Hong Kong at a Glance

Depends on the industry. Not a major issue.

There are a number of labour organizations/trade unions in Hong Kong but no closed shops. These are principally established on a trade-by-trade basis, although some of the larger corporations with substantial numbers of employees have labour unions particular to that corporation. Membership of trade unions in Hong Kong on a percentage basis is relatively low compared to its European or American counterparts.

Hong Kong has increased its minimum hourly wage rate from HKD 37.5 (approximately USD 4.8) to HKD 40 (approximately USD 5.11). Employers must track the number of hours worked by employees who are paid at or below the minimum wage. Additionally, if an employee’s earnings for a given wage period are lower than the specified monetary cap (HKD 16,300 per month), this must be reported to the government, and which sets the upper limit for the minimum wage reporting obligations

Defined in the contract. Can be 1-6 months. Common practice is three months.

The services of an employee on probation may be terminated by the employer or the employee without notice during the first month and by at least seven days thereafter (although generally at least 30 days for a continuous month-to-month contract).

Common Practice: 40-50 hours/week, 5 days/ week. This should be defined in the contract.

Hong Kong labor law does not set specific requirements on overtime work, including any requirements to pay for overtime work. However, the law states that if the employment contract provides payment for overtime work, the employer is legally obligated to provide such wages and will be subjected to a fine for withholding wages. Overtime payment is treated the same as regular wages and is protected from defaults. Additionally, when determining entitlements, any overtime pay offered should be included in the calculation.

Before the contract begins, employers and employees must negotiate working hours and overtime conditions of the position and write them clearly into the contract. Employers are obligated to obey the terms of the contract or will be subjected to a fine issued by the Labor Department.

As per contract, but at least seven days.

Common Practice: one month.

In the absence of a contract: one month.

Employees Entitlements on Termination

• Accrued wages and unused annual leave: All outstanding wages and payments in respect of accrued but unused annual leave (only statutory leave, unless contract specifies otherwise) up to the time of termination are payable.
• End of year payments: Where the employees are contractually entitled to an annual bonus, they will be entitled to a proportional payment thereof in respect of the year in which they are dismissed, unless the bonus is payable solely at the discretion of the company or they have not been employed for a continuous period of three months or more in the payment period. If an end of year payment is not specified in the employment contract, a sum equaling to the monthly average wage of the employee will be awarded.
• Severance pay: Any employee who has been employed under a continuous contract for at least 24 months is entitled to severance payment if dismissed by reason of redundancy or if the employee is laid off.
• Note: Effective 1 May 2025, employers are no longer permitted to use mandatory MPF contributions to offset severance payments.
• Long service pay: Any employee with at least five years of service (other than an employee who retires) will be entitled to a long service payment if he/she is dismissed and his/her employer is not liable to pay them a severance payment. “Dismissal” has the same meaning as that under the provisions relating to severance payments described above.
• Note: Effective 1 May 2025, employers are no longer permitted to use mandatory MPF contributions to offset long service payments.

The EO enables any employee who has been employed under a continuous contract for a period of at least 24 months and who is dismissed or whose contract is varied without his or her consent to make a claim for “unreasonable dismissal” to the Labour Tribunal. Once such a claim is made, the employer is required to produce a valid reason for the dismissal or variation. Valid reasons include:

• The conduct of the employee,
• The capability or qualifications of the employee to perform the kind of work he was employed for by the employer, and
• Redundancy of the employee or other genuine operational requirements.

30 days notice (could be longer for higher level positions).

Business Registration: Companies must renew their Business Registration Certificate annually or every three years, depending on its validity period.

Minimum Paid-up Share Capital

The minimum paid-up share capital for a company in Hong Kong is just HKD 1, which provides flexibility in managing capital. There are no specific debt/equity ratio rules, but it is essential to maintain proper financial management. Additionally, shares in Hong Kong have no par value, allowing greater flexibility in pricing and issuance. The concept of authorized capital has been repealed since 2014, which means companies have the freedom to increase their share capital whenever necessary without predetermined limits.

Shareholders may also choose from various share types, including ordinary, preference, and non-voting shares, based on their needs. However, accurate records and compliance with reporting requirements are crucial to managing share capital effectively.

Minimum Number of Directors

A company in Hong Kong must have at least one director. There is no residency requirement for directors, meaning they can be from any nationality. The director can also be the same individual as the shareholder, but at least one director must be a natural person. The director(s) are appointed by the shareholders, and a company may have multiple directors if desired.

Minimum Number of Shareholders

The minimum number of shareholders required for a company is one, and there is a maximum limit of 50 shareholders. If the number exceeds 50, the company is classified as a public company. The shareholders may also be the same individuals who serve as directors, as long as the legal requirements are met.

Company Secretary Must Be a Resident

A company secretary is mandatory for company administration in Hong Kong. The company secretary can either be an individual resident of Hong Kong or a corporate entity.

For a natural person to serve as a company secretary, they must be a Hong Kong resident. If the company secretary is a corporation, it must be a licensed Hong Kong Trust and Corporate Service Provider (TCSP). Additionally, the company secretary cannot already serve as a director of the same company. Companies can either hire an in-house secretary or outsource this responsibility to a corporate secretarial services provider.

Mandatory Insurance

If the company has employees, mandatory insurance, such as Employees’ Compensation Insurance, is required. Other types of insurance, such as public liability insurance, are optional but highly recommended to protect the business from unforeseen risks and liabilities.

Physical Office is Not Required

A physical office is not required to make the entity operational in Hong Kong. This flexibility allows businesses to operate virtually or from co-working spaces, which can reduce overhead costs significantly.

Opening a corporate bank account in Hong Kong can take several weeks. The time required largely depends on the bank and the due diligence checks that need to be completed. It’s essential to contact the specific bank for detailed information about their requirements.

Audit Exemption for Dormant Companies: A company is considered dormant if it has no significant accounting transactions during the financial year. Dormant companies can apply for audit exemptions, reducing compliance costs. However, these companies must still fulfill their filing obligations, including submitting annual returns, to maintain their dormant status.

All companies in Hong Kong are obligated to maintain accounting records. These records must provide a true and fair view of the company’s financial position and should be retained for a minimum of seven years, in accordance with the Companies Ordinance (Cap. 622).

Companies must prepare several key financial statements annually:

1. Statement of Financial Position
2. Statement of Profit or Loss and Other Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to Financial Statements

These financial statements must comply with the Hong Kong Financial Reporting Standards (FRS) and provide a detailed overview of the company’s financial health.

• Tax Year: The fiscal year in Hong Kong begins on April 1st and ends on March 31st of the following year. The taxable profits for a given year are determined based on the basis period, typically corresponding to the company’s financial year.
• Corporate Tax Rate: The standard corporate tax rate in Hong Kong is 5% on assessable profits. However, for corporations with assessable profits up to HKD 2 million, a two-tiered tax system applies, where the first HKD 2 million is taxed at 8.25%, with the remaining profits taxed at the standard rate of 16.5%.
• Tax Filing and Payment: The first Profits Tax Return (BIR51) is usually issued about 18 months after a company begins operations. The filing deadline is typically one month after the return is issued, with the possibility of requesting an extension. Corporate taxes are usually payable in two instalments, based on provisional tax payments calculated from the previous year’s profits.
• Holding Over Provisional Tax: Companies can apply in writing to the IRD to hold over all or part of the provisional tax if they anticipate a reduction in profits.

Hong Kong does not impose a sales tax or VAT (Value-Added Tax), making it an attractive location for businesses that operate internationally without the complexity of indirect taxation.

Profit Repatriation

Hong Kong does not impose restrictions on profit repatriation. Companies can freely transfer profits to parent companies or shareholders outside of Hong Kong, typically through dividend payments. One advantage of Hong Kong’s tax system is that dividends are not subject to withholding tax.

Alternatively, profits can be repatriated through service or royalty fee payments, although these payments may be subject to withholding tax depending on the residency of the individual or corporation receiving them.

Transfer Pricing Methodology

Hong Kong adheres to the arm’s-length principle for transfer pricing. Multinational enterprises are expected to follow the guidelines set by the OECD (Organisation for Economic Co-operation and Development), with common methods including:

• Comparable Uncontrolled Price (CUP)
• Cost-Plus
• Resale Price
• Profit Split
• Transactional Net Margin

Traditional transaction methods, such as CUP and cost-plus, are typically preferred when equally reliable.

Electronic Invoices (E-Invoice)

E-invoices are not mandatory in Hong Kong, but they can be used voluntarily to streamline business operations. Companies that choose to adopt e-invoicing can benefit from more efficient processes, reducing paperwork and administrative burden.

Fiscal Year

Hong Kong’s fiscal year runs from April 1st to March 31st. Companies can select a fiscal year that fits their operations, provided that the first fiscal year does not exceed 18 months. Most companies opt for a fiscal year ending on December 31st. For newly incorporated businesses, the deadline for filing financial reports for the first year is 18 months from the incorporation date.

Tax Return Filing Deadline

Tax returns in Hong Kong are generally due one month from the issuance of the Profits Tax Return, although this may be extended under certain circumstances. Companies are advised to consult the IRD website for specific filing dates and deadlines.

Tax Representative

Although it is not mandatory for foreign companies to have a tax representative in Hong Kong, engaging one can simplify the compliance process and facilitate communication with the Inland Revenue Department (IRD).

The Mandatory Provident Fund (MPF) Scheme (Pension Fund) contributions is a retirement savings scheme, and employers are required to contribute to it for employees earning more than HKD 7,100 per month. The contribution rate is 5% of the employee’s income, with a maximum contribution of HKD 1,500 per month.

Provident fund contributions are mandatory for employees (including full-time, part-time and casual or temporary staff) aged 18-65 years.

(Note: Foreigners who enter Hong Kong for employment for less than 13 months or are covered by overseas retirement schemes are excluded).

Employers & employees are each required to contribute 5% of the employee’s monthly cash income to a retirement scheme registered as an MPF scheme.

The maximum level of monthly income for contribution purposes is HK$ 30,000.

Mandatory contributions are capped at HK$ 1,500 for employees earning more than HK$ 30,000/month.

Employee contributions are not mandatory if an employee’s monthly income is below HK$ 7,000. However, the employer contribution is required.

A separate scale of contribution applies to casual employees who are remunerated daily.

Employers must provide monthly pay-records to each employee within seven working days after the mandatory contributions are made. Information in the pay-record should include the employee’s relevant income, the amount of contributions made and the date the contributions were paid to the scheme.

The fundamental structure of an MPF scheme is that it is constituted under a Hong Kong trust and provides defined contribution benefits.

The vast majority of MPF schemes offer a choice of investment products, and employees are given the option to elect how their money is invested (similar to 401K plans in the US). One of the investment options offered must always be a very conservative “capital preservation fund.”

Assets invested in a “capital preservation fund” must be invested in a particular manner set out in section 37(2) of the General Regulation (basically just bank deposits and government backed debt securities). Administrative expenses can only be taken from the capital preservation fund if the returns on such fund in any month exceed the returns that would have been earned AND the assets in the fund have been “placed on deposit in a Hong Kong Dollar savings account at the prescribed savings rate” (as determined by the MPF Authority). This is somewhat softened by the ability to roll over outstanding administrative expenses for a period of up to 12 months.

*The above rates serve as a broad guideline. Actual rates charged will differ.

Employers are required to file the Employer’s Return of Remuneration and Pensions (Form IR56B) annually, typically by April or May. This form includes details of the employee’s income and pension contributions over the past year.

In addition to the annual Employer’s Return, employers must maintain accurate payroll records for at least 7 years. This ensures that the company is prepared for any audits or inquiries by the authorities.

Furthermore, employers must submit various notification forms to the IRD, including:

• IR56E (for new employment),
• IR56F (on the termination of an employee’s service or death),
• IR56G (when an employee leaves Hong Kong for an extended period).

Many employers in Hong Kong pay a 13th month bonus before Chinese New Year, although the trend is to replace this with a performance related bonus. MNCs will normally pay discretionary bonus as well.

When a bonus is an annual payment or annual bonus and is not discretionary in nature, the bonus will be subjected to the end-of-year payment regime set out in the EO. Whether a bonus is truly “discretionary” will not only depend on the terms used in the bonus provision, but on how the bonus scheme operates in practice. If, in fact, bonuses are granted each year automatically by reference to a pre-determined formula and no discretion is exercised, a court may take the view that the bonus is subjected to the end-of-year payment regime in the EO.

The main consequence of a bonus being classified as an end-of-year payment is that, on termination of employment, an employee will be entitled to:

• A bonus for the previous bonus year, if that bonus has not been paid at the date of termination.
• A proportion of the bonus for the year in which his/her employment ended, provided that the employee:
  • was employed for at least three months of that bonus year,
  • did not resign, and
  • was not dismissed summarily.

Eligible only if:

Employed for at least 24 months, AND

Is dismissed due to redundancy or laid-off.

The amount of severance pay is calculated as two-thirds of one month’s pay for each year of employment, subject to a maximum of two-thirds of HK$ 22,500 (i.e, HK$15,000) per month and is capped at a maximum payment of HK$ 390,000. Any contractual gratuity based on length of service is deductible from the severance pay entitlement. Additionally, any portion of a retirement scheme payment that is attributable to the employer’s contributions may also be deducted from the severance pay.

Eligible only if:

Employed for at least five years and subject to certain conditions.

Intended to reward employees who are dismissed in a non-redundancy situation for their long service.

The amount of long service pay is calculated by reference to the same formula as the severance pay. The maximum entitlement shall not exceed HK$ 390,000. The amount of any contractual gratuity based on length of service is deductible from the amount of long service entitlement. Additionally, any portion of a retirement scheme payment attributable to the employer’s contributions may also be deducted from the Long Service Payment.

Salaries are paid by the end of every month through bank transfer.

Salaries are paid for current month.

Available monthly on website, PDF or hardcopy.

As per the Minimum Wage Ordinance, it is required for employers to keep records of the total number of working hours by employees with monthly salary of less than HK$ 17,600/month.

Entitlement to annual leave for the first year and second year is seven days and is accumulated at the rate of one day for each completed year, up to a maximum of 14 days:

• 1st year: seven days
• 2nd year: seven days
• 3rd year: nine days and so on, up to a maximum of 14 days

Employers are entitled to determine when annual leave is to be taken and must give a 14-day notice in writing to the employee of the time that they have selected. Annual leave must, however, be granted within 12 months of the end of the leave year, although in practice, most employers allow annual leave to be taken as it accrues. A leave year may either be the anniversary of the employee’s commencement of employment, or a date that the employer selects in order to have a common leave year for all employees, such as a calendar year.

The EO also permits employees to carry forward all untaken annual leave for 12 months after the preceding leave year.

The payment received by employees by way of holiday pay is a sum equals to the average wage of the employee over the preceding 12-month period.

Employees are entitled to take a payment in lieu of any accrued and untaken statutory annual leave from the previous leave year and are also entitled to payment in respect of any outstanding annual leave due upon cessation of employment.

Employees are entitled to paid sick leave at the rate of 4/5ths of the employee’s average wage over the preceding 12-month period. An employee who has been employed under a continuous contract for a period of at least one month immediately preceding a sickness day is entitled to paid sickness allowance in accordance with the EO.

Entitlement to sick leave may be accumulated at the rate of two paid sickness days for each completed month of employment during the first 12 months of employment and at the rate of four paid sickness days for each month thereafter, up to a maximum of 120 paid sickness days. The entitlement to sickness pay only applies, however, to periods of absence due to sickness of no less than four consecutive days. This is separate from annual leave.

An employee must produce a medical certificate issued by a medical practitioner or registered dentist in respect of any sickness day for which he/she is claiming statutory sickness allowance for and if he/she fails to do so, the employer is not liable to make any payment for that particular day.

Note: In light of the rather restrictive entitlement to statutory sickness allowance, it is not unusual for employers to provide a contractual sickness benefit which is more beneficial than statutory sick allowance (e.g. by providing that sick leave is paid at full pay or by allowing employees an upfront entitlement to a certain number of days rather than accruing sick leave days on a month-by-month basis).

• A female employee who is employed under a continuous contract of employment (i.e. she has been employed for four or more weeks and has worked at least 18 hours in each week) immediately before the expected date of her commencement of Maternity Leave (“ML”), is entitled to take maternity leave in accordance with the EO (or as provided by the terms agreed with by the employer, whichever is more favorable).
• The statutory maternity leave for employees under the EO is 14 weeks. Employers, after payment of 14 weeks’ ML Pay on the normal pay day, may apply for reimbursement of the 11th to 14th weeks’ ML Pay payable and paid under EO, subject to a cap of $80,000 per employee.
• To qualify for paid maternity leave, the employee must:
  • Has been employed for a period of at least 40 weeks immediately before the expected date of commencement of ML.
  • Has given the required notice, and
  • Has complied with the requirements for the provision of medical certificates referred to above.
• Maternity leave pay is paid at the rate of 4/5ths of the employee’s average wage over the preceding 12-month period. The additional four weeks’ statutory ML pay will subject to a cap of $80,000 per employee.

Male government employees employed under a continuous employment contract are eligible to take a 5-day paternity leave on full pay on the birth of each child.

Male employees in the private sector who are employed under a continuous contract are entitled to a three-day paternity leave in connection with the birth of a child. Leave can be taken at any time (on single or consecutive days) during the period commencing four weeks before the expected date of birth and ending ten weeks after the actual date of birth.

If the employee has more than 40 weeks of service at the time of taking paternity leave, he will be entitled to a payment for each day of paternity leave, calculated at 80% of the employee’s average daily wages over the previous 12 months.

Marriage, death of relative, etc. There are no standard rules from EO. It should be decided by the company.

Employment Compensation Insurance (ECI)

Employers are required to maintain insurance coverage pursuant to the Employees Compensation Ordinance (ECO) in respect of work-related injuries. Besides that, there is no statutory requirement to provide medical benefits. The ECO obliges every employer to obtain a policy of insurance for a specified minimum amount in respect of its liability to compensate employees for injury by accident or death arising out of and in the course of employment.

The amount of the liability which must be insured is determined by reference to the total number of the employer’s employees:

• If less than 200 employees, the employer must take out a policy of insurance which provides a minimum coverage of HK$ 100 million per event.
• If more than 200 employees, the minimum coverage required is HK$ 200 million per event.

Once insured, the employer will be able to claim against its insurer in respect of any liability on its part to compensate employees for work-related injuries.