For international companies, tax compliance is non-negotiable—no matter where your employees are located.
In 2024, more than 11,000 employers in Singapore missed the deadline for employee tax submissions through the Inland Revenue Authority’s Auto-Inclusion Scheme (AIS). That’s 11,000 businesses facing penalties, compliance headaches and frustrated employees.
This calamity doesn’t have to be your reality. Rules may differ from place to place, but one thing is clear: you must stay on top of their tax duties to avoid costly penalties and operational disruptions. For international businesses, compliance isn’t optional. It’s make-or-break.
In this post, we dive into the tax withholding models in Hong Kong, Japan, Singapore and South Korea. We offer a closer look at what’s required in each jurisdiction and how to stay ahead of the withholding game.
Hong Kong: the employer’s role and key forms
In Hong Kong, employers are not required to withhold salaries tax for their employees. However, both employers and employees must file salaries tax information with the Inland Revenue Department (IRD). Employers are responsible for submitting the required forms, including the Annual Employer’s Return (BIR56A), to report employee remuneration.
Key forms for employees include:
- IR56E: For new employees, submitted within three months of hire.
- IR56B: Annual Return for employees still employed as of March 31, submitted within one month.
- IR56F: For employees leaving employment, submitted at least one month before departure.
- IR56G: For employees leaving Hong Kong, submitted one month before departure.
At the end of each tax year, employers must complete the BIR56A and submit it along with the IR56B form, detailing employee earnings for the tax year ending on March 31. The filing must occur by the end of April.
Employees subject to the Annual Employer’s Return include full-time staff, part-time staff and directors. It even includes those employed outside of Hong Kong but working for a Hong Kong company.
The Annual Employer’s Return includes detailed income categories such as salary, bonuses, commissions, allowances, housing benefits and pensions. For housing benefits, employers must specify the address, nature of the residence and the rent details.
Employers can file through paper submission or e-filing, with strict deadlines and penalties for late filing.
If you cannot meet the deadline, you can request an extension from the IRD. However, failure to comply can result in a HK$10,000 fine.
Japan’s Year-End Tax Adjustment (YETA): a vital employer responsibility
If you have employees in Japan or you are planning to expand there, it’s essential to understand the country’s Year-End Tax Adjustment (YETA). This framework is known locally as Nenmatsu Chosei. This process ensures that the correct amount of income tax is withheld from employees’ salaries. Proper calculations account for important factors like bonuses, allowances and social insurance premiums.
Japan uses a dual tax system, with income tax and municipal tax having different filing periods. YETA must be completed by the end of the year, while all necessary documents must be submitted to the National Tax Agency (NTA) by January 31 of the following year. While YETA applies to most employees, some individuals are exempt and must file their own tax returns. This includes:
- Employees with an annual salary exceeding ¥20 million
- Employees who have not submitted the required documentation, such as a withholding tax slip from a previous employer
Freelancers or self-employed individuals must also file a final income tax return independently.
Employers play a critical role in YETA, providing the withholding tax statement and assisting employees in understanding the process. The withholding tax statement summarizes the taxes withheld and ensures that employees’ tax liabilities are correctly reconciled.
To avoid mistakes, businesses must maintain accurate records of salaries, bonuses, allowances and insurance premiums. Employers should track changes to the tax system and be clear with employees about how YETA affects their tax obligations.
By handling YETA accurately, you minimize the risk of under or overpayment of taxes and avoid penalties.
Understanding Singapore’s AIS: streamlining tax filings for businesses
Singapore’s AIS system is vital for smooth operations and maintaining trust with employees. It allows employers to directly report employee income to the IRAS – significantly streamlining tax filings and reducing paperwork.
Instead of providing hardcopy IR8A forms, AIS enables businesses to submit income details electronically. This simplifies tax filing for employees as their income data is accurately pre-filled in their tax returns.
AIS submission is mandatory for businesses with six or more employees. Failing to comply can result in fines of up to SGD 1,000. More critically, submitting incorrect income details can lead to penalties of up to twice the undercharged tax amount.
To enroll in AIS, businesses must register via the IRAS myTax Portal and ensure payroll systems are integrated. If payroll software supports AIS, data can be automatically submitted. This can reduce manual errors. Employers must submit all income details, including salaries, benefits and director fees, by the March 1 deadline.
Common mistakes include missing the deadline and reporting incorrect income. Another frequent error is failing to include non-salary income, like stock options or equity compensation.
When done correctly, AIS simplifies tax reporting and ensures compliance. It’s essential to stay on top of these requirements, as well as any changes in the future. Due diligence can help you avoid costly mistakes and penalties.
South Korea’s Year-End Tax Settlement (YETS): accurate reconciliation for employees
South Korea’s year-end tax settlement (YETS) framework, known locally as Yeonmal Jeongsan, ensures employees’ tax liabilities are fully reconciled. Employers play a leading role in making sure the withheld taxes throughout the year align with actual tax liabilities. Getting this right means a smooth process for everyone. Getting it wrong can cause unnecessary delays or penalties.
YETS is designed to ensure employees pay the right amount of tax, according to their employment income. By the end of the year, employees need to file a reconciliation, where tax withheld is compared with what’s actually owed. If they’ve overpaid, they will receive a refund. If they have underpaid, they will need to settle the difference.
So who and what gets taxed?
- South Korean residents are taxed on both domestic and international income.
- Non-residents are taxed only on income earned within South Korea.
- YETS applies only to salaries and wages earned as an employee of a company.
- Other income, such as investment earnings or freelance income, must be reported separately through the Individual Income Tax (IIT) process in May.
Employers have a responsibility to submit accurate information to the National Tax Service (NTS) using their online filing system, the Simplified Year-End Tax Settlement. Missing deadlines or submitting the wrong figures can result in penalties and even a damaged reputation.
Comparing tax withholding frameworks
Proper year-end tax settlement means fewer surprises and a more efficient tax filing experience for employees. Understanding how different jurisdictions manage withholdings can help minimize confusion and promote smooth filings for everyone.
Here’s a recap comparing some of the key features of withholding frameworks:
- Role of Employers: In Singapore and South Korea, employers play a central role in withholding taxes from employee salaries. This helps streamline the process and ensures taxes are deducted at source. On the other hand, Hong Kong takes a different approach. Employers report earnings but leave the responsibility for actual tax payments and calculations to the employees.
- Filing Requirements: Both Japan and South Korea minimize individual filing by using employer-driven year-end adjustments, reducing the administrative burden for employees. In contrast, Hong Kong requires most taxpayers to file their own tax returns. This places more responsibility on individuals to handle their tax filings.
- Digital Integration: All four countries offer online tax filing systems, but the level of automation varies. With Singapore’s AIS system, much of the data is pre-filled and automatically submitted by employers. South Korea also utilizes digital filing systems, but there’s still a degree of manual input required from employers. Japan offers a mix of digital and traditional filing methods. Hong Kong relies on e-filing options but may still require documentation and paperwork from taxpayers.
- Tax Calculation Responsibility: In Japan and South Korea, employers handle most of the tax calculation and reconciliation, ensuring that employees’ tax liabilities are correct. In contrast, Hong Kong places the responsibility for tax calculations on the employees themselves, requiring them to navigate the process largely on their own.
Last minute chaos or already missed the deadline? Here’s your next move
If year-end tax filings have been a last-minute scramble—or worse, if you’ve missed deadlines in the past—you’re not alone. But here’s the good news: it doesn’t have to be this way moving forward.
You have two options. You can continue navigating the complexities of tax systems across multiple countries, risking penalties and putting unnecessary pressure on your team. Or, you can take a smarter approach—one that minimizes stress, ensures compliance and keeps your business on track.
Tax systems across APAC aren’t going to simplify themselves. But with the right expertise in your corner, they can become much more manageable.
Get the support you need today from a trusted global business solutions provider. This way, tax filings are just another easy task to check off—not a crisis waiting to unfold.
Contact us today to learn how our cross-border solutions can support your global business goals.
