Hong Kong is a great place to incorporate a company and start your own business. Several essential factors exist to become an employer in this region, including the Mandatory Provident Fund.
The Mandatory Provident Fund represents employee benefits and a unique type of retirement savings. All eligible employees must register under the Mandatory Provident Fund and make monthly contributions.
The employee category will determine whether employers will contribute to the MPF. But what exactly is this fund? How does it affect employers and employees? Keep reading to find out. This piece will reveal everything you need to know about the MPF contribution in Hong Kong.
You can avoid sanctions and penalties by learning essential details about the MPF contribution Hong Kong companies are obliged to make.
What is the Mandatory Provident Fund (MPF) in Hong Kong?
The Mandatory Provident Fund, also known as MPF, is a special savings scheme that serves as the retirement savings of Hong Kong citizens. Employed and self-employed citizens can benefit from this retirement scheme.
Employers and employees are mandated to be a part of this scheme. However, there are a few exceptions to this inclusion. Low earners, certain professions, and non-citizens may decide not to participate in the Mandatory Provident Fund.
Multinational companies based in Hong Kong with local staff between 18 and 64 years are expected to enrol their employees in the Mandatory Provident Fund by the 60th day of their employment. They are required to register full-time and part-time employees.
However, casual employees must be registered from their first day of employment.
What are the 3 Types of MPF Schemes in Hong Kong?
There are three types of schemes applicable for the MPF contribution Hong Kong companies are obliged to make:
- Master Trust Schemes
- Employer-sponsored Schemes
- Industry Schemes
1. Master Trust Schemes
The Master Trust Scheme is the most common type of MPF contribution Hong Kong. The benefits of this fund are offered to employees of eligible companies, former employees, and self-employed individuals with special benefits. This type of MPF gets contributions from several participants at varying risk levels. They are suitable for small and medium-sized employers.
What are Common Investment Options for Master Trust Schemes?
They include:
- Money Market Funds – These are short-term securities that yield high interests. They are low-risk securities. Its administrative fees are a percentage of the real asset value.
- MPF Conservative Fund – This is a unique money market fund renowned for investing only in short-term and long-term Hong Kong assets. They are a low-risk fund. Administrative fees are paid for only months that meet or exceed the recommended savings rates.
- Guaranteed Fund – These are investments with considerably low risk. They are suitable for companies avoiding my volatility. The amount of risk for this type of fund depends on the conditions of the guarantee. There are strict conditions such as withdrawal limits and minimum investment allowed.
- Bond Fund – These funds reward investors with stable income from interest. They are low – medium risk investments and are renowned for their stability. Administrative fees are calculated as a percentage of the asset value.
- Mixed Asset Funds – These funds reward investors with asset appreciation and high ROI. They are medium – high-risk investments and are flexible enough to meet different stages of investment.
- Equity Fund – These funds use stocks for capital appreciation and to increase the rate of return. These funds are relatively high-risk investments. Administrative fees are calculated as a percentage of the overall asset value.
- Index Fund – These funds use stocks to earn high return rates. They offer medium-high risk for investors. They require lesser administrative fees than other security types because they are traded less frequently.
2. Employer-Sponsored Schemes
This is another popular type of MPF contribution Hong Kong. It’s meant for larger companies with the resources to create custom pension schemes. They don’t need to pool resources with other companies. These companies usually have a large number of staff or employees. While master trust schemes can be financed by various investment options, employer-sponsored schemes will be financed by options provided exclusively by the employer.
3. Industry Schemes
Certain industries have a high mobility of labour. This can have adverse effects on the retirement benefits of employees. Employees who change jobs regularly may miss out on special benefits. But the MPF is compulsory. As a result, these industries have designed a scheme to fit these types of employees. Construction workers and caterers are popular examples of people with mobility of labour. They can register under industry schemes to protect their retirement benefits. These schemes are not tied to any employer and will not be affected by a change in the workplace.
How to Choose a Suitable Scheme For MPF Contribution Hong Kong
Small and medium-sized employers must choose a suitable scheme for their MPF contribution Hong Kong companies are obliged to make. However, if you have many employees or casual workers, you may create your scheme or allow them to opt for industry standards.
Choosing a scheme for the MPF contribution Hong Kong companies must make can be plenty of work. You’ll need to consider the company size, financial stability, risk of investment funds, and any miscellaneous charges associated with the scheme.
Other factors, like your workforce’s average age, will also come into play. When you settle on an investment portfolio, focus on its risk level and the administrative fees you’ll pay to fund it. Next, create a default investment strategy. It’s a good idea to include some level of flexibility.
Add options that your employees can use to create their investment strategy. These options will consider each individual’s age, income level, and retirement goal.
If you are choosing a Master Trust Scheme, you’ll have various portfolio options to settle on. The scheme you choose must have the capacity to satisfy the needs of your workforce.
Seven funds fall under the Master Trust Scheme, including MPF Conservative Fund, Bond Fund, Guaranteed Fund, Money Market Fund, Mixed Asset Fund, Equity Fund, and Index Funds. Each of them has different risk levels.
How to Enrol for MPF Contribution Hong Kong
All employers must register their staff aged between 18 and 64 years with the MPF contribution Hong Kong within 60 days of employment. The 60-day period will also include the employee’s probation.
If the 60th day falls on a weekend or public holiday, the deadline will be moved to the next work day. The following documents are essential to enrol employees for the MPF contribution Hong Kong:
- Employee particulars
- The preferred MPF scheme
- Certifications on Tax Residency
- Employee signature
When you’re done filling out the MPF form, submit it to a trustee and create an account. The employee will become part of the MPF scheme as soon as the enrolment is approved. Notice of participation will be issued to staff after approval. This notice will include:
- MPF Scheme where employees have registered
- Name and address of Trustees
- Name of the employee
- Date when the notice was issued
If the employee fails to complete the employment form, they still need to submit it to the trustee on or before the deadline. Employers that fail to submit the enrolment form by the 60th day of employment will be subject to a fine of HKD350,000 and 3-year imprisonment.
Who is Exempted from MPF Contribution Hong Kong?
Every policy has an exemption, which applies to the Mandatory Provident Fund. The following are exempt from the MPF contribution Hong Kong:
- Domestic employees who work at their employer’s residence. This may include security personnel, domestic servants, babysitters, and gardeners.
- Employees and self-employed individuals younger than 18 years or older than 65. Anyone who is 64 years or older by December 1st is close to retirement and will not be allowed to participate in the MPF Hong Kong
- Self-employed hawkers
- Individuals who are already covered by provident fund schemes or statutory pensions
- Participants of occupational retirement schemes who have been offered MPF exemption status
- Foreign individuals who have migrated to Hong Kong under section 11 of the Companies Ordinance. This type of employment usually does not exceed 13 months. It is covered by foreign retirement schemes
- European Union Commission Employees in Hong Kong
What are Employer Contribution Obligations to MPF Contribution Hong Kong?
Employers and employees are obliged to partake in the MPF contribution Hong Kong. Both parties are expected to contribute 5% of the relevant income to the MPF scheme.
If the employee’s income is less than the minimum relevant income of HKD 7,100, there must still be contributions to the MPF. But if the employee’s income exceeds the maximum income level of HKD 30,000, contributions will be capped at HKD1,500.
The following table defines the contributions of employers and employees:
| Monthly Relevant Income | Employer’s Contribution | Employee’s Contribution |
|---|---|---|
| Less than 7,100 HKD | 5% of relevant income | N/A |
| 7,100 – 30,000 HKD | 5% of relevant income | 5% of relevant income |
| More than 30,000 HKD | 1,500 HKD | 1,500 HKD |
Let’s review two examples on the calculation of MPF contribution Hong Kong companies make.
John works for company XYZ and earns a relevant income of HKD15,000 per month. He must contribute 5% of his income (HKD750) to the MPF. Company XYZ will also contribute 5% of the relevant income (HKD750) to the MPF.
Zho works for company ABC and earns a relevant income of HKD50,0000 per month. Zho will pay the maximum contribution of HKD1,500 to the MPF contribution Hong Kong. Company ABC will also pay a maximum contribution of HKD1,500 to the MPF.
All MPF contributions must be made on the 10th day of the next month. New employees employed for less than 60 days are entitled to a contribution holiday. Their first contribution should be paid to any applicable trustees by the 10th day of the month after the 60-day period passes.
Are MPF Contributions Taxable in Hong Kong?
Employers and employees can claim tax deductions on MPF contributions. Employers can claim about 15% of the employee’s annual salary. However, these deductions are capped at 15%. Employees can claim a maximum of HKD18,000 when filing their taxes.
How Premia TNC’s Company Incorporation Services Can Help
As mentioned earlier, the MPF contribution Hong Kong companies are obliged to make is crucial to company incorporation. Employers need to plan to contribute to the MPF from their incorporation. But it’s easier said than done. That’s where our services can help your business.
Premia TNC is a business consultancy firm with the expertise to help your firm achieve its goals. Our experts will simplify your incorporation process.
It’s our job to take the burden off you and fulfil all professional requirements you need to get up and running, including registering your firm with the MPF contribution Hong Kong. We have a team of experts experienced in dealing with several customers.
Hiring us for your company incorporation is a cost-effective way to achieve your goals. Asides from company incorporation, we also offer secretarial, accounting, and taxation services. Ready to get started? Contact us for a free consultation.
MPF Contribution Hong Kong – Frequently Asked Questions
1. Are MPF contributions made by employees tax deductible?
Employees can claim tax deductions on contributions made to MPF contribution Hong Kong. But the maximum amount that can be claimed is stipulated by the Inland Revenue Ordinance.
2. Are contributions tax deductible if an employer uses a renowned occupational retirement scheme distinct from the MPF contribution Hong Kong?
An employee’s contributions to retirement schemes outside the scope of the MPF are tax deductible.
However, the tax-deductible amount will depend on contributions to the retirement scheme in the year of assessment, the amount of mandatory contributions required to be completed, and the maximum deductible amount in the assessment year.
3. Can an employee of two companies registered to two MPF schemes claim aggregate contributions for both?
Employees can claim aggregate contributions for both MPF schemes. However, his or her claim is capped at a maximum amount of HKD18,000 for both schemes.
It doesn’t matter the total aggregate amount contributed to the MPF schemes. Any contributions exceeding this limit will not be accessible.
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