A Business Owner’s Guide to Salary Tax Returns (BIR60)
12 minute read
The tax structure in Hong Kong is extremely beneficial to enterprises and individual taxpayers. Hong Kong salary tax, often known as income tax, is one of the friendliest tax systems because you can claim progressive tax rates and still enjoy more than one exemption.
This article will help you understand Salary Tax Returns, how to file for them, what’s expected from your employer, and if you can claim various tax reliefs in Hong Kong.
Overview:
- What is the Salaries Tax in Hong Kong?
- Calculating your Salaries Tax
- Profits Tax reduction
- Your employer obligations towards Salaries Tax Returns
- How do I pay my Salary Tax if I am a Sole Proprietor or own a Partnership?
- How do I file my Salaries Tax?
- What happens if my Salary Taxes are non-compliant?
- What are the exemptions from Salary Taxes?
What is the Salaries Tax in Hong Kong?
The Salaries Tax is a tax on earnings from employment and director’s fees. The Inland Revenue Department (IRD) is the tax authority that collects it.
Even if you have no income liable for Salaries Tax, you must complete and submit a Profits Tax Return (form BIR60) by the deadline if you receive one from the Inland Revenue Department.
Similarly, if you have a salary income that is tax chargeable but have not received a tax return, you need to contact the IRD.
Salaries Tax is charged on individual taxpayers’ assessable income. You are deemed self-employed if you run a company and you are your own boss. In that case, you must pay the profits tax.
What is considered chargeable income?
- Wages, salaries, and director’s fees
- Commissions, bonuses, leave pay, end-of-contract gratuities
- Pensions
- Tips
- Back pay
- Termination payments
- Pension benefits
- Allowances
- Fringe and education benefits
Non-chargeable income is income that doesn’t fall under the Salaries Tax. This kind of income covers:
- Jury fees
- Severance payments
- Long service payments
In Hong Kong, a year of assessment begins on 1 April of the prior year and ends on 31 March of the following year.
Calculating your Salaries Tax
Salaries Tax is charged in Hong Kong on the basis of annual earnings. The more money you earn, the more taxes you’ll have to pay (this is known as the progressive tax rate).
Salaries Tax is levied as shown below:
Total Income – Deductions – Allowances = Net Chargeable Income
Donations to approved charities, contributions to a Mandatory Provident Fund (MPF) scheme, and allowances such as the basic allowance for self (HKD 132,000 per year of assessment), allowances for spouses, and/or allowances for dependants are all examples of deductions.
If a taxpayer’s annual chargeable income reaches HKD 200,000, they can choose to be taxed at a normal rate of 15%. Their income chargeable, on the other hand, would be determined as follows:
Total Income – Deductions (excluding deductions for personal allowances) = Net Income
Keep in mind that the Hong Kong Standard Tax Rate stands at 15%.
For the year of assessment 2019/2020, there would be a one-time reduction of 100% in the final taxes for profits tax, wages taxes, and taxes under personal assessment, with a ceiling of HKD 20,000. The Legislative Council of Hong Kong authorized this in June 2020.
Tax Return for the year of assessment from 2018/2019 onwards
| 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% |
Profits tax reduction
| Year of Assessment | % of Tax Reduction | Maximum Per Case ($) | Applicable Tax Types |
| 2014/15 to 2016/17 | 75% | 20,000 | Profit Tax, Salaries Tax, and Tax under personal assessment |
| 2017/18 | 75% | 30,000 | Profit Tax, Salaries Tax, and Tax under personal assessment |
| 2018/19 | 100% | 20,000 | Profit Tax, Salaries Tax, and Tax under personal assessment |
| 2019/20 | 100% | 20,000 | Profit Tax, Salaries Tax, and Tax under personal assessment |
| 2020/21 | 100% | 10,000 | Profit Tax, Salaries Tax, and Tax under personal assessment |
Allowances and deductions from Salaries Tax
Salaries Tax, like Profits Tax, provides for the deduction of expenses made solely, exclusively, and inevitably in the development of assessable revenue.
Employers are frequently unaware of what expenses an employee has incurred on their own dime (or sometimes even on behalf of the Hong Kong company).
Needless to say, individual taxpayers should ensure that they’re aware of the deductions and allowances (such as basic allowance) available to them.
The following deductions may be claimed when filing a Salaries Tax Return:
- Concessionary deductions
- Allowances
- Outgoings and expenses
While no documentation is required to verify your employment income, people who desire to claim the entirety or a portion of their employment income as salary tax-exempt, must present supporting evidence.
It is advised that relevant receipts and documentation be kept for at least 6 years after the conclusion of the relevant year of assessment for record-keeping purposes.
How does the Salaries Tax Returns affect me as a business owner?
As a Hong Kong employer, your tax duties begin when you bring on your first employee, regardless of whether the employee is working from Hong Kong or overseas.
Once an employee is hired, you have to keep a record of their personal details, job details, position info, wages, contributions to the Mandatory Provident Fund (MPF), work contract, and other particulars.
As a Hong Kong business owner, you need to notify the Inland Revenue Department (IRD) if there are any changes regarding your employee’s status as they happen.
Bear in mind that you also need to send a notice to the IRD if an employee is bound to leave Hong Kong for a certain period of time.
Your employer obligations towards Salaries Tax Returns
Every fiscal year of assessment, you must submit an Employer’s Return (IR56B) in relation to Salaries Tax Returns as an employer. You must keep and verify the following information from your employees:
- Personal details (name, address, ID, or passport number with the place of issue, marital status, etc.)
- Job nature
- Job title
- Salary amount
- Additional benefits
- Employer’s and employee’s contributions to the MPF
- Contract
- Period of employment
Since a Hong Kong employer must notify the IRD of any adjustments to an employee’s personal information or remuneration package, the tax authority should already know how much assessable earning is liable to the Salaries Tax Return for that assessment year.
Simply double-check that the assessable amount reported by the IRD matches the amount reported in your Hong Kong company’s annual tax return and employer return.
How do I pay my Salary Tax if I am a Sole Proprietor or own a Partnership?
If you own a sole proprietorship business or partnership, you will be taxed Profits Tax rather than Salaries Tax as a Hong Kong business owner.
The salary you pay yourself as a sole proprietor should not be reported under Part 4 (Salaries Tax) of the BIR60 form, but rather under business profits -Item 7 (Assessable Profit) in Part 5 (Profits Tax).
In a partnership, the salary you pay yourself is declared as business profits and recorded on the Profits Tax Returns (BIR52), and should not be reported again on the BIR60 tax return form under Part 4 (Salaries Tax).
When either you or your spouse receive a salary from your sole-proprietorship or partnership firm, you do not need to file the Employer’s Return of Remuneration and Pension form (IR56B).
As a sole proprietor, you should also consider applying for a NIL profits tax return if possible. Make sure to educate yourself on this topic by reading our article on NIL profits tax return.
Or simply talk to our friendly team if you need help on this topic, we are just a click away.
How do I file my Salaries Tax?
While completing and submitting a Salaries Tax Return, commonly known as a BIR60, may appear to be a daunting task, it is actually quite straightforward.
First of all, a Hong Kong business has to inform the IRD of an employee’s contributions to Salaries Tax (Form IR56E) within 3 months after signing the employment contract.
The IRD tax system will automatically construct a tax file in the employee’s name and issue a Salaries Tax Return (if necessary) within 5 months of receiving Form IR56E.
According to the date indicated on the Salaries Tax Return, the employee must complete and submit the tax return to the IRD (along with any supporting documentation if necessary).
No more poring over these deadlines and numerous documents. Say goodbye to admin and paperwork, and let our expert team help you with all your accounting and tax needs! Contact us to get started today.
By Paper filing (BIR60)
To file your taxes the old-fashioned way, get the original BIR60 form. Fill out the form and deliver it to the IRD within 1 month from the date of issue of the BIR60 form.
Remember, if you choose to file by paper, you can only use the original BIR60 form issued by the Inland Revenue Department.
Here’s a sample of how the BIR60 looks like (source: IRD).
By e-Filing
If you want to make the process easier by doing it online, follow the steps below.
First, meet the requirements for making an eTax Account online. Not claiming any exemptions or generating more than HKD 2,000,000 gross for their sole proprietorship are among the requirements.
Proceed to start an eTax Account. Then fill out the online form and submit it within 2 months from the date of issuance of the tax return form.
If you have no assessable income to report, you need to claim zero income on your tax return and send it to the IRD.
Submission period for Salaries Tax Returns
The Hong Kong Inland Revenue Department sends out BIR60 Salaries Tax forms on the first working day of May each year, with the submission deadline mentioned on each form.
The Salaries Tax Returns are usually due 5 months after the taxpayer’s employer notifies the IRD of his/her employment (by submitting form IR56E) or when the taxpayer tells the IRD that he/she is employed and would be liable to Salaries Tax.
Employees who work in Hong Kong but have yet to obtain their tax return must contact the IRD by July 31 of the following year after the assessment year.
Individual taxpayers usually have one month to complete and submit their BIR60 form Salaries Tax filings. If the taxpayer was the sole proprietor of an unincorporated business during the assessment year, he had three months from the date of the Tax Return issuance to file, with those who filed an online tax return getting an extra month.
What happens if my Salary Taxes are non-compliant?
Failure to comply happens when a person doesn’t inform the IRD of their tax liability or doesn’t file timely Salaries Taxes Returns.
According to the frequency of non-compliance, individual taxpayers should expect the following penalties:
- First offense – 10% of the amount of taxes undercharged
- Second offense within 5 years – 20% of the amount of taxes undercharged
- Third or later offense within 5 years – 35% of the amount of taxes undercharged
What are the exemptions from Salary Taxes?
Hong Kong’s tax system is based on a territorial concept, which means that Salaries Tax is levied on any amount made in or coming from Hong Kong.
You can seek a full or partial income exemption or claim a tax credit while completing your Salaries Tax Returns.
The following conditions need to be met:
- Only a portion of your employment salary was made in Hong Kong. The taxes are imposed only on assessable income earned in Hong Kong so if your income comes outside of Hong Kong, you will be charged for the total assessable income earned in the region.
- All work services were produced outside Hong Kong. There is no need to pay Salaries Tax for a year an employee has worked overseas.
- Seafarers and aircrew staff are exempted from Salaries Tax if they were in Hong Kong for 60 days or less during the year of assessment. However, be careful when calculating transit days.
- A portion of your total assessable income has already been imposed on taxes in other jurisdictions.
Wrap up
From this article, we hope you have a better understanding of Salaries Tax Return and your duties towards it as an employer. And if you are ready to save time spent over admin work hassle and scale your business, don’t hesitate to contact us.
Reach out to Sleek if you need help with filing your tax return or professional accounting services.
