No PAYE. No SS. Pure IR56 & MPF. Hong Kong payroll, solved.
Hong Kong payroll has no PAYE system — employers do not withhold salaries tax. Instead, the architecture runs on IR56 employer-reporting obligations, MPF mandatory provident fund contributions, and post-offset-abolition severance exposure that took effect 1 May 2025. Most providers configure basic MPF. Mercans delivers the complete IR56 filing chain, 713-wage-based entitlement calculations, and real-time MPF remittance — on one proprietary stack with no intermediaries.
native payroll
vs nearest peer
since inception
- Salaries Tax · Progressive
- 2% – 17%
- Salaries Tax · Standard Rate
- 15% (up to HK$5M)
- MPF Employer Contribution
- 5% of relevant income
- MPF Employee Contribution
- 5% of relevant income
- MPF Monthly Income Cap
- HK$30,000 relevant
- MPF Max Monthly Contribution
- HK$1,500 each side
- MPF Offset Abolition
- 1 May 2025
- Basic Personal Allowance
- HK$132,000/yr
- No Payroll Withholding
- Employer files IR56
- Employer’s Return Deadline
- BIR56A · April/May
- Minimum Wage (from May 2026)
- HK$43.1 per hour
- Severance Pay Cap
- HK$390,000 total
- Annual Leave Minimum
- 7 days (yr 1) to 14
- Maternity Leave
- 14 weeks · 4/5 wage
- Profits Tax
- 8.25% / 16.5%
Getting Hong Kong payroll “mostly right” is the most expensive mistake
Hong Kong’s regulatory regime is deceptively light on paper — no PAYE withholding, no social security beyond MPF — but the IR56 filing chain is exacting, the post-offset-abolition severance regime is a direct balance-sheet exposure, and the MPFA actively prosecutes contribution defaults. Misclassification and IR56 omissions trigger full back-assessments.
IR56B omissions & late Employer’s Return
Failing to declare all employees — including directors, part-timers, and secondees — on the annual BIR56A/IR56B attracts penalties from HK$1,200 per return. Omitting benefits-in-kind or fringe benefits (housing, car, school fees) triggers retroactive salaries tax assessments plus interest.
MPF contribution default & offset-abolition exposure
Late or short MPF contributions trigger a 5–10% surcharge plus MPFA prosecution. Since 1 May 2025, mandatory MPF contributions can no longer offset severance or long service payments for post-transition service years, creating direct unfunded liability on every long-tenure termination.
713-wage miscalculation on statutory entitlements
Statutory entitlements — annual leave pay, severance, long service, sickness allowance — must use the 12-month average wage under section 713, including commissions, allowances and OT pay. Using basic salary only underpays by a legally actionable amount under the Employment Ordinance.
IR56G tax clearance failure for departing employees
When an employee leaves Hong Kong permanently, the employer must file IR56G at least one month before departure and withhold final pay pending IRD tax clearance. Releasing funds without clearance makes the employer directly liable for the employee’s outstanding tax debt.
The three types of providers who struggle with Hong Kong SAR
Global Aggregator Platforms
Aggregator platforms cannot handle Hong Kong’s full IR56 filing chain, 713-average-wage benefit calculations, or the post-May-2025 MPF offset-abolition severance tracking — they pass through to local partners with no direct IRD integration.
- ×No direct IRD IR56 series integration
- ×MPF offset-abolition tracking absent
- ×713-wage statutory calculation unsupported
Large Global Payroll Incumbents
Incumbents have Hong Kong coverage — in name. Legacy systems cannot model the IR56G tax clearance withholding obligation, the split pre-/post-May-2025 severance calculation, or annual changes to progressive tax bands and allowances.
- ×IR56G clearance workflow manual
- ×Split-period severance calculation absent
- ×MPF surcharge trigger tracking unsupported
Local Hong Kong Firms
Local firms know the market — but they can’t scale with you. No HRIS integration, no multi-country APAC consolidation, no enterprise-grade data security certifications.
- ×No proprietary payroll technology
- ×No data security certifications
- ×No APAC consolidation capability
The only provider that closes every gap
Mercans is the only Hong Kong payroll provider that combines a proprietary payroll technology stack, full-time in-country compliance teams, direct IRD and MPFA relationships, and enterprise-grade data security — simultaneously, on one contract, with no intermediaries.
The only engine built for Hong Kong’s actual payroll architecture
G2N Nova™ natively models Hong Kong’s MPF contribution system, IR56 employer-reporting chain, 713-average-wage statutory entitlement calculations, post-offset-abolition severance split, and auto-generates BIR56A, IR56B through IR56M compliance outputs.
Full-time Hong Kong team — not a partner you phone when things break
Mercans employs full-time payroll and compliance professionals in Hong Kong with active relationships with the IRD, MPFA, and Labour Department. When annual allowances or progressive bands update, our engine is updated within 72 hours.
The security posture multinationals require — and Hong Kong’s PDPO now mandates
Mercans holds Binding Corporate Rules approval, ISO 27701, SOC 1 & 2, and ISO 27017/27018 — the only payroll provider in APAC with this complete certification stack. Zero breaches since inception.
Where Mercans wins on every Hong Kong-specific capability
Each row is a Hong Kong-specific payroll capability. Full = native in-platform, half = partial/manual workaround, empty = gap.
Hong Kong Capability Coverage · 12 dimensions
IRD eTAX electronic filing
5%+5% cap & exemption logic
Pre-/post-May-2025 severance
ADW for leave, sick, severance
Withhold pay until clearance
Housing 10% · school fees
HK-source income split
Non-resident director obligations
Lower-of-two tax computation
Post-May-2025 offset rules
Every rate. Every cap. Every obligation.
Hong Kong payroll operates on exact numbers and strict filing deadlines. Mercans builds every figure below into G2N Nova™ and monitors them proactively.
Hong Kong SAR · Rate & Compliance Dashboard
Live 2025–26MPF: Two-Sided Cap — Income Ceiling and Tax Deductibility
Both employer and employee contribute exactly 5% of “relevant income” between HK$7,100 and HK$30,000 per month, making the maximum monthly contribution HK$1,500 per side. Employee contributions are tax-deductible up to HK$18,000 per year. Post-May-2025, employer mandatory contributions cannot offset severance for new service accruals.
→ MPF cap and offset logic in G2N Nova™Salaries Tax — Progressive vs. Standard Rate Election
Tax is assessed as the lower of: (a) progressive rates (2%–17%) on net chargeable income after allowances, or (b) standard rate (15% on first HK$5M / 16% on remainder) on net income before allowances. For high earners, the standard rate is typically lower. The IRD computes both automatically. No employer withholding is required.
→ Dual-method computation in G2N Nova™Severance & Long Service — Formula, Cap, and MPF Split
Severance pay = 2/3 × last month’s wages (capped at HK$22,500) × years of service, up to HK$390,000. Long service payment uses the same formula. For employees with service straddling 1 May 2025, the pre-transition portion retains the MPF offset; the post-transition portion is a direct employer cost with a 25-year government subsidy available.
→ Split-period severance engine in G2N Nova™IR56 Forms: The Six-Form Filing Chain
IR56B (annual return, due April–May); IR56E (new hire, within 3 months); IR56F (leavers remaining in HK, 1 month before last day); IR56G (departing HK permanently, 1 month before departure — employer must withhold final pay pending tax clearance); IR56M (freelancer payments > HK$25,000/yr). The BIR56A master form is issued by the IRD on 1 April each year with a 1-month filing window.
→ Full IR56 series in G2N Nova™ · all 5 forms nativeRun a Hong Kong payroll. Right here, right now.
Switch employee type. Move the salary slider. Every number reflects the MPF 5%+5% contribution, HK$30,000 income cap, salaries tax progressive rate, and true cost of employment — the same logic G2N Nova™ runs in production.
Hong Kong SAR Payroll Sample · Live
G2N Nova™ engineWhat only Hong Kong SAR experts know to handle
These are the compliance details that don’t appear in standard payroll setup guides — but appear in every IRD query, MPFA enforcement action, and Labour Tribunal case we’ve handled in Hong Kong over 20 years.
No Payroll Withholding — But IR56 Reporting Is Mandatory
Hong Kong has no PAYE system. Employers do not deduct salaries tax from wages. Instead, employers must file annual IR56B returns for every employee, triggering the IRD to issue individual tax assessments. Missing or incomplete IR56B filings invite immediate penalties and IRD follow-up.
MPF Contributions Cap at HK$30,000 Relevant Income
Both employer and employee contribute 5% of “relevant income” up to HK$30,000/month. Above that, no further contributions are due. Employees earning below HK$7,100/month are exempt from their share, but the employer must still contribute. New hires must be enrolled within 60 days.
MPF Offset Abolition Changed Severance Economics from May 2025
From 1 May 2025, mandatory MPF employer contributions can no longer offset severance or long service payments for service accrued after that date. The pre-/post-transition split calculation is complex: pre-May-2025 service retains the old offset; post-transition service creates a direct unfunded liability.
Statutory Entitlements Must Use 713 Average Daily Wage
Annual leave pay, sick pay, statutory holiday pay, maternity pay, severance, and long service must all be calculated on the 12-month average daily wage under Employment Ordinance s.713, including commissions and allowances. Using basic salary understates obligations and creates retroactive liability.
Departing Employees Require Tax Clearance Before Final Pay Release
When an employee permanently departs Hong Kong, the employer must file IR56G at least one month before departure and withhold sufficient final pay until the IRD issues a tax clearance letter. Releasing funds without clearance makes the employer directly liable for the employee’s outstanding salaries tax.
Directors Are Subject to Salaries Tax on All Remuneration
Director fees, salaries, housing benefits, and equity awards are all subject to salaries tax. Non-resident directors performing services in Hong Kong are taxable on their Hong Kong-sourced portion. Employers must report all director remuneration on IR56B regardless of residency status.
Expatriate Hypothetical Tax and Home-Leave Policies Create Filing Complexity
Expatriate tax equalisation requires careful tracking of Hong Kong-source vs. non-Hong Kong-source income. Time-apportioned salaries tax applies to employees who work partly inside and outside Hong Kong. Employers must document split periods and report the correct HK-chargeable portion on IR56B.
Housing and School-Fee Benefits Are Taxable — at Rental Value or Actual
Employer-provided accommodation is taxed at the statutory rental value (10% of other emoluments). School fees paid by employers are taxable at full cost. These must appear on IR56B or IR56E — omission is the most common cause of IRD employer-return queries and back-assessments.
One workforce. Two entirely different compliance tracks.
Permanent employees on full MPF and Employment Ordinance entitlements vs. expatriates under hypothetical-tax arrangements and time-apportioned salaries requires two distinct compliance frameworks, two sets of IR56 obligations, and different severance and benefits structures.
Parallel Compliance Engines
MPF from Day 1 of employment. Both employer and employee contribute 5% of relevant income (HK$7,100–HK$30,000/mo). Employer must enrol within 60 days of hire and remit monthly.
No payroll withholding — but annual IR56B is mandatory. The employer files IR56B for every employee annually, including part-timers and directors, triggering individual IRD assessment.
713 average-wage-based statutory entitlements. Annual leave, sick pay, statutory holiday pay, severance, and long service must all use the 12-month average daily wage formula — not basic salary alone.
Post-May-2025 severance is an unfunded direct cost. MPF mandatory contributions can no longer offset severance or long service for post-1 May 2025 service years. Employers should model this in workforce planning.
Salaries tax is time-apportioned by Hong Kong workdays. Only the HK-source portion of income is assessable. Employers must document working days in and out of Hong Kong and report the correct HK-chargeable income on IR56B.
IR56G and tax clearance are mandatory before final pay on departure. Employers must file IR56G at least one month before the employee’s departure and withhold final pay until the IRD issues a tax clearance letter. Releasing pay early creates direct employer tax liability.
Housing and school-fee benefits are taxable at statutory or actual value. Accommodation is assessed at 10% of other emoluments. School fees at full cost. Both must appear on IR56B or IR56E — omissions are the most common cause of IRD back-assessments.
MPF obligations apply unless a bilateral social security agreement exempts them. Expatriates on Hong Kong-law contracts are subject to MPF unless an exemption applies (e.g. overseas scheme membership, or exempt under ORSO). Employer must verify and document.
Director fees require separate IR56B line regardless of non-residence. All director fees and emoluments paid by a Hong Kong company are assessable even for non-resident directors. Separate reporting of director vs. employment income applies.
Every obligation. Every authority. Mercans owns the calendar.
Hong Kong compliance runs across the IRD, MPFA, and Labour Department on monthly, annual, and event-triggered cadences. Mercans’ managed payroll absorbs every filing as standard scope.
MPF Contribution Remittance
Employer and employee MPF contributions (5%+5% on relevant income, capped at HK$1,500 each) must be remitted to the approved MPF trustee by the 10th of the following month. Late payment triggers a 5–10% surcharge plus MPFA enforcement action.
Employer’s Return — BIR56A + IR56B
The IRD issues Form BIR56A on 1 April each year. Employers must complete and return BIR56A together with IR56B for every employee within one month of issue (deadline typically early May). Late submission: penalties from HK$1,200 per return.
Provisional Salaries Tax — First Instalment
IRD issues demand notes for provisional salaries tax, with the first instalment (75%) typically due in January. This is an advance on the following year’s assessment. Employers should remind employees to budget for this, as it is paid directly by the individual — no employer withholding required.
Final Salaries Tax — Balancing Payment
Final tax balancing payment and second provisional instalment (25%) typically due in November. Employees may apply for holdover of provisional tax if their income is materially lower than the prior year.
IR56E — New Employee Notification
Employers must file IR56E within three months of a new employee’s commencement date to open the employee’s IRD salaries tax record. Late filing means the employee’s first assessment may be delayed or incorrect, creating retroactive adjustments.
IR56F / IR56G — Leaver Notifications
IR56F must be filed at least one month before a leaver’s last day (remaining in HK). IR56G must be filed at least one month before an employee permanently departs Hong Kong — employer must withhold final pay pending IRD tax clearance letter. Releasing pay without clearance transfers tax liability to the employer.
MPF Scheme Enrolment for New Hires
Every new employee must be enrolled in an MPFA-approved MPF scheme within 60 days of employment commencement. Failure to enrol triggers MPFA enforcement, contribution arrears surcharge, and potential prosecution.
IRD eTAX & MPFA Electronic Integration
Mercans G2N Nova™ maintains certified connections to IRD’s eTAX portal and MPFA trustee systems. All IR56 series forms and MPF remittance data are submitted electronically — no manual portal logins or separate filing agents required.
Hong Kong is one market.
Mercans covers all of Asia-Pacific.
Mercans covers all major Asia-Pacific markets on a single platform with country-specific compliance engines running in parallel. One platform. One contract. One consolidated view.
covered
1 contract
consolidation
APAC
Every filing. Every format. Submission-ready.
Mercans generates the exact file types that the IRD, MPFA, and the Labour Department expect to receive.
