It is definitely favourable if you are able to find a job in a prospecting company that can give full play to your strengths, but when the economy is in recession or when the company is not doing well, it is necessary to lay off employees or reorganize the company. Having a good amount of severance payment is a consolation, but when filing tax returns, does that payment need to be included as taxable income? We hope that this article can answer your questions regarding this topic and avoid paying unnecessarily additional amounts of tax.<\/p>\n\n\n\n
According to Chapter 57 of the Employment Ordinance, if an employee meets the following conditions, the employer is required to pay severance payments or long service payments:<\/p>\n\n\n\n
I. Continuous contract employment for not less than 24 months; and<\/p>\n\n\n\n
ii. Meet one of the following conditions:<\/p>\n\n\n\n
i. 5 years of continuous employment; and<\/p>\n\n\n\n
ii. Meet one of the following conditions<\/p>\n\n\n\n
Both severance payments and long service payments are guaranteed by Hong Kong laws, so if the payment you have received is calculated in accordance with the Employment Ordinance, it does not have to be taxed. However, if the compensation you receive exceeds the amount of severance payments or long service payments calculated and guaranteed in accordance with the Employment Ordinance, you will need to pay salaries tax for the excess amount. Below are examples showing how to calculate whether severance payments and long service payments exceed the guaranteed amounts:<\/p>\n\n\n\n
Last month’s salary \u00d7 2\/3 (Note 1) \u00d7 Retrospective years of service (Note 2)<\/p>\n\n\n\n
Note 1: Employees can also choose to calculate based on their average wages in the 12 months immediately before the termination date of their contract.<\/p>\n\n\n\n
Note 2: Service periods of less than 1 year are calculated on a pro rata basis.<\/p>\n\n\n\n
A sample calculation is as follows:<\/p>\n\n\n\n
Mr. Li worked in Company A for 6 years and 3 months, and his monthly salary for the last month was HKD18,000 (His average salary for the 12 months immediately before the termination date of his contract is HKD17,400)<\/p>\n\n\n\n
Calculation of Mr. Li\u2019s non-taxable severance payment or long service payment:<\/p>\n\n\n\n
HKD18,000 \u00d7 2\/3 \u00d7 6.25 years = HKD75,000<\/p>\n\n\n\n
So if Mr. Li receives more than HKD75,000, he will have to be taxed for the excess.<\/p>\n\n\n\n
In addition to severance payments and long service payments, sometimes you may receive compensation when your contract is terminated. Whether that sum of compensation is taxable or not is determined by the purpose for that compensation. As a starting point, according to the Inland Revenue Ordinance, all income derived from employment is taxable. Compensation received when a contract of employment is terminated thus does not need to be taxed.<\/p>\n\n\n\n
Nobody wants to lose a job with a stable income, but you have to be aware of your labor rights and understand your tax matters, so you can protect yourself if you encounter these issues. Not only do you avoid paying unnecessary tax, but you also avoid unnecessary fines. That is why filing tax wisely starts with you!<\/p>\n\n\n\n
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\u2019re welcome to contact us through our website or email at info@pacersconsulting.com<\/a>.<\/p>\n\n\n\n Want to learn more about real-life examples in taxation? Follow us on Facebook<\/a>, Instagram<\/a>, and Google now to stay on top of our latest news!<\/p>\n","protected":false},"excerpt":{"rendered":" It is definitely favourable if you are able to find a job in a prospecting company that can give full play to your strengths, but when the economy is in recession or when the company is not doing well, it is necessary to lay off employees or reorganize the company. Having a good amount of […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":" [et_pb_section admin_label=\"section\"] 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\u2019ve compiled some basic tax responsibilities you\u2019ll have to fulfil before you leave, and we hope that this will set everyone\u2019s mind at rest when stepping out of Hong Kong. Specifically, we will be focusing more on key points for outbound Hong Kong employees.<\/p>\n\n\n\n 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 \u201ctax clearance\u201d.<\/p>\n\n\n\n Yes; if the employee has to leave Hong Kong frequently due to work, they do not have to notify the IRD.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n 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\u2019re welcome to contact us through our website<\/a> or email at info@pacersconsulting.com.<\/a><\/p>\n\n\n\n Want to learn more about real-life examples in taxation? Check out our Facebook, Instagram and Google profiles for the newest updates!<\/p>\n\n\n [\/et_pb_text][\/et_pb_column]
[et_pb_row admin_label=\"row\"]
[et_pb_column type=\"4_4\"][et_pb_text admin_label=\"Text\"]<\/p>\n\n\nForeword<\/strong><\/h2>\n\n\n\n
Who needs to clear tax?<\/strong><\/h2>\n\n\n\n
Are there exemptions?<\/strong> <\/h2>\n\n\n\n
Procedures for Tax Clearance<\/strong><\/h2>\n\n\n\n
What if I don\u2019t clear my tax?<\/strong> <\/h2>\n\n\n\n
[\/et_pb_row]
[\/et_pb_section]<\/p>","_et_gb_content_width":""},"categories":[27],"tags":[],"yoast_head":"\n