In this following blog we will discuss the standards of Inland Revenue Ordinance for keeping the business records and rental records under Section 51 (c) of Hong Kong tax law. Then we will explore the obligations of employer to furnish his return, notify beginning of employment of an employee, termination of employment of an employee, departure from Hong Kong and retaining the money.
Firstly starting with an example, Mr. Lee owned a Hong Kong company incorporation. It was planned by him to cease his business on 30 June 2016. He after ceasing his business left the Hong Kong. It was required by Mr. Lee to inform the CIR department of his expected date of departure in writing on before 31 May 2016.
Notification for Change of Address under Section 51 (8)
Each and every person that is assessable to tax and who changes its address is required to inform CIR department in writing under Section 51 (8) of Hong Kong tax law about such change within one month.
Keeping of Record of Business under Section 51 (C)
It is required by every person who is either a businessman or carries another profession in Hong Kong to keep the necessary record in Chinese and English. This is for the purpose of enabling assessable profits of such profession or business to be ascertained readily.
Under Section 51 (c) of Hong Kong tax law, for the purpose of ‘record’ means:
The records that are required to be retained and kept include:
These records must be kept after related transaction has completed for a period not less than 7 years. There is no requirement to keep such records if:
The sanction for failing to follow Section 51 (c) of Hong Kong tax law is a fine of amount ($ 100,000) at level 6. This would be not applicable if law is not followed due to some reasonable excuses. Other than that sanction it may be ordered by the court that the person who has been declared to guilty to perform that act i.e. comply with Section 51 (c) of Hong Kong tax law within a specified time. If a person gets failed to follow with the orders of court it will result in a fine at level 6 of amount ($ 100,000).
Summary of Responsibilities of Taxpayer
Inland Revenue Ordinance reference
Obligatory for taxpayer to inform CIR of his being allowable to tax
Within 4 months from the completion of that assessment year
Section 51 (2) of Hong Kong tax law
Obligatory for taxpayer to inform CIR of the termination of source of income
Within 1 month of termination
Section 51 (6) of Hong Kong tax law
Obligatory for taxpayer to inform CIR if he is about to leave Hong Kong to work for offshore incorporations HK limited (other than leaving it for business trips)
1 month before departure date
Section 51 (7) of Hong Kong tax law
Obligatory for taxpayer to inform CIR of any change in the address of residence
Within 1 month of change
Section 51 (8) of Hong Kong tax law
Obligatory for taxpayer to keep business records
No fewer than 7 years
Section 51 (c) of Hong Kong tax law
Obligatory for taxpayer to keep rent records
No fewer than 7 years
Section 51 (d) of Hong Kong tax law
Obligations of Employer
Obligation to assemble return of employer under Section 52 (2)
An employer having sole proprietorship HK on receiving the employer’s return that is issued by the assessor (Form 56 A and Form 56 B) is required to assemble that return under Section (s 52 (2)) of Hong Kong tax law, within the same time stated in return, giving;
If local persons (other than corporation) other than employees (for example a subcontractor) has paid with remuneration by an employer, then it is their duty to file Form 56 M and Form 56 A together.
Obligation to notify Beginning of Employment under Section 52 (4)
A person that begins to employ an individual in Hong Kong who is:
Is required to give written notice (Form 56 E) under Section 52 (4) of Hong Kong tax law, to CIR no more than 3 months after date of beginning of such employment.
Obligation to notify Termination of Employment under Section 52 (5)
It is required by an employee to notify CIR in writing (Form 56 F) of termination of employment of an employee in Hong Kong no more than 1 month before termination.
Now we will discuss an example to understand such situation, there was a guy named as Mr. Fong working for an employer having Hong Kong company incorporation. A notice of resignation was given by Mr. Fong to his employer on 28 January 2016. His employer was an owner of a company in Hong Kong named as X Ltd. It was stated by Mr. Fong to his employer that he would resign as from 1 March 2016. During that assessment year 2015 to 16 Mr. Fong earned an amount of $ 30,000 per month and was likely to be allowable to salaries tax. It was required by X Ltd. to inform CIR under Section 52 (5) of Hong Kong tax law, in writing no later than 1 February 2016 about expected date of termination of employment of Mr. Fong. If notice of resignation had given by Mr. Fong to X Ltd. later than 1 February 2016 so that X Ltd. was not able to inform the CIR earlier, it is probably that shorter notice would have accepted by CIR given that X Ltd. had acted punctually. It is not required by a person to give a notice of termination to the CIR under Section 52 (8) of Hong Kong tax law, if an employer has sensible grounds to believe that neither the employee that is married nor his / her partner or, are allowable to tax on salaries.
Obligation to notify Departure from Hong Kong under Section 52 (6)
The employer of a taxpayer rendering services for company incorporation HK who is:
Is required to given notice in written notice (Form 56G) to CIR under Section 52(6) of Hong Kong tax law, of the expected date of leaving of that person, no after one month before the expected date of leaving.
The Section 52 (6) of Hong Kong tax law, is not applicable in the case where it is required by an individual in the path of his employment to leave Hong Kong at regular intervals under Section 52 (6) proviso (b).
Now we will have a look on an example. A person named as Mr. Cheung was working in a company named as Y Ltd. It was told by him on 20 January 2015, to his company that he would fly permanently to Canada on 15 March 2016 to render his services to offshore incorporations HK limited. The salaries tax for the assessment year 2015 to 16 was due on the Mr. Cheung. It was required by Y Ltd. to give notice to CIR under Section 52 (6) of Hong Kong tax law not later than 15 February 2016. That is 1 month before the expected date of departure of Mr. Cheung from Hong Kong.
Obligation to keep Money under Section 52 (7)
If an employee is about to leave Hong Kong and he has terminated or about to terminate the employment, it is required by CIR, in addition to give notice of expected departure under Section 52 (6) of Hong Kong tax law, to stop all payments to the employee for one month from the date on which notice was given by employer under Section 52 (6). If written assent is given by employee to CIR, then payment may be rescued before 1 month time limit to the employee.
Now we will discuss an example to clearly understand such scenario, in the example that was discussed above if notice had given to CIR by Y Ltd. under Section 52 (6) of Hong Kong tax law on 15 February 2016, it would not be allowed to Y Ltd. to make any worth of money or payment to, or for the advantage of, Mr. Cheung during the interval from 15 February 2016 to 14 March 2016 unless it had received by Y Ltd. a letter of release from CIR within that period.
Summary of Obligations of Employer
Obligations of employer
Inland Revenue Ordinance reference
Returns of pay of employees including directors
Time that is specified in returns
Section 52 (2) of Hong Kong tax law
Information about all new employees that are responsible or likely to be responsible to pay salaries tax
Within the month of beginning of employment
Section 52 (4) of Hong Kong tax law
Employee’s notification who are about to terminate to be employed
1 month before termination
Section 52 (5) of Hong Kong tax law
Notification of employees who are about to departure from Hong Kong for not less than 1 month (other than recurrent business trips)
1 month before leaving of employee
Section 52 (6) of Hong Kong tax law
Confinement of money that is payable to employee who will terminate employment and is about to departure from Hong Kong for not less than 1 month
1 month from the date of notice of Section 52 (6) of Hong Kong tax law
Section 52 (7) of Hong Kong tax law
Person Accountable For Compliance
It is the responsibility of the trustee of an incapable person for doing all acts that are required by or under Inland Revenue Ordinance, to be done by that incapable person under Section 53.
The meanings of ‘Incapacitated person’ are any lunatic, minor person of unsound mind or idiot.
Any guardian, manager, curator, trustee or other person that have direction, management or contract of any property on the part of any person is included in the word ‘Trustee’. An executor is not included in the trustee.