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Why Tax Clearance is Important Before Emigration

2021-08-24

Foreword

The trend of emigration to foreign countries has been growing lately, and it is crucial that fulfil your tax responsibilities first if you want to be at ease when you leave Hong Kong. In this post, we’ve compiled some basic tax responsibilities you’ll have to fulfil before you leave, and we hope that this will set everyone’s mind at rest when stepping out of Hong Kong. Specifically, we will be focusing more on key points for outbound Hong Kong employees.

Who needs to clear tax?

According to the Inland Revenue Ordinance, all outbound employees leaving Hong Kong for over a month have to notify the Inland Revenue Department, regardless of whether they plan on coming back. This allows the IRD to decide whether they have outstanding tax items that need to be paid before leaving Hong Kong. The above procedure is called “tax clearance”.

Are there exemptions?

Yes; if the employee has to leave Hong Kong frequently due to work, they do not have to notify the IRD.

Procedures for Tax Clearance

  1. When handing in your resignation letter, you will have to notify your employer of your intention to leave Hong Kong, as well as your predicted date of departure. This is because employers have to file a “Notification by an Employer of an Employee Who is About to Depart from Hong Kong”, also known as Form IR56G, to the IRD at least one month before you depart, while also giving you a copy of the document.
  2. Next, your employer should withhold the salary of your last month at work. If you, as the employee, do not clear all tax items you are supposed to clear, the IRD will require your employer to compensate with the amount of salary withheld. If you wish to reduce the amount of salary withheld, you could consider reducing the amount of working days in your last month of work.
  3. You will also have to notify the IRD of your predicted date of departure (by phone, email, fax, or post). By doing so, the IRD will mail you a tax return form (BIR60) before your departure.
  4. You will have to complete and return the tax return within the specified time limit. If you do not, if your employer’s salary-withholding period is almost up, or if you run out of time before your departure, the IRD will issue a notice of assessment (the estimated amount of tax payable is usually susceptible to overestimation, therefore delaying the completion of your tax return is not recommended). If you encounter overestimated amounts of tax payable, you are allowed to dispute the assessment by filing an objection.
  5. If you want to speed up the process of tax clearance, you can choose to bring along required documents (e.g. pay slips, MPF records, supporting documents for deduction claims, etc.) to the IRD in person. As the process takes time, it is recommended that you allow more time for your application. (Friendly reminder: as the IRD may check tax records of previous years, make sure that the supporting documents are complete.)
  6. After assessment, the IRD will issue a notice for tax payment to you. You can choose to use cash, EPS, ATMs, or cashier’s cheques to pay for all tax items immediately, and a letter of release will usually be issued on the same day. You may also choose to pay through online methods, by PPS, cheque, or a combination of the above methods, and the IRD will issue a letter of release after confirming payment (within two to ten working days). Even if you have no outstanding tax items to pay for, you must complete all tax clearance procedures before receiving a letter of release.
  7. After your employer receives the letter of release, they are allowed to return the withheld salary. Thus, you will have fulfilled all your Hong Kong tax responsibilities, and are free to leave Hong Kong.

What if I don’t clear my tax?

If a person does not go through tax clearance before leaving Hong Kong, they are liable to a Level 3 fine of HKD 10,000. The IRD may also obtain a court order to prohibit those who have not cleared their tax from leaving Hong Kong. To avoid unnecessary trouble, remember to clear your tax before you leave.

Pacers is a company that provides multifaceted and professional consulting services. We are eager to grow with our clients, so if you encounter any issues on taxation, you’re welcome to contact us through our website or email at info@pacersconsulting.com.

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