Mandatory Provident Fund ("MPF scheme")

Employee can claim a tax deduction under Salaries Tax for the mandatory contributions that he makes to an MPF scheme. The maximum deductible amount should not exceed the amount prescribed in the Inland Revenue Ordinance.

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:-

• his contributions to the MPF-exempted ROR scheme in the year of assessment;
• 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
• the maximum deductible amount (see Answer 1) for the relevant year of assessment.

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.

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  should not exceed the amount prescribed in the Inland Revenue Ordinance.

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.

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 $18,000 for year of assessment 2022/23. Any contributions exceeding this limit will not be deductible.

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 "Employer's Tax Obligation under MPF schemes and Recognized Occupational Retirement schemes".

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.

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.

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 50 of DIPN No.23 (Revised) for a summary of the Salaries Tax position of the employees in various scenarios. (PDF file can be opened by Adobe Acrobat Reader which is available at the Adobe Systems Incorporated.)

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.

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 :-

1. Amount of accrued benefits attributable to employer's voluntary contributions and related investment return = $100,000
2. No. of complete months of service = 72
3. The amount of proportionate benefit (i.e. the part of accrued benefits in (1) being exempt)
   =($100,000x 72/ 120)
   = $60,000

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.

No, the loss incurred is not deductible because the employer and the ROR scheme are two separate legal persons.

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)

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.

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.

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 "Employer's Tax Obligation under MPF schemes and Recognized Occupational Retirement schemes"  and "Question 11" above.

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.

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.

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.

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.