Salary Tax Return (BIR60) Guide for Business Owner

Salary Tax Return (BIR60) Guide for Business Owner

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Taxation

Hong Kong tax system is highly favorable for enterprises and individual taxpayers. The Hong Kong salary tax, also called income tax, is generally one of the most friendly tax systems as you can claim progressive tax rates and have more than one exemption.This article will help you to get an understanding of Salary Tax Return, how to file for them, what your employer is expected to do, and if you can claim tax reliefs in Hong Kong.

What is the Hong Kong Salary Tax?

The Salaries Tax is a tax on income from employment and director’s fee. It is collected by the Inland Revenue Department (IRD).

In case you have no income to be assessed for Salaries Tax, but have received a Profits Tax Return from the Inland Revenue Department, you are required to complete and submit it on time.

Likewise, if you have an income from salary that is tax liable but did not receive a return, you need to contact the IRD.

Salary Tax is imposed on the assessable income of an individual taxpayer. If you own a business and you are your own boss, you are considered self-employed. If so, you have to pay the profits tax.

Related Article: 2024 Tax Filing Season: Tax Deadline 2024 in Hong Kong You Need To Know About

What is considered chargeable income?

  • Compensation, including wages, salaries, and directors’ fees
  • Incentive payments, such as commissions, bonuses, leave pay, and end-of-contract gratuities
  • Retirement income, such as pensions
  • Additional earnings, such as tips
  • Retroactive payments
  • Payments for contract termination
  • Retirement benefits
  • Allotted funds for specific purposes
  • Unconventional or education-related items

Non-chargeable income refers to income that is not subject to Salaries Tax. This type of income includes:

  • Jury fees
  • Severance payments
  • Long service payments

In Hong Kong, a year of assessment starts on 1 April of the preceding year and ends on 31 March of the next year.

Salary Tax Return Calculation

Calculating your Salary Tax

In Hong Kong, the Salaries Tax is levied on the basis of annual income. The higher your income, the more tax you have to pay (this is the progressive tax rate).

Salaries Tax is levied as shown below:

Total Income – Deductions – Allowances = Net Chargeable Income

Deductions include 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.

Once the annual chargeable income of a tax payer hits HKD 200,000, they can elect to be taxed at a normal rate of 15%. Their income chargeable, on the other hand, would be determined as follows:

Total Income – Deductions (apart from deductions for personal allowances) = Net Income

Keep in mind that the Hong Kong Standard Tax Rate stands at 15%.

Tax Return for the Year of Assessment from 2022/2023 Onwards

Net Chargeable Income (HK$)Rate
1 – 50,0002%
50,001 – 100,0006%
100,001 – 150,00010%
150,001 – 200,00014%
200,000+17%

Profits Tax Reduction

Year of Assessment% of Tax ReductionMaximum Per Case (HK$)Applicable Tax Types
2019/20100%20,000Profit Tax, Salaries Tax, and Tax under personal assessment
2020/21100%10,000Profit Tax, Salaries Tax, and Tax under personal assessment
2021/22100%10,000Profit Tax, Salaries Tax, and Tax under personal assessment
2022/23100%6,000Profit Tax, Salaries Tax, and Tax under personal assessment
2023/24100%3,000Profit Tax, Salaries Tax, and Tax under personal assessment

Deductions and Allowances for Salaries Tax

Salaries Tax, just like Profits Tax, allows the deduction of expenses incurred solely, exclusively, and inevitably in the earning of assessable income.

The employer often does not have an idea of what the employee has spent out of his own pocket (or sometimes, even on behalf of the Hong Kong company).

Individual taxpayers should, however, know the deductions and allowances that apply to them (e.g. basic allowance) and make sure that they claim them.

The following deductions may be claimed when filing a Salaries Tax Return:

  • Concessionary deductions
  • Allowances
  • Outgoings and expenses

There is no documentation needed to prove your employment income, but people who want to claim all or a part of their employment income as salary tax-exempt must provide evidence.

Relevant receipts and documentation should be kept for at least 6 years after the relevant year of assessment for the purpose of record-keeping.

In what ways does the Salary Tax Return impact me as a business owner?

When you employ your first employee as a Hong Kong employer, your tax obligations will begin whether the employee works in Hong Kong or is working from overseas.

Once an employee is employed, you need to maintain records of their personal details, job details, position details, pay contributions to Mandatory Provident Fund (MPF) contributions, employment agreement and other particulars.

As a Hong Kong employer, you should inform the IRD of any changes in the status of your employee as and when they occur.

You should also issue a notice to the IRD if an employee is departing from Hong Kong for some time.

Employer’s Responsibilities Regarding Salary Tax Returns

As an employer, you are required to submit an Employer’s Return (IR56B) in respect of Salaries Tax Returns for every fiscal year of assessment. You must keep and verify the following information from your employees:

  • Personal information (name, residence, identification or passport number with place of issuance, marital status, etc.)
  • Nature of occupation
  • Position
  • Earnings
  • Supplementary benefits
  • Contributions to the Mandatory Provident Fund by both employer and employee
  • Employment agreement
  • Duration of employment

Given that a Hong Kong employer has to notify the IRD on any changes to an employee’s personal details or remuneration package, the tax authority should have been aware of how much assessable income is liable for the Salary Tax Return for that year of assessment.

Just ensure that the assessable amount reported by the IRD corresponds with the amount reported in your Hong Kong company’s annual tax return and employer return.

How to pay Salary Tax Return if I am a Sole Proprietor or Partner

If you are the owner of a sole proprietorship business or a partner in a partnership, you will be taxed Profits Tax as a Hong Kong business owner and not Salaries Tax.

The salary you give to yourself as a proprietor should not be included in Part 4 (Salaries Tax) of the BIR60 form, but rather in 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 re-reported on the BIR60 tax return form under Part 4 (Salaries Tax).

When either of you or your spouse is drawing a salary from your sole-proprietorship or partnership firm, you are not required to submit the Employer’s Return of Remuneration and Pension form (IR56B).

You, as a sole proprietor, should also think about submitting the NIL profits tax return if such is possible. Ensure that you get informed on this subject from our NIL profits tax return article.

How do I submit my Salary Tax Return?

Although the process of preparing and filing a Salaries Tax Return, referred to as BIR60, may seem to be overwhelming, it is actually very simple.

To start with, a Hong Kong employer should provide the IRD with the details of an employee’s Salaries Tax contributions (Form IR56E) within three months after signing the employment contract.

The IRD tax system will automatically create a tax file in the employee’s name and will issue a Salaries Tax Return (if required) within 5 months upon receipt of Form IR56E.

The tax return must be filed by the employee to the IRD according to the date shown on the Salaries Tax Return (with any supporting documents if necessary).

No more reading over these deadlines and many documents. Let our expert team assist you with all your accounting and tax needs! Call us to begin today.

By Paper filing (BIR60)

To file taxes manually, obtain the original BIR60 form. Complete the form and submit it to the IRD within one month from the date of issue of the BIR60 form.

However, if you opt to file by paper, you will only be able to use the original BIR60 form issued by the Inland Revenue Department. Here’s a sample from IRD.

By e-Filing

If you would like to simplify the process by carrying it out online, use the following steps.

Initial, fulfill the conditions of creating an eTax Account over the internet. The requirement includes not claiming any exemptions as well as grossing HKD 2,000,000 or more for their sole-proprietorship.

Continue to create an eTax Account. Then, complete the online form and submit it within two months from the date when the tax return form is issued.

When you have no assessable income to declare, you must declare zero income on your tax return and send it to the IRD.

Submission Deadlines for Salaries Tax Returns

BIR60 Salaries Tax forms are sent by the Hong Kong Inland Revenue Department on the first working day of May every year, with a deadline for submission stated on each form.

The Salaries Tax Returns usually have to be filed five 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 not received their tax return should contact IRD by 31st July of the year following the assessment year.

The individual taxpayers are generally given one month to file and return their BIR60 form Salaries Tax filings. Those who were the sole proprietor of an unincorporated business during the assessment year had three months from the date of the Tax Return issuance to file, with an extra month being available to those who filed an online tax return.

Consequences of Non-Compliant Salary Tax Return

Non-compliance occurs when a person fails to advise the IRD of their liability to pay tax or fails to file Salaries Taxes Returns on time.

According to the frequency of non-compliance, individual taxpayers should expect the following penalties:

  • First offense – 10% of the undercharged tax amount
  • Second offense within 5 years – 20% of the undercharged tax amount
  • Third or subsequent offense within 5 years – 35% of the undercharged tax amount

Exemptions from Salaries Tax

Hong Kong tax system is territorial based where Salaries Tax is charged on all amounts earned in or derived from Hong Kong.

You can apply for a total or partial income exclusion or a tax credit while submitting your Salaries Tax Returns.

The following conditions need to be met:

  1. A part of your employment salary was earned in Hong Kong. Taxes are levied only on assessable income derived in Hong Kong, so if your income is from outside of Hong Kong, you will be taxed for the entire assessable income earned in the region.
  2. All the work services were made abroad. An employee does not have to pay Salaries Tax in the year he has worked abroad.
  3. Seafarers and aircrew members are not chargeable to Salaries Tax if they were in Hong Kong for less than 60 days during the year of assessment. Nonetheless, pay attention in transit days calculation.
  4. Some of your total assessable income has already been taxed in other jurisdictions.

How FastLane Group can Help?

We trust that you have a clearer picture of Salaries Tax Return and your obligations as an employer from this article. And if you are willing to save yourself from the pain of admin tasks and grow your business, feel free to contact us.In case you need help with filing your tax return or professional accounting services, feel free to contact FastLane Group.