong Kong for periods shorter than 13 months, or who are covered by another country's retirement system, may be exempted.
According to the Mandatory Provident Fund (MPF) Ordinance, the employee will join the employer's MPF Scheme automatically after completing 60 working days. Employers and employees are each required to make regular mandatory contributions of 5% of the employee’s relevant income to an MPF scheme, subject to the minimum and maximum relevant income levels. For a monthly-paid employee, the current minimum and maximum relevant income levels are $7,100 and $30,000 respectively.
"Relevant income" refers to all monetary payments paid or payable by an employer to an employee, including wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites or allowances, but excluding severance payments or long service payments under the Employment Ordinance (Chapter 57, Laws of Hong Kong). Both employees and employers are free to make voluntary contributions in addition to mandatory contributions.
On a monthly basis, the INB2 Remittance Statement (HSBC) should be completed along with the monthly MPF contribution. This is done electronically and must to be done before the 10th of each month. The statutory body that this should be sent to is the MPF Agency (HSBC).
The forms BIR56A and IR56B are to be completed on a yearly basis. These forms are submitted by the employer (annual returns) reporting remuneration and pensions to the employees. This is to be returned, by courier or by post, to the Inland Revenue Department within one month after the return has been received. It is usually sent to the company on the 1st April every year. Form IR56B may be submitted in paper or digital format.
Notification by an employer of a new employee should be done through IR56E form. This needs to be completed and returned to the Inland Revenue Department (IRD) within three months of commencing the employment. The following documentation is required in order to set up an expat new start:
The final payment of a leaving employee should be made within seven days of the termination.
The employer should notify the authorities of any employee who is about to cease to be employed by either completing an IR56F or IR56G form. The form to be filled in depends on if the employee plans to leave or continue to stay in HK and must be filled one month prior to termination, with IRD. The IR56F is for leavers who will remain in Hong Kong, and should be returned to the Inland Revenue Department one full month prior to an employee’s departure. However, if a terminating employee is planning to leave Hong Kong after separation from a company, the IR56G form should be submitted. This will send notification to the IRD about the termination and the further actions required to recover any Income Tax owed before their final departure.
An employer who has filed an IR56G is further obligated to withhold all further payments to the employee from the date of the filing of the IR56G. A copy of IR56G should be provided to the departing employee who should in turn approach the IRD to ensure Tax clearance is made. Once the employee has settled any Tax liabilities, they will receive a “Letter of Release”. Only upon sight of this letter can an employer make final payment to this departing individual.
In Hong Kong, there is no obligation for employers to withhold income tax from their employees, but they are obligated to withhold social security contributions as part of their payroll, and report that money to the Inland Revenue. Employees must report their income to the Inland Revenue themselves in their annual tax returns, although income tax is only charged on income sourced from within Hong Kong, and only from employees who have been resident for 60 days or more: foreign income is not taxed, regardless of an employee’s residency status. Social security obligations in Hong Kong involve the following considerations:
To help navigate Hong Kong’s payroll regulations, it may be useful to engage a global payroll provider: outsourcing payroll offers a way to deliver compliance, and ensure global employee populations are paid accurately and on time. Employers may provide payslips to employees in hard copy form, or by email, and must keep payroll records for a minimum of 7 years.