Every Hong Kong company that pays an employee — even a single director on the company’s own payroll — has to file an annual employer’s return with the Inland Revenue Department. Most owner-operators muddle through it once a year, ticking through the BIR56A and the IR56B forms in eTAX, and hope nothing was missed. That works until the year a staff member leaves part-way through, or relocates overseas, or until IRD raises a query.
This guide separates the salaries-tax-vs-employer’s-return mix-up that trips up most first-time filers, walks through the BIR56A/IR56B annual cycle, and covers the mid-year forms — IR56E for new hires, IR56F for terminations, IR56G for staff leaving Hong Kong, IR56M for non-employees — plus the deadlines and penalties around each.
Salaries tax vs employer’s return — two obligations, often conflated
These are two distinct duties, and treating them as one is the most common compliance error.
Salaries tax is your employee’s personal tax on what they earn. Each individual files their own BIR60. As an employer, you don’t pay anyone’s salaries tax on their behalf; you simply report what you paid them.
Employer’s return is your own reporting obligation. Once a year, IRD asks every Hong Kong employer to declare every person they paid during the year of assessment — what they paid, what benefits they gave, when each employee started or stopped. That information is what IRD then uses to assess each employee’s salaries tax.
One notable consequence: a one-person Ltd whose director is on the company’s own payroll wears both hats. The company files BIR56A and IR56B on the director (employer side); the same person files BIR60 (employee side). Skip either and you have a compliance gap on a single human.
The annual cycle — BIR56A and IR56B
The cycle starts in early April when IRD issues each registered employer a BIR56A, the cover-sheet form that asks “did you pay any employee during the year ending 31 March?”. You then attach an IR56B for each employee paid, listing their salary, bonuses, leave pay, education and housing benefits, share-based compensation and any voluntary MPF contributions. The whole package — BIR56A plus all the IR56Bs — is due back at IRD within 1 month of the BIR56A’s issue date, which in practice means early May for most filers.
What goes on an IR56B isn’t just “salary”. The reportable items include:
- Cash compensation — base salary, bonus, leave pay, payment in lieu of notice, gratuity.
- Benefits in kind — housing (with the rental-value computation rules), education benefits paid for the employee’s children, employer-provided cars, club memberships.
- Share-based compensation — share awards, share options, RSUs at the vesting or exercise event. Often missed at SME stage when option grants haven’t yet vested.
- Voluntary MPF contributions — the mandatory 5% / HK$1,500-cap is not reportable; anything you paid above that is.
Common mistakes: forgetting to report director’s fees as salary, missing the housing-benefit valuation rule, and treating contractors as if they were employees (or vice versa — see IR56M below).
Mid-year forms — IR56E, IR56F, IR56G
The annual cycle is the baseline. Three mid-year forms catch employee movements:
IR56E — within 3 months of a new hire. When you take on a new employee, you must notify IRD by filing IR56E within 3 months of the start date. This is the form that gets the employee onto IRD’s salaries-tax radar. Easy to forget when you’re hiring quickly.
IR56F — when an employee terminates without leaving Hong Kong. Filed within 1 month of the termination date. Final salary, pro-rata bonus, payment in lieu of notice, gratuity — all go on the IR56F. The employee can stay in Hong Kong; the form is just the closing entry on their employment with you.
IR56G — when an employee is leaving Hong Kong permanently. This is the highest-stakes mid-year form. It must be filed at least 1 month before the employee’s departure, and you are required to withhold all final payments (final salary, bonus, gratuity, share-vesting proceeds) until IRD issues a “letter of release”. If you release final payment before the IRD letter arrives, the employer can become personally liable for any unpaid salaries tax. The 1-month-before-departure rule means employees can’t decide on Friday they’re leaving on Monday — and the employer who tries to accommodate them anyway is the one carrying the risk.
IR56M — when a contractor isn’t an employee (and what to file instead)
Not everyone you pay is an employee. Independent contractors, consultants, directors of other companies you’ve engaged, agents earning commission, and prize-pool or competition winners all fall outside IR56B and into IR56M. Filed annually alongside BIR56A, IR56M reports payments to “persons other than employees” so IRD can assess those individuals separately.
The risk area is misclassification. Calling someone a “consultant” doesn’t make them one if the working pattern is employee-shaped — fixed working hours, single-employer dependency, employer-provided tools, no commercial risk. IRD applies the standard badges of employment tests; getting it wrong means the “consultant” should have been on IR56B (with MPF and benefit reporting), and IRD can re-characterise after the fact. When in doubt, run the test before signing the engagement.
Filing mechanics, deadlines, and penalties
Almost all employers now file electronically through eTAX. Paper filing is still permitted but shrinks further every year — IRD nudges digital with pre-fill and import-from-payroll convenience. Once you file the BIR56A package, IRD acknowledges receipt and the records retention clock starts: 7 years on every payroll record, IR56-series form and supporting document.
The deadlines worth memorising:
- BIR56A + all IR56Bs — within 1 month of the BIR56A issue date (early May for most).
- IR56E (new hire) — within 3 months of start.
- IR56F (HK termination, no departure) — within 1 month of termination.
- IR56G (departure from HK) — at least 1 month before departure, with payment withholding until IRD releases.
- IR56M (non-employees) — annually with BIR56A.
Penalties for late filing or omission are not symbolic. Section 80(2) of the Inland Revenue Ordinance treats a failure to comply as an offence punishable by a fine of up to HK$10,000, plus IRD’s discretionary additional tax assessment under Section 82A for any tax shortfall caused. For a 20-employee SME that means a worst-case stack of HK$10,000 per offence — significant, and entirely avoidable.
In-house vs outsourced — when does the math change?
For a small employer — one to four employees on stable monthly salaries — running the BIR56A cycle in-house with reasonable accounting software is the right call. Once a year, you pull the salary register, generate IR56B per employee, file via eTAX. Maybe two hours, end-to-end.
The math changes around five to eight employees, especially with churn (new hires, terminations, departing-from-HK cases that need IR56G timing). The forms-per-year multiply, the rules around housing benefits and share-based compensation start hitting edge cases, and the deadline pressure around IR56G compresses any error margin. At that point an outsourced payroll provider is usually cheaper than the partner or founder’s time spent triple-checking forms — and the indemnification on filing mistakes is part of what you’re paying for.
For the deeper services-side cost picture, the in-house-vs-outsource threshold and what to ask a payroll outsourcing provider, see our companion guide on payroll outsourcing and MPF compliance in Hong Kong. For the software-side angle on automating the BIR56A cycle in-house, see payroll and MPF features in HK accounting software.
How Giga Accounting by 凌峰會計 can help
Giga Accounting by 凌峰會計 handles the full IR56 cycle inside the standard licence: per-employee IR56B with the correct benefit-in-kind valuation, annual BIR56A export ready for eTAX, mid-year IR56E / IR56F / IR56G filings with the timing prompts so you don’t miss the 1-month-before-departure deadline, and IR56M for contractors. No add-on payroll module, no per-employee monthly fee.
If filing in-house starts to feel stretched as headcount grows, our bookkeeping and accounting service includes the full employer’s return cycle as part of monthly bookkeeping. Get in touch for a walkthrough of either path against your current headcount and payroll structure, or review our flat per-company pricing. For the profits-tax companion guide, see Hong Kong profits tax for small businesses; for the foundational bookkeeping principles every HK employer should keep in mind, see bookkeeping basics for small businesses.
