Tax Clearance for Employers and Employees

Tax Clearance for Employers and Employees

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The taxpayer’s exit from a country has to be accompanied by a tax clearance process before departure. Tax clearance is a situation in which you pay any unpaid taxes to the relevant tax authority before leaving the country.

In Hong Kong, the Inland Revenue Ordinance (IRO) indicates that any taxpayer who will no longer be a resident in Hong Kong should notify the Inland Revenue Department (IRD) not later than one month before leaving.

The IRD should be informed depending on your source of income and the clearance process must be initiated.

Employees who leave Hong Kong, need to obtain tax clearance for yourself and the employer. We cover in this article about all the aspects of both an employer and an employee when an employee is departing Hong Kong.

What Steps Should an Employer Take If an Employee Leaves Hong Kong?

  • Inform IRD latest one month before the travel by filling an IR56G form.
  • Share a copy of the IR56G form with the employee who’s leaving.
  • Effective the day that IR56G is filed, withhold any payments to the employee, such as salary and any other amounts due for one month.
  • The IRD will issue a “Letter of Release” once the employee has paid the required tax amount. Upon the delivery of the release letter, the money which was previously withheld should be paid to the employee.
    • If the employee fails to settle the final taxes, IRD will issue a garnishee notice (IR113) to the employer. Upon deduction, the employer pays the withheld amount (not more than the amount of tax that is due) to the government of Hong Kong. The worker cannot sue for non-payment of salaries in this position.
  • Keep all termination related documents for inspection by the IRD. These include but not limited to the resignation and dismissal letters, letter of final remuneration payment, and visa issued by the Immigration Department.

Share options

Assume that the worker (or director) has any share option gain realised before departure. In that situation, the employer should write about this in the IR56G form.

At that point, the employee or director may not have yet vested, assigned or disposed of the right to share options upon leaving Hong Kong. Hence, the employer also requires to report the same in the IR56G form, under item 18. The number of shares not vested yet and the date of the grant should be listed.

If there are gains realised after the former employee has left Hong Kong, the employer should declare them under item 11 of form IR56B in the year of assessment in which they were realised. The year may only has the share option gain as the reported income for that year. If the gains from share option exercise together with income (if any) are equal to or less than the single personal allowance, no IR56B is required to be filed.

What Steps Should an Employee Take Upon Leaving Hong Kong?

  • You are recommended to inform the IRD of your intended departure at least one month before your departure date.
  • Your employer will have to complete an IR56G form, make a copy of it and provide you with that before one month of departure. From this moment, the Employer will cease all of its payments to you.
  • Go to the Revenue Tower and bring with you the IR56G form, the notice of termination of employment and the notice of final payment of remuneration.
  • You will receive a final green tax form, IR60, to be completed within generally 7 days or 14 days.
  • Then you have to file all your tax returns, settle all the tax issues, and pay the final bill.
  • The last step will be to receive a “Letter of Release” once the bill is paid. For cash payment or EPS/cashier order, you will have the release letter immediately after payment. If you cannot pick up the letter in person, IRD will post it to you and your employer.
  • Even if you’re exempt from tax, the IRD will still issue a letter of release once you meet all the tax clearance procedures.
  • The employer will give your withheld money back after they receive the release letter.
Tax Clearance HK

Mandatory Provident Fund (MPF)

As a staff, every month, a certain part of your salary has been deducted and accumulated as a MPF scheme in Hong Kong for your retirement.

If you’re in a situation that you will never come back to Hong Kong, you may withdraw your MPF that you built. The withdrawal of the fund is subject to tax by the law, under certain conditions.

At the last step of this process, you have to see your case manager at the Public Enquiry Service Centre that you are leaving Hong Kong. There, they will give you the necessary forms to apply for your MPF and the following are the forms to be sent back to your MPF provider.

Each MPF provider might have varying requirements, but in general, they will need:Each MPF provider might have varying requirements, but in general, they will need:

  • a copy of your HKID
  • proof that you’re leaving the country (from the Public Enquiry Service Centre)
  • a copy of your passport
  • a forwarding address

After the application is done, you need to wait around one month from the date you left, for the funds to be available in your account.

An important note: it is a one-time withdrawal of your contributions. In case you happen to work in Hong Kong at any future point in time, you will have to wait until the time of your retirement to be able to withdraw any accrued MPF benefits.

Insurance in Hong Kong

During the period you have been in Hong Kong, you may have had insurance covering any of the items, home, health, travel, or others.

Sometimes it is not possible to transfer the insurance policies so in case you are leaving Hong Kong do not forget to cancel them beforehand so that you are not supposed to pay extra premium.

Some insurance companies require you to write them a notice 3 months before they can cancel the contract; therefore, be aware of this when leaving Hong Kong.

Banking in Hong Kong

When you are about to leave Hong Kong, you have the choice as to whether to keep or close your Hong Kong bank account. This way non-residents can hold bank account in Hong Kong, which can be important in some cases, such as settling all final bills.

Bear in mind to change your direct debit details and cancel your credit card companies and other automatic payments.

If you have a bank account in a particular location and your money is transferred into a different location, it will be converted into the local currency of that new location.

If you decide to close your bank account, you should do this personally. Nevertheless, many lenders will still accept you to do it online or in writing. Sometimes your bank can actually charge a fee to close the account, this is quite usual.

In the circumstances, if you were to keep your personal bank account in Hong Kong it would be possible for account information to be exchanged automatically between Hong Kong and your new tax jurisdiction.

Other Sources of Income

In case you make rental income out of your property and sell it before the departure and elected for personal assessment, you should notify the IRD one month before you leave. Else, you must notify the IRD about your new postal address and submit the annual tax return for rental income as usual.

If your business is a sole proprietorship and it has closed earlier, you must notify the IRD one month before your departure. If you are still in operation, you will have to notify the IRD of your new postal address (if applicable) and file your Individual Tax return as always.

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

How FastLane Group can help with your Tax Clearance?

FastLane Group will be your tax advisor and represent you if you intend to migrate to Australia, European countries or the USA among others. We are here to assist with your tax clearance issues that pertain to individuals and company owners. Moreover, our seasoned tax consultant will see to it that you are properly oriented on your tax position in the concerned foreign tax jurisdictions. Don’t hesitate to get in touch.

Frequently Answered Questions

Yes. It is mandatory for each taxpayer to leave Hong Kong after paying his taxes. You are still a taxpayer even if your taxation is borne by your employer,. Employers, tax representatives and taxpayers have to give their payment returns and supporting evidence as early as possible in order to prevent the problem of estimated assessments.

Yes. After tax clearance, if you receive any remuneration which is liable to salaries tax, both you and (former) employer must go through the tax clearance process again. Your employer will be required to file another or revised IR56G to report the bonus. The payment of the bonus will be held back for one month after filing the form IR56G. The additional tax should be paid and subsequently, a new Letter of Release will be issued. The release letter will allow your employer to give you the bonus payment. Please note that you should update the IRD about your current correspondence address.