If you are an employee planning to leave Hong Kong for longer than one month, your taxes need to be cleared with the Inland Revenue Department (IRD) before you leave. In this article, we’ll guide you through the tax clearance process and the forms you or your employer will need to file with the IRD, so you can get your due payment and leave with no tax baggage.
What is the tax clearance process?
The process begins when you announce your departure to your employer. At this point, your employer is legally required to withhold all due payment until the tax clearance process has been completed. You or your employer will then need to perform the following steps:
- Your employer will need to file the IR56G form with the IRD at least one month before your departure date. What is the IR56G. At the same time, you will need to notify the IRD either by phone, email, or post of your intended date of departure. This will trigger the tax clearance process.
- Two copies need to be made of the IR56G form, where the first copy will be filed with the IRD by the employer, and the second copy given to you.
- When filing the IRD, also present your notice of termination and notice of final payment of remuneration.
- The IRD will mail to you a green tax form called the Individual Tax Return, or BIR60. This form will need to be filed with the IRD within 14 days of issuance.
- After filing the BIR60, the IRD will send you your final bill of tax payment to be settled. You can settle the bill either directly or online via the Hong Kong government’s eTax website or app.
- Once all your outstanding taxes have been settled, present your receipts to the IRD, who will then issue to you a letter of release, to be shown to your employer. If you are not able to collect it in person, the letter of release will be sent to your employer directly.
- Once your employer has been presented with the letter of release, he is legally obligated to release all funds owed to you, the employee, immediately. This will complete the tax clearance process.
We’ve included a table from the IRD’s website for your reference to help you keep track of the process steps:
What is the IR56G form?
The IR56G form, also known as the “Notification by an Employer of an Employee Who is About to Depart from Hong Kong,” details:
- Your reason for departure;
- Your date of departure;
- An income report starting from April of the current tax year to your last day as an employee.
- Any back pay due to you until your last day, including payment in lieu of notice and deferred pay.
When filed with the IRD one month before your departure date, this form will trigger the tax clearance process. This form can be printed directly from the IRD’s website, You can also find a completed sample of the form taken from their website for your reference.
What income sources will the tax clearance process involve?
If you plan to let go of your assets in Hong Kong, including property and businesses, you will also be subject to the relevant property sales taxes or income taxes to be settled before you depart Hong Kong.
If you intend on keeping any assets after you’ve departed Hong Kong, you will need to update your new postal address with the IRD and report your relevant supplementary income to them annually.
What about share options?
If you reap any realised or unrealised share option gains before you leave, they have to also be reported in the IR56G form.
What are the penalties should I fail to pay my taxes?
If you fail to settle your tax bill prior to your departure, the IRD will issue a garnishee order (IR113) to your employer. This will order your employer to pay your tax bill (not exceeding the amount owed) to the government using the withheld money. In this context, you will not be able to claim for non-payment of salaries.
Conclusion
Tax clearance is one of the most critical tasks you must complete before you leave Hong Kong, and because there is quite a bit of back and forth communication between you and IRD, it is highly recommended to begin this process sooner rather than later. If you have any other questions we haven’t answered here, drop us a message and we’d be happy to help!
