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FAQ : Mandatory
Provident Fund ("MPF scheme")
Questions and Answers
| Employee
contributions to MPF scheme |
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| 1. |
Q: |
Are
the contributions made by employee to an MPF scheme deductible
under Salaries Tax? |
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A: |
Employee
can claim a tax deduction under Salaries Tax for the mandatory
contributions that he makes to an MPF scheme. The maximum
deductible amount for year of assessment 2012/13 is $14,500 ($12,000 for years of assessment up to and including 2011/12 and $15,000
for year of assessment 2013/14 onwards). However,
any voluntary contributions made by him are not deductible.
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Employee
contributions to recognized occupational retirement scheme
("ROR scheme") |
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| 2. |
Q: |
The
employer decided to retain the existing retirement scheme
and has obtained exemption status from the MPF Authority.
Are the employee's contributions to this scheme deductible?
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A: |
An
employee's contributions to an MPF-exempted Recognized Occupational
Retirement Scheme ("MPF-exempted ROR scheme") are deductible
under Salaries Tax. However, the maximum amount deductible
in a Year of Assessment should be the least of the following
3 amounts:-
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his contributions
to the MPF-exempted ROR scheme in the year of assessment;
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the amount
of the mandatory contributions that he would have been
required to pay if he had contributed as an employee
to an MPF scheme; or |
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the maximum deductible amount
(please see A1) for the relevant year of assessment. |
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| Contributions
larger than 5% of the monthly salary |
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| 3. |
Q: |
My employer operates a ROR Scheme to provide employees with
retirement benefit. I have an option to contribute to the
Scheme at 0%, 5%, 7.5% or 10% of my salary. If my monthly
salary is $10,000 and I have opted to contribute 10% of my
salary, i.e., $1,000 per month, can I get the maximum tax
deduction of $12,000? |
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A: |
At
monthly salary of $10,000, if you make contributions to a
MPF scheme, your mandatory contribution would amount to $500
per month. In this situation, you may claim deduction in the
amount of $6,000 ($500 x 12 months). Any contributions exceeding
5% of your salary would be regarded as voluntary contributions
to the MPF scheme and not deductible for tax purposes.
For ROR schemes, there is no mandatory contribution.
Hence, you are allowed to opt to contribute from 0 to 10%
of your monthly salary. The law allows ROR scheme participants
to get the same tax deductions as MPF scheme participants.
So, you will get tax deductions of $6,000,
namely, $500 per month for 12 months. |
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| Contributions
made by a self-employed person for himself |
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| 4. |
Q: |
Are
contributions made by a self-employed person for himself to
an MPF scheme deductible under Profits Tax? |
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A: |
Self-employed
person can claim mandatory contributions which he has
made for himself to an MPF scheme as allowable business expenses
under Profits Tax. The maximum
deductible amount for year of assessment 2012/13 is $14,500 ($12,000 for years of assessment up to and including 2011/12 and $15,000
for year of assessment 2013/14 onwards). Any voluntary
contributions made by him are not tax deductible. |
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| A
self-employed person employs his/her spouse |
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| 5. |
Q: |
If
a self-employed person employs his/her spouse to work for
his/her business, whether the contributions made by that self-employed
person for his/her spouse to an MPF scheme are deductible
under Profits Tax? |
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A: |
No,
contributions to an MPF scheme for the spouse of sole proprietor
or partners are not deductible under the Profits Tax assessment
of the sole proprietorship or the partnership. |
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| A
person employed by two or more companies |
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| 6. |
Q: |
A person is employed by two or more companies during the year of assesment 2012/13 and he has made
annual mandatory contribution of $14,500 to the MPF scheme
established by each of his employers. Can he claim
the aggregate of his mandatory contributions made to each
MPF scheme under Salaries Tax ? |
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A: |
Employee
can claim deduction for the mandatory contributions which
he makes to different MPF schemes. However, irrespective of
the amount of mandatory contributions and the number of MPF
schemes the employee has contributed to, the maximum amount
of deduction that he can claim
is restricted to $14,500 for year of assessment 2012/13. Any contributions exceeding this
limit will not be deductible. |
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| Employee's
withdrawals from ROR scheme or MPF scheme |
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| 7. |
Q: |
Are
the employee's withdrawals from the ROR scheme or the MPF
scheme taxable under Salaries Tax ? |
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A: |
Whether
the employee's withdrawals from the ROR scheme or the MPF
scheme are chargeable to Salaries Tax depends on the nature
of the contributions and the circumstances in which the withdrawals
are made. Please refer to paragraph
20 of DIPN No.23 (Revised) for a summary of the Salaries
Tax position of the employees for the withdrawals in the various
scenarios.(This document can be downloaded for viewing and
printing by using the Adobe(R) Acrobat(R) Reader software
which is available free at the Adobe
Systems Incorporated website). |
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| Pension
received under a ROR scheme |
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| 8. |
Q: |
Upon
retirement, I received a lump sum and commenced to receive
a monthly pension under a ROR scheme. Are the lump sum and
monthly pension taxable? |
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A: |
Any
sum received by way of commutation of pension under a ROR
scheme upon retirement is not taxable. However, the exemption
does not apply to monthly pension which is fully taxable. |
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| Pension
received by pensionable civil servants |
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| 9. |
Q: |
I
am a pensionable civil servant. Upon retirement, I received
a lump sum and commenced to receive a monthly pension. Are
the lump sum and monthly pension taxable? |
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A: |
Any
sum received by way of commutation of pension under the Pensions
Ordinance, Pension Benefits Ordinance and Pension Benefits
(Judicial Officers) Ordinance is not taxable. However, the
exemption does not apply to monthly pension which is fully
taxable. |
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| Interface
between ROR scheme and MPF scheme |
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| 10. |
Q: |
The
employer operates a ROR scheme. Will the interface arrangement
with MPF scheme affect the tax liability of the employee?
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It
depends on which interface arrangement has been taken by the
employer and, in appropriate cases, the employee's choice
as to how his accrued benefits in that ROR scheme is dealt
with. In short, the employer may maintain, freeze or wind
up the existing ROR scheme and the various arrangements may
have different tax consequences in the interface. Please refer
to paragraph
38 of DIPN No.23 (Revised) for a summary of the Salaries
Tax position of the employees in various scenarios. (This
document can be downloaded for viewing and printing by using
the Adobe(R) Acrobat(R) Reader software which is available
free at the
Adobe Systems Incorporated website). |
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Employee changes job or his employer
becomes bankrupt |
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| 11. |
Q: |
If an employee changes job or his employer becomes bankrupt,
what is the tax position of his accrued benefits from the
mandatory contributions and any voluntary contributions which
his former employer has made to an MPF scheme ? |
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A: |
Mandatory
contributions of the employee and the employer to the MPF
scheme are immediately vested with the employee. Except under
the special circumstances stipulated in the MPF Ordinance,
the employee can only receive the accrued benefits attributable
to the mandatory contributions when he attains the retirement
age of 65. In any case, the withdrawal by employee from MPF
schemes of his accrued benefits attributable to mandatory
contributions is not assessable to tax.
However, if the employer had made voluntary contributions
to the MPF scheme for this employee, the tax position for
the accrued benefits from these voluntary contributions will
be different. If the employee changes job, regardless whether
the employee chooses to retain the accrued benefits attributable
to the employer's voluntary contributions in the existing
MPF scheme or transfer them to another scheme, the employee
will be deemed to have received the said accrued benefits
in accordance with the provisions of the Inland Revenue Ordinance.
Therefore, that part of the accrued benefits attributable
to employer's voluntary contributions, in so far as it exceeds
the proportionate benefit calculated
in accordance with the provisions of the Inland Revenue Ordinance,
will be subject to Salaries Tax in the year of assessment
when he ceases employment with an employer. |
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| Proportionate
Benefit |
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| 12. |
Q:
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What is meant by proportionate benefit as mentioned in Question
11? |
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A: |
If
an employee has worked for less than 10 years for an employer,
the accrued benefits attributable to that employer's voluntary
contributions withdrawn from the scheme on termination of
service can only be exempt in the proportion of the number
of completed months of service to 120. The proportionate benefit
is that part of the accrued benefits which is exempt from
Salaries Tax. For example :-
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Amount of accrued benefits attributable
to employer's voluntary contributions = $100,000
- No. of complete months of service = 72
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The amount of proportionate benefit
(i.e. the part of accrued benefits in (1) being exempt)
=($100,000x 72/ 120)
= $60,000
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| Payments
received by the employer upon winding up ROR scheme |
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| 13. |
Q: |
In
the interface to MPF regime, the employer has decided to wind
up the existing ROR scheme. Will the payments which the employer
receives back upon the winding up of ROR scheme be taxable
? |
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A: |
Refunds
to the employer may consist of the employer's contributions
to the ROR scheme and any excess recoupments which may represent
the investment income attributable to the employer's contributions.
If the employer's contributions to the ROR scheme had previously
been allowed as deduction in its Profits Tax assessments,
any employer's contributions that are repaid to the employer
are taxable. However, the excess recoupments are not taxable.
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| Loss
incurred by the employer upon winding up ROR scheme |
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| 14. |
Q: |
In the course of interface to MPF scheme, the employer decides
to wind up the existing ROR scheme. If the employer incurs
loss on the disposal of investments held by the ROR scheme,
will this loss be deductible by the employer under Profits
Tax ? |
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No,
the loss incurred is not deductible because the employer and
the ROR scheme are two separate legal persons. |
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Costs
incurred by the employer in establishing the MPF scheme, amending
the rules of or winding up ROR scheme |
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| 15. |
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In
the course of interface to MPF scheme, whether the costs incurred
by the employer in establishing the MPF scheme, amending the
rules of or winding up the ROR scheme are deductible under
Profits Tax? |
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Yes,
the relevant costs are generally deductible. Such expenses
are regarded as effecting a change in the basis in which a
business remunerates its employees and not the structure of
the business per se. However, please note that the cost in
establishing an MPF scheme does not include the initial or
special lump sum contributions to the scheme. There are special
treatments in respect of such initial and special contributions.
(see Question 16) |
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| Initial
or special contributions by employer |
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| 16. |
Q: |
Are
the initial or special contributions by employer to the MPF
scheme deductible under Profits Tax? |
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A: |
Initial
or special contributions by employer to the MPF scheme are
deductible under Profits Tax at an even rate over 5 years
commencing in the year of payment. |
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Regular
and voluntary contributions made by the employer for its employees
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| 17. |
Q: |
The employer has made regular and voluntary contributions
for its employees to the MPF scheme for each year of assessment.
Are such contributions deductible expenses of the employer
under Profits Tax ? |
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Yes,
but the amount deductible is restricted to 15% of the total
emoluments of the employee. However, if any contributions
had been included as provisions in the prior years, and had
been allowed for tax deductions, they cannot be deducted again
in the year of payment to the MPF scheme. |
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| Employers'
responsibilities in filing the Employer's Return |
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| 18. |
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After the commencement of the MPF scheme, are there any changes
to the employer's responsibilities in filing the Employer's
Return? |
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Besides
the reporting of employees' emoluments, the employer is also
required to report the taxable portion of the accrued benefit
that the employees received under ROR schemes or MPF schemes.
As to the circumstances in which the accrued benefits withdrawn
by the employee are taxable under Salaries Tax, please refer
to paragraphs
20 and 38 of DIPN No.23 (Revised) and "Question
11" above. |
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Obligation
under the Recovery Notice Vs the Mandatory Provident Fund
Schemes Ordinance |
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| 19. |
Q: |
An
employer may occasionally receive Recovery Notice issued under
Section 76(1) of the Inland Revenue Ordinance requiring him
to deduct the employee's money for tax payment. Should the
employer fulfill his obligation under the Recovery Notice
before making income deduction under the Mandatory Provident
Fund Schemes Ordinance? |
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The
Department is prepared to accept, in the absence of legal
precedent to the contrary, the income deduction for making
mandatory contributions to a registered Mandatory Provident
Fund Scheme [MPFS] has priority over the income deduction
for paying tax in default. Mandatory contributions
refer to those contributions in respect of which an employer
has the statutory responsibility to make income deductions
under Section 7A(1)(b) and Section 7A(2)(b) of the MPFSO.
They do not cover other contributions including the employee's
voluntary contributions made through the employer under Section
11 of that ordinance.
For enquiry on recovery notice issued by the Department, please
call the telephone number printed on the recovery notice.
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Government's
injection of $6,000 into MPF scheme / MPF-exempted Occupational
Retirement Schemes Ordinance registered scheme members' accounts |
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| 20. |
Q: |
I
have received the Government's injection of $6,000 into my
MPF account. Is the injection amount taxable under Salaries
Tax or Profits Tax? Do I have to report the injection amount
as part of my assessable income in the Tax Return–Individuals?
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A: |
No,
you are not required to report the Government's injection
as part of your assessable income or profits in the Tax Return–Individuals.
The injection is an unsought payment from the government.
It is paid as a measure of the government to enhance the retirement
protection of persons who earn not more than $10,000 a month.
It is unlikely to be from any source of employment or trade
and is non-taxable income. |
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| 21. |
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Are
sums withdrawn upon retirement from MPF schemes or MPF-exempted
Occupational Retirement Schemes Ordinance registered schemes
representing funds from the injection taxable? |
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No,
the sums withdrawn are not taxable. The funds from the injection
are not attributable to contributions from employers or sourced
from any trading transactions. |
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| 22. |
Q: |
As
an employer, do I have to report the Government's injection
in the Employer's Return as part of my employee's assessable
income? |
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No,
it is not necessary to report in the Employer's Return. The
employee does not receive the injection by virtue of being
an employee and such amount is not reportable. |
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