How can an Umbrella Company Help with Contracting in Hong Kong?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. Some companies specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Hong Kong. Even better, most are experts in Hong Kong and ex-pat tax law, meaning they’ll also help you optimise your earnings in Hong Kong.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, and your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Hong Kong.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Hong Kong, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Hong Kong and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Hong Kong
One of the most consistently challenging aspects of contracting in Hong Kong is complying with the country’s tax system. As well as paying tax in Hong Kong, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Hong Kong
There is no PAYE (pay-as-you-earn) system in Hong Kong. This means that you are likely to be left with the prospect doing everything yourself.
Do you know much about Hong Kong Tax Law? Does Hong Kong have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Hong Kong can range from 2 to 17 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Hong Kong
| When Do You Need to Lodge Your Tax Return? | Within 1 month of the date of issue by the Inland Revenue Department |
| Tax Filing Deadline | June |
| Can you file it online? | No |
How to File Taxes in Hong Kong as a Contractor
Step 1:
Notify the Commissioner of Inland Revenue that you are a taxpayer, no later than 4 months after the end of the year for which you must pay income tax. If you have been issued an Individual Tax Return (Form BIR60) for the relevant year of assessment, you are not required to complete this step.
Upon receiving your notification, the Inland Revenue Department (IRD) may issue you a provisional tax return form, requiring you to give an estimate of your income for the period from commencement of employment to the following 31 March.
Step 2:
Your employer will be issued with a notice requiring them to submit an employer’s return to the Inland Revenue Department, indicating the remuneration accruing to each employee in the year to the preceding 31 March. As an employee, you are required to complete an individual tax return covering that period (which will be issued to you in May). Your final liability is calculated on the basis of these returns.
Click here(link is external) for a comprehensive guide to the form.
After completion, send it back to the Department within the time limit specified in the return so that the Department can assess whether or not you are liable to tax for that year of assessment. The postal address is:
G.P.O. Box 132, Hong Kong
Alternatively, you can submit it in person during office hours to Revenue Tower, 5 Gloucester Road, Wanchai.
Step 3: Pay Taxes
In Janurary, pay the balance of the final tax for the preceding year of assessment and 75% of the provisional tax for the current year of assessment. In April, pay the remaining 25% of the provisional tax.
You can pay taxes by phone, online, and via ATMs. To pay online, use the ‘Pay e-Cheque’ portal(link is external). To obtain an e-Cheque, log on to your Internet banking account, select the e-Cheque issuance service, input the payee name (The Government of the HKSAR), cheque date, and cheque amount. Confirm the details using a digital signature, and download the issued e-Cheque. On the e-Cheque portal, select the Department or General Demand Notes, select the ‘Bill Type’ and key in the ‘Bill Account Number’, key in the bill payment amount, select to upload the e-Cheque, note the Acknowledgement Reference Number, and keep the payment record.
Credit is given for additional provisional tax already paid when the actual income for the tax year is determined. The remainder is payable at the same time as the 75% instalment of provisional tax for the following year.
Tax Figures in Hong Kong
| Currency | HKD | ||||||||||
| Tax-free Threshold in Hong Kong | None | ||||||||||
| Income Tax Rates |
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|---|---|---|---|---|---|---|---|---|---|---|---|
| Notes | Salaries tax amounts to the lower of: – Net income, less charitable donations and allowable deductions at 15% – Net income less charitable donations, allowable deductions and personal allowances, charged at the above rates |
Tax Residency in Hong Kong
When do you become a tax resident in Hong Kong
You become a tax resident in Hong Kong when:
You become a tax resident in Hong Kong when you:
(i) ordinarily live in Hong Kong or
(ii) stay in Hong Kong for more than 180 days during a year of assessment or for more tha 300 days in 2 consecutive years of assessment.
However, residency is irrelevant in determining whether you are liable to pay tax. If your employment is located in Hong Kong, all income from the employment will be taken into account in determining your salaries tax liability.
Does the 183 day rule apply in Hong Kong
No
Am I taxed on my global income in Hong Kong
No
Can you set up your own Limited Company in Hong Kong?
| How long does it take to set up | 1.5 days |
| How much does it cost | HKD3,970 |
| Is it easy? | Starting a Business Rank: 3/190 (Source: The World Bank) |
Tax Calculator in Hong Kong
If you are a contractor and want a calculation on your tax and net retention in Hong Kong, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Hong Kong
Contractors in Hong Kong are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Hong Kong umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Hong Kong taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Hong Kong tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Hong Kong
We work with numerous umbrella companies in Hong Kong, many of whom are experts in tax and immigration laws. If you have any questions about tax in Hong Kong, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Hong Kong work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Hong Kong but without the overhead of directly dealing with the Hong Kong tax authorities. Get in touch with us today for some reliable advice on tax in Hong Kong!
A Contractor’s Guide to Work Permits in Hong Kong
Immigration is one of the primary concerns for any contractor hoping to start working in Hong Kong. Permanent employees will find it easy to get their Hong Kong work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Hong Kong work permit, known more commonly as a Hong Kong employment visa, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Hong Kong is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
Work Permit Processing Time
4-6 weeks
Can Work Permit be Processed in Country?
The work permit application is processed in Hong Kong.
Work Permit Application Process
Step 1: Obtain Documents
The following documents are required for the work permit application process:
- A scanned copy of the employee’s passport (valid for at least 18 months)
- 1 recent passport-sized photo (can be in JPEG format)
- Any educational qualification certificate(s) in English
- Any professional training certificate(s) (optional) in English (if applicable)
- At least 2 certificates/references from previous employers in English
- An up-to-date CV or resume
- A job description of your position
- A letter of appointment (which will be prepared and sent to you for signature by the umbrella company)
- A completed application form (provided by the umbrella company)
- Health and travel insurance covering medical, accident and repatriation costs of the employment contract period
Step 2: Submit Application
The umbrella company submits a work permit application to the Hong Kong Immigration Department on the contractor’s behalf. Once submitted, it takes 4-6 weeks for the application to be processed.
Step 3: Issue Visa Label
Once the application has been approved, a visa label is issued by Hong Kong Immigration. The umbrella company couriers the original visa label to the contractor for entry into Hong Kong.
Step 4: Enter Hong Kong
Once the contractor enters Hong Kong with the original visa label, he/she will have the activated visa and entry label in his passport.
Step 5: Apply for ID and Bank Account
The contractor applies for a Hong Kong ID and opens a bank account.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Hong Kong (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Hong Kong. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Hong Kong and match contractors with the right company for them. If you’ve already secured a contract in Hong Kong, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
