Hong Kong is renowned for its vibrant job market and diverse workforce, attracting talent from all over the world. As an expatriate employee in this bustling city, it’s essential to be well-informed about the resignation process, especially when it comes to tax obligations. Two crucial forms that often come into play during resignation are the IR56G and IR56F. Let’s explore the resignation process for foreign employees in Hong Kong and the key distinctions between these forms.
Resignation Process for Foreign Employees in Hong Kong
Resigning from a job in Hong Kong, whether you're an expatriate or a local, follows certain standard procedures.
As an employee, you're typically required to provide written notice to your employer. The minimum notice that may be specified is seven days unless the contract includes a probationary period. In the absence of an agreed notice period, either party may terminate the contract on not less than one month's notice. Any period of notice cannot include statutory annual or maternity leave.
If the notice period hasn’t observed, the employee must provide the employer with "payment in lieu of notice".
After providing the written notice, these steps must be followed:
- The employer must inform the Hong Kong Immigration Department about the termination of employment visa sponsorship.
- The employee is required to express their intention to either stay in Hong Kong until the visa expires or leave the country. If the employee remains in Hong Kong, the employer should submit form IR56F; otherwise, if the employee is departing from Hong Kong, form IR56G should be submitted.
- The employee, holding a working visa and planning to leave Hong Kong, should bring form IR56F to the Inland Revenue Department to settle any outstanding matters.
- It's crucial for the employer to retain the employee's final paycheck until they can demonstrate the absence of any outstanding obligations with the Inland Revenue Department (IRD). This step is essential because if the employee leaves Hong Kong without settling their obligations with the IRD, the IRD will automatically debit the amount from the employer.
Dismissal Process for Foreigners by Employers in Hong Kong
In the event that the employer terminates the existing employment contract, they are required to adhere to the notice period stipulated in the contract, which typically includes at least one month of notice, although the duration may vary. The contract will be concluded with the issuance of a "Termination Letter," preferably delivered in person or alternatively via email.
Within the termination letter, details of any Severance Payment, which can be viewed as a final settlement, must also be provided to the employee when the following conditions are met:
- Continuous employment for at least 24 months.
- Termination due to redundancy.
- Non-renewal of the employment contract due to redundancy.
- Termination for other reasons.
The formula for calculating severance payment is as follows:
Severance payment = Average monthly wages x 2/3 x reckonable years of service.
** The average monthly wages should not exceed 2/3 of $22,500 (capped at $15,000). **
*** Note that Severance Payment can be paid using the accumulated Mandatory Provident Funds ('MPF'). ***
If the employer does not adhere to the notice period specified in the contract, they are obligated by local regulations to provide a "payment in lieu of notice." This amount is equivalent to the salary the employee would have received if the notice period had been observed. For example, if the contract specifies a notice period of 3 months, this amount would be equivalent to the salary the employee would have received over those 3 months.
Once the contract has been terminated, the employer must:
- Notify the Inland Revenue Department (IRD) using the appropriate form, either IR56G (if the employee intends to leave Hong Kong) or IR56F (if the employee intends to remain in Hong Kong). After this notification (only if the employee intends to leave Hong Kong), the employee must proceed with their "Tax Clearance" through the local tax agency (IRD). Once they obtain the authorization letter, known as the "Release Letter," the employer can proceed with the final payment owed to the employee. It's important to note that the employer has the right to withhold the employee's final paycheck until the employee demonstrates the absence of any outstanding tax obligations with the IRD.
NOTE: The Tax Clearance process occurs as follows: the company submits form IR56G, IRD issues BIR60, the employee pays, and IRD issues the Release Letter.
- Notify the Hong Kong Immigration Department of the cessation of employment visa sponsorship for the former employee. The former employee can remain in Hong Kong until the visa's expiration (though they cannot enter into a new employment contract until they close the existing visa application and open a new one).
Conclusion
Navigating the resignation and dismissal processes for foreign employees in Hong Kong is essential for both employers and employees to ensure a smooth transition. Understanding the intricacies of forms like IR56G and IR56F is crucial, as they play a significant role in fulfilling tax obligations and regulatory requirements.
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