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What global businesses need to know about payroll in Hong Kong
It’s now been more than a quarter of a century since the United Kingdom handed Hong Kong back over to China, and since then it has reinforced its reputation as a global business hub.
It ranks fourth on the Global Financial Centres Index, behind only New York, London and Singapore, and its currency (the Hong Kong dollar) is one of the most traded on the planet. More recently, it’s also grown as a center of innovation for eCommerce, FinTech and IT, becoming the home of thousands of new startups every year.
The increasing influence of China on Hong Kong’s politics could potentially reduce its level of independence, which led to many protests among its population of 7.5 million in recent years. However, to date, this issue hasn’t had a major impact on the ability of foreign enterprises to enter the Hong Kong market.
So the good news is that Hong Kong remains open for global business, and its payroll and employment regulations are relatively clear and simple – especially compared to China’s. Read on to discover the basics.
Getting Started
There are 3 main options for business set-up in Hong Kong: Representative office, branch office, and registered subsidiary company. Hong Kong has no restrictions on foreign ownership for any company structure. However, regulations require every business to have at least one permanent representative resident in Hong Kong.
Start by registering a unique business name (this should not be similar to any pre-existing name, and should not mix Chinese and English words and letters). Then, after appointing directors and specifying a registered address, you can apply for company incorporation, which can be done online with the Companies Registry. Alongside this, registration with the Business Registration Office can be completed.
With these done, and incorporation approved, other business licenses and permits can be applied for as required, as well as registration with tax and social security authorities.
It is not mandatory to make payments to employees or authorities from a bank account in Hong Kong, but branch offices and registered companies are expected to have corporate accounts in-country. Establishing a corporate account usually takes one day and is fairly straightforward, though minimum deposit requirements vary across the country.
Employers in Hong Kong must ensure that they keep proper records of each employee’s wage and employment history, and all accounting and payroll records must be kept for at least seven years. Companies need to report remuneration paid to employees on an annual basis.
Employment Considerations
With very few exceptions, the Employment Ordinance covers all employees – full-time, temporary, or part-time. Generally, employment contract terms must satisfy the minimum entitlements of the Ordinance regarding statutory holidays, Mandatory Provident Fund payments, sick and maternity leave, and severance and long-service payments. A foreigner must have a valid work visa to be able to work in Hong Kong, so organizations must apply for a valid work visa on the employee’s behalf before he or she can commence employment.
There are no set limits on working hours in Hong Kong, except for employees under 19 in industrial environments. The general working week is 9:00 am to 6:00 pm, Monday to Friday. Similarly, there are no fixed rules around overtime hours or pay; this should be agreed upon in employment contracts or through collective bargaining.
Probation and notice periods must be defined within employment contracts. Probation generally runs between one week and one month, while the standard notice period is 30 days once probation has been passed.
Compensation, Bonuses and Severance
Hong Kong first introduced a minimum wage in 2011, and it has gradually increased since then. On May 1 2023, the first increase for four years took effect, raising the rate by HKD 3 per hour to HKD 40 (approx. £4.00; $5.10; €4.70). Further increases are entirely possible over the next few years. On top of this, it’s also customary to provide a range of employee benefits such as extra paid leave, private medical insurance, housing and rental allowances, and company cars.
The payment of a 13th-month bonus is also customary in Hong Kong, either at the end of the calendar year, or ahead of the Chinese New Year. Discretionary bonuses can also be paid.
Employees with at least two years of service are entitled to severance pay, which runs at two-thirds of a month’s wages per year of service, up to a maximum cap of HKD 390,000 (approx. £39,000; $49,800; €45,700).
Tax and Social Security
Hong Kong’s equivalent of income tax is the ‘salaries tax’, which is taxed progressively. The first HKD 50,000 earned per year (approx. £5000; $6400; €5850) is taxed at 2%, with higher rates of 6%, 10% and 14% kicking in after each block of HKD 50,000. The fifth and highest rate of 17% is therefore applied to all earnings over HKD 200,000 per year (approx. £20,000; $25,500; €23,400).
It’s important to note that income tax is not withheld from employees via payroll throughout the tax year; employees are required to independently file with and pay Hong Kong’s Inland Revenue Department at the end of each tax year (which runs from April 1 to March 31).
Corporation tax runs at 8.25% on the first HKD 2 million of profits each year (approx. £200,000; $255,000; €234,000), and 16.5% on everything above that. VAT is not levied in Hong Kong.
Provident fund contributions are 5% each by employer and employee, on the first HKD 30,000 earned each month (approx. £3000; $3850; €3500). Employers also have to pay employment insurance of up to 2%, varying according to the industry and level of risk involved.
Holidays and Leave
Paid leave entitlement in Hong Kong starts at seven days after one year of service, and increases by one day for each additional year. The maximum of 14 days is reached after eight full years of service.
There are 18 days of public holidays in Hong Kong each year, four of which are observed around the Chinese New Year around February. Holidays on Sunday generate an alternative weekday off in lieu, but those that fall on Saturdays are lost. New legislation will introduce new public holidays around Easter in the coming years, to make for a long weekend similar to that in the United Kingdom.
Maternity leave is 14 weeks and starts between two and four weeks before the due date. Paternity leave is five days, which can be used at any time within the maternity leave period. Employers cover both types of pay at 80% of salary, although they can claim the pay for the last four weeks of maternity back from social security.
Paid sick leave is accrued in Hong Kong: two days per month for the first 12 months of service, and four days per month thereafter, with a maximum of 120 days. Sick pay runs at 80% of salary, covered by employers.
Marriage and bereavement leave is not a statutory requirement in Hong Kong, but is often provided by employers voluntarily.
In Summary
As you may expect from a major economic hub like Hong Kong, the payroll and employment requirements are well-crafted and clear. However, there are some severe penalties for non-compliance, and further care should be taken if you intend to trade in Hong Kong and China simultaneously. For that reason, alongside local expertise in Hong Kong itself, we would always recommend working with an experienced global payroll partner.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.