Tax Clearance for Departing Employees
In brief
•Employers in Hong Kong have statutory obligations under Section 52 of the Inland Revenue Ordinance (Cap. 112) when an employee departs. Filing the correct forms, withholding payments, and obtaining a Letter of Release are all time-sensitive steps. Failure to comply can expose the employer to personal liability for the employee's unpaid taxes.
Tax Clearance for Departing Employees
Employees intending to leave Hong Kong permanently or for an extended period are required to settle all outstanding salaries tax before departure. Employers play a critical role in this process under Section 52 of the Inland Revenue Ordinance (Cap. 112). Below is the chronological workflow, clearly identifying the responsible party at each stage.
Step-by-Step Workflow
Step 1: Employee Notifies Employer of Departure
Responsible party: Employee
The employee should inform the employer as early as possible, ideally at least one month prior to the planned departure. The employee should provide: intended departure date, whether employment will cease before departure, and future return plans (if any). This notification triggers the employer's statutory responsibilities.
Step 2: Employer Prepares and Files Form IR56G
Responsible party: Employer
Upon receiving notice, the employer must prepare and submit Form IR56G to the IRD no later than one month before the expected departure. Submission can be made via eTAX or paper filing. Filing IR56G does not terminate employment automatically. IR56F is not required unless employment cessation is unrelated to departure.
Employer Risk
Under Section 52(6), if the employer fails to lodge IR56G at least one month before departure, the employer becomes personally liable for any taxes payable by the employee.
Step 3: Employer Withholds All Payments
Responsible party: Employer
From the date IR56G is submitted, the employer must withhold all monies payable to the employee, including salary, bonus, commission, payment in lieu of notice, leave encashment, and any other termination payments. Withholding continues until a release condition under Section 52(7) is met.
Step 4: IRD Reviews the Case
Responsible party: IRD
The IRD evaluates the taxpayer's position and may request supporting documents from the employer (e.g., updated remuneration data) or the employee (e.g., rental details, deduction claims).
Step 5: Employee Settles Outstanding Tax
Responsible party: Employee
The employee must fully settle final salaries tax up to cessation, adjusted provisional tax, and any other outstanding liabilities. Tax clearance cannot be issued until payment is made.
Step 6: IRD Issues the Tax Clearance Letter (Letter of Release)
Responsible party: IRD
The IRD issues a Letter of Release authorising the employer to pay withheld amounts when all assessments have been finalised and all tax has been fully settled.
Step 7: Employer Releases the Withheld Amounts
Responsible party: Employer
The employer may release funds when: the IRD issues the release letter; or one month has elapsed since the IRD received IR56G, per Section 52(7)(b). Either condition is sufficient.
Step 8: Final Employer Filings (Only If Employment Ends)
Responsible party: Employer
If employment ceases because of the departure, the employer must file IR56F (Notification of Cessation). If the employee is only going abroad temporarily but remains employed, IR56F is not required.
Summary Table
| Step | Action | Responsible Party |
|---|---|---|
| 1 | Notify employer | Employee |
| 2 | File IR56G | Employer |
| 3 | Withhold payments | Employer |
| 4 | IRD assessment | IRD |
| 5 | Settle tax | Employee |
| 6 | Issue release letter | IRD |
| 7 | Release payment | Employer |
| 8 | File IR56F (if applicable) | Employer |
Conclusion
Tax clearance for departing employees is a multi-party process involving the employee, employer, and the IRD. Employers must act promptly after receiving notice to file IR56G, withhold payments, and await either IRD authorisation or the expiry of the 30-day period. Proactive compliance protects both parties and prevents employer personal liability under Section 52(6).
Frequently Asked Questions (Q&A)
Under Section 52(6) of the Inland Revenue Ordinance, the employer becomes personally liable for any salaries tax owed by the departing employee. Filing on time is essential to avoid this exposure.
No. IR56F is only required if the employment relationship is also ending. If the employee is going abroad temporarily but remains employed, IR56G alone is sufficient.
Yes — but only after one full month has elapsed since the IRD received IR56G, per Section 52(7)(b). The employer must be able to verify the exact receipt date.
All monies payable to the employee, including salary, bonus, commission, payment in lieu of notice, leave encashment, and any other termination payments.
In most straightforward cases, the IRD issues clearance within 30 days if the IR56G was filed correctly and on time. However, complex cases (e.g., share awards, equity vesting) or peak seasons may cause delays.
This material covers general information and does not provide solutions for any specific issues of any company or individual. Differences in legal terms may exist due to the translation into Korean to aid understanding. Olive and Vine does not assume any legal responsibility or guarantee the accuracy, completeness, or usefulness of this information. This material cannot replace legal or consulting advice; please consult with a professional if necessary.
