As part of our continuing effort to help payroll professionals everywhere address the complexity of global payroll, we’re asking our internal experts about the unique challenges and requirements of processing payroll in some key countries. For this spotlight, we turn our attention to the dynamic Asian location of Hong Kong, known for its welcoming culture and stunning surroundings. Here, our local payroll expert offers seven insights for multinational employers looking to learn more about operating payroll in Hong Kong.
What do global organizations need to know before setting up their payroll in Hong Kong?
Hong Kong presents one of the most attractive locations in the APAC region for many companies, and multinationals that expand into Hong Kong gain multiple benefits, including a well educated, English-speaking workforce and a welcoming business environment. One important thing for employers to be aware of is that, while the country was a colony of the United Kingdom until 1997, it is now a Special Administrative Region of the People’s Republic of China. Consequently, many laws, including those around employment regulations, are in the process of changing to be more reflective of Chinese law. At present, however, Hong Kong maintains its own political and economic systems, which enable the nation to be very receptive to foreign investment. In fact, Hone Kong is known to be one of the top countries for expanding multinationals, at least in part because of the ease of setting a business.
Can you describe a unique challenge or requirement for global payroll in Hong Kong?
While some employment regulations in Hong Kong can seem lax in comparison with other countries, such as a three-month window for reporting new hires, other requirements are uniquely specific, requiring employers to either be very well-informed of local laws or working with an experienced payroll partner. For example, employers must notify the Inland Revenue Department (IRD) of a leaver one full month before the individual leaves the company. If the employee is leaving Hong Kong, the employer must withhold final payment to the employee until tax clearance is received from the IRD. Also, while Hong Kong employees are required to file their own annual tax returns, every employer must also complete a formal annual return.
How can global enterprises benefit from doing payroll in Hong Kong?
Hong Kong’s financial systems and employment laws reflect the country’s Western influence, which can make it an easy transition for international workforces. Like any country, Hong Kong has specific requirements that are important for payroll teams to research and be aware of, but on the whole, the nation’s payroll requirements are straightforward. As the transition continues from UK governance to that of China, it will be important for global companies to stay abreast of changes and prioritize compliance to avoid any negative implications for the business.
Why is Hong Kong a good location for multinational organizations?
Known to be one of the world’s most business-friendly locations, Hong Kong offers multinational organizations access to the APAC region, a highly educated and skilled workforce, and excellent infrastructure including best-in-class communication and transport networks. Free-market policies and the free flow of information make it easy for foreign businesses of all sizes to establish operations in Hong Kong, where the setup process is straightforward and easy to navigate. Additionally, global companies may find the tax laws of Hong Kong particularly attractive, with a corporate tax rate of just 16.5% and no requirement to withhold tax for employees.
How have the recent changes in compliance regulations affected payroll operations in Hong Kong?
Given the international appeal and nature of business in Hong Kong, the government has made it a priority to meet all relevant personal data requirements. Data protection in Hong Kong is regulated by the Privacy Commissioner for Personal Data, which broadly relies on the Personal Data and Privacy Ordinance section of the Laws of Hong Kong, initially drafted to work with the OECD and EU directives in place at the time. Since the adoption of recent regulations like GDPR, the PCPD has worked to proactively assist local businesses in complying with the requirements. Educational activities were organized starting in 2017 to help Hong Kong companies meet requirements across jurisdictions.
What is the typical payroll window in Hong Kong, and what can organizations do to shorten that cycle?
Payroll in Hong Kong is typically processed on a monthly basis, with calculations based on the employment data submitted the previous month. An average payroll takes more than one workweek to process, though many factors can impact the total processing time. Providing correct payroll data from the start can significantly reduce the processing time, even for large and complex payrolls. To help facilitate this, organizations may benefit from integrating their payroll solution with their HCM system.
Hong Kong is know to be very supportive of global businesses and is consistently ranked as having one of the freest economies in the world. How does the culture reflect this international perspective?
On the whole, Hong Kong is supremely welcoming to foreign investment and makes an effort to attract global businesses. As one of the world’s wealthiest and most diverse cities, Hong Kong offers foreign workers a unique and exciting place to work. And balancing the city’s luxurious and modern lifestyle and amenities is Hong Kong’s spectacular natural beauty. Bridging the Western world and the 1.3 billion-strong Chinese market, Hong Kong understands its unique position in the international market and has developed policies designed to attract global business and the skill and talent to support it.