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  • HONG KONG

    New tax-deductible contributions to enhance long-term retirement and healthcare benefits

HONG KONG - New tax-deductible contributions to enhance long-term retirement and healthcare benefits

May 2019

Good News for taxpayers! Two new amendments have been passed that aim to encourage individuals to save more for their retirement and healthcare.

The Inland Revenue and MPF Schemes Legislation Bill 2018 was passed on 20 March 2019.  This encourages taxpayers to contribute more to their long-term retirement benefits. Taxpayers will be able to claim concessions on salaries tax and personal assessment for qualifying deferred annuity premiums and voluntary contributions to the newly introduced Mandatory Provident Fund Tax Deductible Voluntary Contributions (MPF TVCs) scheme.

In addition, the Voluntary Health Insurance Scheme – Inland Revenue (Amendment) (No. 4) Bill 2018 (VHIS Amendment 2018) was passed on 31 October 2018.  This provides tax concessions to taxpayers who pay qualifying premiums for themselves or specified relatives under the certified Voluntary Health Insurance Schemes (VHIS).  Both of these amendments were introduced on 1 April 2019.   

Existing employee Mandatory Provident Fund (MPF) contribution schemes

Currently, an employee’s mandatory MPF contributions are capped at HKD1,500 a month for each job they hold. In each year of assessment, a cap of HKD18,000 of an employee’s mandatory contributions is tax-deductible. However, employee’s voluntary contributions paid into the traditional recognised MPF scheme are not tax-deductible.

New MPF tax-deductible voluntary contributions

Voluntary contributions made to the Mandatory Provident Fund Tax Deductible Voluntary Contributions (MPF TVCs) scheme are tax-deductible voluntary contributions that an employee chooses to make on top of their mandatory contributions and requires no employer involvement.

The administration costs of handling both tax-deductible and non-tax-deductible voluntary contributions within one account would be substantial. Therefore, taxpayers who want to make employee’s voluntary contributions to the MPF TVC scheme need to set up and pay into a different contribution account in order to receive tax concessions for making those voluntary contributions. 

Individuals who are currently participating in an occupational retirement MPF-exempted (ORSO) scheme can also choose to open an MPF TVC account with an MPF Trustee and benefit from the tax incentives for making these voluntary contributions.

Each eligible person can have only one MPF TVC account under a registered scheme. A person is eligible for an MPF TVC account if they are:

  • A current employee member of a registered MPF scheme;
  • A current self-employed member of a registered MPF scheme;
  • A current personal account holder of a registered MPF scheme; or
  • A member of an MPF-exempted ORSO scheme.

Tax deductions

The maximum tax-deductible amount for contributions to qualifying deferred annuity premiums (QDAPs) under a qualifying deferred annuity and/or an MPF TVC scheme is HKD60,000 for each individual. This amount includes MPF TVC and QDAP contributions. 

Table 1 gives details on tax deductions that apply to QDAPs and MPF TVCs.

Table 1: Tax deductions for QDAPs and MPF TVCs (existing and new)

 

Year of assessment 2018/19 (Existing)

Year of assessment 2019/20 (new)

Contribution type

Tax deductions

Tax deductions

Mandatory employee contributions to recognised MPF scheme

Capped at HKD18,000

Capped at HKD18,000

Voluntary employee contributions

None

None

Voluntary employee contributions to MPF TVC scheme and/or QDAP

Not applicable

Capped at HKD 60,000*


* For married couples with joint annuitants, a taxpayer can also claim for tax deductions on deferred annuity premiums paid that cover the spouse as joint annuitant.  Alternatively, the taxpayer or their spouse can be treated as a sole annuitant. A taxpaying couple can also allocate total tax deductions of HKD 120,000 between them to deferred annuity premiums, although deductions claimed by each taxpayer must not exceed the individual limit.

Withdrawal rules on accrued benefits

Accrued MPF benefits from mandatory contributions are paid to MPF scheme members upon retirement at age 65, with exceptions in specific circumstances.

The same restrictions on withdrawing accrued benefits from mandatory contributions applies to the MPF TVC. Table 2 provides more details.

Table 2: Withdrawal rules for accrued benefits (MPF schemes)

Voluntary employee contributions to recognised MPF accounts

Mandatory employee contributions to recognised MPF accounts

Contributions to MPF TVC accounts*

The rules remain the same:

 

The rules remain the same:

The rules follow those for mandatory contributions:

No preservation requirements

In general:

  • upon retirement at age 65

In general:

  • upon retirement at age 65

With exceptions in any of the following situations:

  • early retirement at the age of 60 or over; 
  • permanent departure from Hong Kong;
  • terminal illness;
  • total incapacity;
  • a balance of not more than HKD 5,000 in the MPF scheme; or
  • death.

 

With exceptions in any of the following situations:

  • early retirement at the age of 60 or over; 
  • permanent departure from Hong Kong;
  • terminal illness;
  • total incapacity;
  • a balance of not more than HKD 5,000 in the MPF scheme; or
  • death.

*Effective from 1 April 2019 for the year of assessment 2019/20 and after.

What should employers do to meet employees’ requirements?

Employees can set up an MPF TVC account with an MPF Trustee and make direct payments through the trustee without going through their employers. However, employers still need to consider how they can meet their employees’ requirements.

  • If employees currently make voluntary contributions to the company’s MPF scheme, the company might want to advise employees of the TVC Amendment 2018 so that employees can consider setting up an MPF TVC account and make voluntary contributions to the MPF TVC account instead to benefit from the tax deductions on their contributions.
  • The company may also want to ask employees whether they wish to continue making voluntary contributions to the existing MPF scheme (due to its flexible withdrawal rules) or whether they would prefer to make voluntary contributions to an MPF TVC account.

Voluntary Health Insurance Scheme (VHIS)

Another new tax deduction that will come into force in the year of assessment 2019/20 applies to qualifying premiums paid into a government certified VHIS from 1 April 2019.  Taxpayer or spouse may claim tax deductions of up to HKD8,000 per insured person on salaries tax or personal assessment for premiums paid to the certified plan under Voluntary Health Insurance Scheme as policyholder for each year of assessment from year of assessment 2019/20.  The taxpayer can also claim for qualifying premiums paid for specified relatives, such as their husband or wife. There are no limitations on the number of qualifying insured persons whose premiums the taxpayer can claim deductions against in a year of assessment.

The introduction of the tax deductions for annuity premiums and voluntary MPF contributions, in addition to voluntary health insurance premiums, will be welcomed by all Hong Kong citizens who can claim a deduction under salaries tax or personal assessment. The above tax incentives for individuals are effective public subsidies to enhance retirement and healthcare benefits for the aging population of Hong Kong.

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Jospeh Hong
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