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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
amount deductible for each year of assessment is $12,000.
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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$12,000. |
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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 an 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 dedcutions 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 amount that can be claimed
for deduction is $12,000 for each year of assessment. 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 and he has made annual mandatory
contribution of $12,000 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 for each year of assessment is restricted
to $12,000. 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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A: |
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 :-
- Amount of accrued benefits attributable to employer's
voluntary contributions = $100,000
- No. of complete months of service = 72
- 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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| Recovery
of tax under Section 76(1) of the Inland Revenue Ordinance
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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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A: |
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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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. |
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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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