The Hong Kong tax information below is of a general nature only. Professional advice should be sought prior to investing in the InterRetire Trust.
All employees aged between 18 and 65 years must join a Mandatory Provident 'MPF' scheme unless the employee is exempt from the MPF requirements.
Questions and answers are provided below for Hong Kong employers and employees considering investing into InterRetire.
Mandatory Provident Fund 'MPF' scheme is an employment-based retirement system into which employers and employees must make contributions to fund the employees' retirement benefits. Operations of MPF schemes are subject to the Mandatory Provident Fund Schemes Ordinance which took effect from 1st December 2000.
A MPF scheme is set up as a trust and administered by an approved trustee, who processes the contributions from employers and employees, appoints investment managers to manage the assets of the scheme and provides various administrative services pursuant to the requirements of the MPF legislation. More information can be found on the MPF website.
Who is exempt from the MPF scheme?
The following selected categories are relevant for international employers and their expatriate employees:
Expatriate employees or self-employed persons who are given permission to work in Hong Kong for a period of not more than 12 months or covered by overseas retirement schemes.
Members of an Occupation Retirement Scheme (ORSO) which are 'exempted schemes' (as specified in the MPF Ordinance). More detailed information on 'exempt schemes' rules is provided below and can be found on the MPF website.
What are the mandatory contributions?
> HK$6,500 -
5% of income
5% of income
5% of income
Can voluntary contributions be made above the mandatory contributions?
Both employers and employees may make voluntary contributions if they wish.
Can an employee and employer make voluntary contributions into either MPF or another scheme?
If an MPF scheme has already been set up for the employees, and the employer (and/or the employee) wants to make additional contributions on top of the mandatory contributions the additional contributions may be made into the MPF Scheme as voluntary contributions.On the other hand, the employer may choose to establish a separate retirement scheme as a top-up scheme for the purpose of providing additional benefits to employees.
The benefit of using a separate top up scheme to house the additional contributions is that the employer can direct the investment of the contributions whereas if contributed to a MPF scheme, the employees will control the investment of the entire contributions.
What conditions must the Hong Kong employer follow to establish a top up scheme?
An occupational retirement scheme set up voluntarily by the employer is regulated by the Occupational Retirement Scheme Ordinance (the 'ORSO Ordinance'), which has a wide scope and applies to all schemes operated in and from Hong Kong.
Offshore schemes providing benefits to members employed in Hong Kong are also covered by the ORSO Ordinance. Employers who operate occupational retirement schemes that fall under the ambit of the ORSO Ordinance are required to apply for registration or exemption of their schemes.
What are the requirements for registration or exemption of a top up scheme?
Under section 7(4) of the ORSO Ordinance, the following categories of occupational retirement schemes may apply for a certificate of exemption:
Offshore schemes registered or approved by an authority in a country, territory or place outside Hong Kong and that the authority performs in that country, territory or place functions which are generally analogous to the functions conferred on the Registrar of Occupational Retirement Schemes (the 'Registrar') by the Ordinance.
Existing scheme (whether domiciled in Hong Kong or offshore) with not more than either 10% or 50 of that scheme's members, whichever is less, who are, on the date of application, Hong Kong permanent identity card holders.
Proposed scheme (whether domiciled in Hong Kong or offshore) with not more than either 10% or 50 of that scheme's members, whichever is less, who will be, on the establishment of the scheme, Hong Kong permanent identity card holders.
An application for an exemption certificate in respect of a scheme has to be made to the Registrar on Application Form ORS-3 which is available for downloading from the MPF website under the section 'ORSO-Forms”. Applying for exemption under the second route is a straightforward exercise and there are no onerous ongoing compliance requirements.
Who can claim a tax deduction?
Employer's contributions to an MPF scheme (including mandatory and voluntary contributions) together with any contributions to a top up ORSO scheme (if applicable) is tax deductible up to 15% of employee's total yearly emoluments.
Employers may want to make contributions to a retirement scheme so as to recognise the years of services an employee has with an employer. In this situation, the contributions in respect of their prior years of services or “special contributions” will only be deductible over a five-year period and subject to the “reasonableness” test.
Alternatively, an employer may want to set up a defined benefit scheme. Any contribution that is made to fund a shortfall can be tax deductible over a five year period, again subject to the reasonableness test.
Employee's contributions are tax deductible to the employee up to HK $15,000.
Payout of employer's mandatory contribution and the attributable earnings are not taxable. Payout of voluntary contributions from a MPF scheme or an ORSO registered scheme upon the death or retirement is generally not taxable. If the payout is made upon a mere termination of services, there will be a 10% exemption for every year of service that the recipient has with the employer. Earnings on contributions are always not taxable.
The above is general information and should not be relied on by any person without first obtaining appropriate legal or tax advice from a professional qualified in Hong Kong).
Individual professional advice can be arranged in respect of the appropriateness of the InterRetire Trust under Hong Kong taxation laws by a referral to a number of Hong Kong international accounting firms.
For further enquiries, please contact InterRetire: [email protected]