Hong Kong Legislation
Consistently named as one of the most free economies in the world and within close proximity to so many emerging markets in Asia, Hong Kong is a compelling place to operate a business. However, the sheer pace and volume of business in Hong Kong can be somewhat overwhelming. To help you with opening a company in Hong Kong and to help companies prepare themselves for business, Links International has created a company set up guide that includes the main employment laws and best practices in Hong Kong. Please note that all the information listed below are to be used as a general guideline. For more detailed accounts of Hong Kong employment laws and regulations, please visit the official governmental websites.
Company Setup
Company registration is required for any person opening a company in Hong Kong. A branch office of a foreign company must also register with the Companies Registry. Businesses other than a corporation (e.g., sole proprietorship or partnership businesses) must make their applications within one month of business commencement.
Any person/entity opening a company in Hong Kong must apply for a Business Registration Certificate from the Inland Revenue Department (IRD) within one month from the date of commencement of the business. The Inland Revenue Department (IRD) will not accept any applications for registration of businesses which have never existed or have yet to commence operation.
A valid Business Registration Certificate must be displayed at the place of business.
Open a company bank account in Hong Kong. This can be done once registration has been completed. Requirements vary between different banks. Some banks may take a more stringent approach with overseas companies to avoid money laundering.
Typically the documents required will include:
- Director’s ID
- Address proof(s) – Residential proof such as rental lease or property license under your name
- Company documents, such as Business Registration, Cert. of Incorporation, M&A as well as Register books
Benefits of Registering a Company in Hong Kong
Infrastructure
Hong Kong is one of the most modern cities in the world and with that comes advanced technology, logistics, telecommunications, and utilities. Transportation in Hong Kong is also some of the best in the world with affordable taxi rides and the convenient MTR. The Hong Kong Exhibition and Convention Centre is also world class and has received many awards.
Location
Hong Kong is in a strategic location at the heart of Asia, right near mainland China. Getting to places is not too difficult when the Hong Kong International Airport (HKIA) is so efficient. It is the fifth busiest international passenger airport with 100 airlines servicing over 180 destinations. Being a port city, Hong Kong is also a focal point of all maritime activities in southern China.
Tax
When considering starting a business in Hong Kong, limited taxes on corporations are a major selling point. Corporate tax rates as of the year of assessment 2018/2019 are as follows:
Corporations
First HK$2 million of profits will be taxed at 8.25%. The remaining profits be taxed at 16.5%.
Unincorporated businesses
First HK$2 million of profits will be taxed at 7.5%. The remaining profits will be taxed at 15%.
There is neither capital gains tax nor any withholding tax on dividends and interest or collection of social security benefits.
Considerations when Starting a Company in Hong Kong
Mandatory Provident Fund (MPF) is an employment-based retirement protection system. Except for exempt persons, employees and self-employed all persons aged between 18 to 65 and employed for a continuous period of 60 days or more are required to join the MPF schemes.
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 employees whose monthly income is HKD 7,100 or more, the employer is required to deduct 5% as the employee’s contribution to the Mandatory Provident Fund (MPF) scheme and to pay an additional 5% as its own contribution. For employees whose monthly income is more than HKD 30,000, the contributions are capped at HKD 1,500 each for the employer and the employee.
Both employees and employers are free to make voluntary contributions in addition to mandatory contributions.
The employer is required to submit an MPF Remittance Statement to the MPF trustee within 10 days of the following month, detailing the employee’s relevant income, employer’s and employee’s mandatory and voluntary contributions.
An employer must also provide each employee with a monthly pay-record showing the employee’s relevant income and the amount of contributions (both the employees and employers) within 7 working days after the mandatory contributions are made.
Please refer to this link for more information:
http://www.mpfa.org.hk/engm/main/employer/making_contributions.jsp
Read More: How to choose the right MPF provider
Employment Law in Hong Kong
Employees’ Compensation
Under Section 40 of the Employees’ Compensation Ordinance, an employer can not employ anyone unless there is an official insurance policy in place for the employee for an amount not less than the amounts specified below:
| Does not exceed 200 employees | Not less than HK$100 million per event |
| Exceeds 200 employees | Not less than HK$200 million per event |
Work Permits
As a general rule, any person other than those having the right of abode or land in the Hong Kong Special Administrative Region (HKSAR), must obtain a visa/permit before coming to HKSAR for the purpose of taking up employment.
Visas for foreigners to work in the Hong Kong Special Administrative Region (HKSAR) as professionals are under the General Employment Policy (GEP), and are quota-free and non-sector specific. Considerations for visa approval for each applicant include:
- Good security clearance and no known record of serious crime
- Good education background with proven professional capabilities and/or relevant experience
- There is a genuine job vacancy
- Confirmed offer of employment for a relevant job vacancy that is not easily filled by the local workforce
- Reasonable remuneration package including income, accommodation, medical and other fringe benefits, in line with prevailing market level
Applicants may sponsor their spouse and unmarried dependent children under the age of 18 to the HKSAR. Once all required documents have been submitted to the Immigration Department, it takes about four to six weeks to process the visa application.
Read More: Getting a Hong Kong Work Visa: Everything You Need to Know
Minimum Wages
The statutory minimum wages in Hong Kong was raised from $34.5 per hour to $37.5 per hour starting 1 May 2019. Concurrently, the monetary cap on the requirement of employers keeping records of the total number of hours worked by employees is now at $15,300 per month.
Read More: Top 5 Questions to Calculating Minimum Wage in Hong Kong
Maximum Working Hours
There are no legislative requirements on maximum working hours except in the case of a young person (over 15 but under 18 years of age) in industrial undertakings.
Paid Annual Leave
An employee is entitled to leave after having been employed under a continuous contract for every 12 months. An employee’s paid annual leave entitlement increases progressively from 7 days to a maximum of 14 days according to his length of service. It is also common practice for companies to provide different entitlements depending on the industry or level of seniority of the role, which would be stated in the employment contract.
Rest Day
Employees employed under a continuous contract are entitled to not less than one rest day in every period of seven days.
http://www.labour.gov.hk/eng/faq/cap57e_whole.htm
Termination
During probation, no notice is required for termination of employment contract within the first month, and at least seven days’ notice thereafter. If the employer contract does not specify notice, either party must give at least one month’s notice for termination.
Upon the termination of employment, the employer must report the personal particulars of the employee, expected date of termination and remuneration paid/deemed paid in the termination year to the IRD by filing form I.R.56F one month before the date of termination of employment.
In the case of an employee terminating employment to depart from Hong Kong, employers have to file two copies of IR56G or via Electronic Filing of Employer’s Return one month before the expected date of departure.
From the date of filing IR56G and until such time the employee has made tax clearance and can produce to you a ” letter of release” issued by the IRD, you should withhold all amounts due to be paid to him (including salaries, commission, bonus, reimbursement of rent/expense, money or money’s worth included).
Severance Payment & Long Service Payment
An employee is entitled to a severance payment in the case of redundancy, provided there has been service of at least 24 months of continuous employment, or is entitled to long service payment in the case of dismissal not due to misconduct after having served not less than 5 years.
Both severance payment and long service payment are calculated based on: (last month wage x 2/3)(up to a maximum of HKD 15,000) x years of service.
Employees
Benefits In Kind
Employers are not obligated to provide employees with medical insurance. However, in Hong Kong it is common practice for companies to provide medical or private health insurance as a part of their employee package.
Share Options
Employees have to pay salaries tax on any benefits associated with stock-based awards arising from your office or employment.
Both employees and their employer must observe the reporting requirements in the returns. Failure to do so may result in heavy penalties. Refer to this link to learn more:
https://www.gov.hk/en/residents/taxes/salaries/salariestax/chargeable/options.htm
New Employees
Upon hiring new employee(s), the employer must report the personal details of the new employee(s), date of commencement and the terms of employment to the Inland Revenue Department (IRD) by filing form I.R.56E “Notice of Employee Commencement Form” within 3 months of the commencement date.
Discrimination Laws
The Hong Kong Bill of Rights Ordinance generally stipulates that all persons are equal before the law and the law shall prohibit any discrimination on any ground. This principle is materialized through the enactment of the following four ordinances:
Statutory Benefits
As of December 2020, employees are entitled to 14 continuous weeks of maternity leave capped at $80,000.
An employee is eligible for maternity leave if they work a minimum of 18 years a week, are employed under a continuous contract for not less than 40 weeks immediately before the commencement of scheduled maternity leave and have given notice of pregnancy and intention to take leave to the employer. The employer can request a medical certificate with the expected delivery date.
According to the Ordinance, male employees with a child born on or after 18 January 2019 are entitled to 5 days’ paternity leave for each confinement of their spouse/partner if they fulfil other requirements as stipulated in law. The employees have to give their employer prior notification as required by law before taking the leave.
Statutory – Paid sickness days are accumulated at the rate of 2 days upon completion of each month’s service for the first year and 4 days a month afterwards up to a maximum accumulation of 120 days. Employee receives 80% of pay.
Occupational – employers can pay above statutory.
Eligibility – An employee is entitled to sickness allowance if the sick leave taken is not less than four consecutive days, and is supported by medical certificate and the employee has accumulated sufficient number of paid sickness days.
Tax
Financial Filing
- 1 April to 31 March of the following year.
- Inland Revenue issues BIR56A form to employers in April each year.
- Employer is given 1 month to complete their requirements.
- Extensions are obtainable if necessary.
Income Tax Calculation
Employers are required to provide employees with a copy of the I.R.56B form showing his/her annual remuneration at the end of the tax year.
The amount of tax charged should not exceed the amount charged by applying the standard rate (15% from year of assessment 2008/09 onwards).
For tax planning purposes, employers may structure the remuneration package to include rental allowance.
Tax Payment to Authority
Employee to arrange own payment of taxes. Electronic tax coupons are available to ease tax payment at end of year.
Annual Employer Returns
B.I.R. 56A & B to be filed annually.
General
(1) When you received an Employer’s Return (BIR56A), you must complete it and lodge with IRD within 1 month even if
- you do not hire any employee (a Nil return should be made),
- the business has not commenced, or
- the business has ceased.
(2) If you have employed persons who meet the conditions stated in item 1(a) of Notes and Instructions for Forms BIR56A and IR56B but do not receive an Employer’s Return for the year of assessment 2016/17 by mid April 2017, you should request the IRD to issue a return. Click here for more information.
(3) A copy of the completed IR56B/56E/56F/56G should be provided to the employee concerned so as to facilitate the correct completion of his/her tax return. Also see Obligations of An Employer (IR56H).
Submission Methods
Employer to complete IR56A form and provide completed IR56B to their employees. This should be signed by proprietor, the authorised signatory of a company in Hong Kong.
Elevate Your Role with Links Payroll Outsourcing Services
Want to focus on strategic functions that aid business growth? Learn how Links Payroll Outsourcing can help reduce HR costs with our stress-free payroll services.
Payment
Bank Accounts and Paying Salaries
There are various wages/salaries payment methods; the method should be used with the consent of an employee for method of wage payment by Autopay, cheque or TT wire.
The majority of Hong Kong employees are paid on a monthly basis. The employer should pay wages to an employee as soon as practical but not later than seven days after the end of the wage period.
For each pay period, employees will be paid the basic salary, allowances, bonus, commission, overtime, MPF/ORSO employee contribution and other ad hoc payments as required. There is no fixed format for payslips nor fixed calculation for salaries (more often done by calendar days).
13th Month and Bonus Payments
Year-end bonus payment is at the discretion of an employer, however, the employment contract should stipulate the terms of such payment.
Although not required by law, it is common practice for employers in Hong Kong to give employees a bonus at the end of the year. Should this not be stipulated in the contract, the bonus amount will consist of one month’s pay, based on the average over the preceding 12-month period. Normally this will be categorize as ‘discretionary bonus’. Alternatively, it is also common practice for companies to provide employees with a 13 month salary Hong Kong.
Local Information
Hong Kong Public Holidays 2022
Employees are entitled to public holidays as follows:
| Holiday | Date |
|---|---|
| The first day of January | 1 January |
| Lunar New Year’s Day | 1 February |
| The second day of Lunar New Year | 2 February |
| The third day of Lunar New Year | 3 February |
| Ching Ming Festival | 5 April |
| Good Friday | 15 April |
| The day following Good Friday | 16 April |
| Easter Monday | 18 April |
| The day following Labour Day | 2 May |
| The day following the Birthday of the Buddha | 9 May |
| Tuen Ng Festival | 3 June |
| Hong Kong Special Administrative Region Establishment Day | 1 July |
| The second day following the Chinese Mid-Autumn Festival | 12 September |
| National Day | 1 October |
| Chung Yeung Festival | 4 October |
| The first weekday after Christmas Day | 26 December |
| The second weekday after Christmas Day | 27 December |
Summer / Winter Working
Most businesses are closed for 3 days during Chinese New Year and on Christmas Day and the first weekday after Christmas Day.
Local office working hours and Time Zone
Working Hours: 09:00-18:00
Standard time zone: UTC/GMT +8 hours
Interested to explore the idea of payroll outsourcing, EOR, or Visa application services?
Links International is a leading payroll outsourcing provider across Asia Pacific and supports payroll in over 17 countries. Please do not hesitate to contact us.