Mandatory Provident Fund
In brief
•Business owners operating in Hong Kong must thoroughly understand and follow corporate tax filing procedures. Corporate tax filing is a crucial part of business operations, and failure to do so can lead to legal issues. Below, we provide a comprehensive explanation of the corporate tax filing process, including filing documents, filing deadlines, filing fees, filing requirements, filing preparation, and post-filing procedures.
Introduction to the MPF System
Employers hiring employees in Hong Kong are statutorily required to enroll in the Mandatory Provident Fund (MPF) and contribute a mandatory contribution equivalent to 5% of the employee's salary, with employees also required to contribute 5% of their own salary.
This article examines general matters related to Hong Kong's MPF system, including employer payment obligations and essential requirements.
While Hong Kong's MPF system appears straightforward, its application can vary significantly by circumstance. The following content is prepared for general understanding; please consult a professional for specific details.
What is MPF (Mandatory Provident Fund)?
Hong Kong's MPF is a pension savings scheme for employees, operated by private institutions under government oversight. While not identical, it can be likened to Korea's National Pension System for ease of understanding. Employers failing to comply with MPF contribution rules may face criminal penalties and fines.
MPF Enrollment Eligibility
Employees aged 18–64 employed continuously for 60 days or more must be enrolled in MPF within 60 days (calendar days) from the hire date. This applies to both full-time and part-time employees.
MPF Calculation Method
Mandatory Contribution
The mandatory contribution is 5% of relevant income (up to a maximum of HK$1,500 per month) for both employer and employee. The employer must deduct the employee’s mandatory contribution from salary and remit it, along with the employer’s share, to the MPF trustee.
(Example: For a monthly salary of HK$20,000, each party contributes HK$1,000 (5%). The employer pays the employee HK$19,000 (after deducting HK$1,000) and remits a total of HK$2,000 to the MPF trustee.)
Relevant income is based on actual monthly payments, including most cash allowances (e.g., meal allowances, transportation allowances, housing allowances) excluding reimbursements.
Voluntary Contribution
Employees and employers may make additional contributions beyond the mandatory amount at their discretion. Companies often provide voluntary contributions as employee benefits. Details on limits, withdrawals, and transfers may vary by MPF trustee.
Other MPF-Related Information
MPF fund investment options are primarily provided by MPF trustees (e.g., banks or insurance companies), and MPF members (employees) select from the options offered.
If an employee does not select a fund investment strategy upon initial enrollment, the Default Investment Strategy (DIS) is applied. Employees may subsequently change their account's investment strategy.
MPF Termination
Normal Retirement Termination
MPF benefits are generally receivable as a pension after the normal retirement age of 65, either in installments or as a lump sum. Specific withdrawal details may vary by MPF trustee.
If reaching retirement age but not applying for withdrawal, or if the member wishes to retain the MPF account, retention is permitted.
Early Withdrawal
Early termination is permitted before reaching retirement age under exceptional circumstances. Qualifying situations include:
- Early Retirement: Withdrawal is allowed after age 60 upon early retirement. A declaration of no intention to seek employment or self-employment is required. If re-employed or starting self-employment before age 65, re-enrollment in MPF is mandatory.
- Emigration Overseas: Regardless of age, early withdrawal is possible upon declaration and proof of permanent departure from Hong Kong. This early withdrawal reason can only be used once. For example, if MPF is withdrawn intending not to return to Hong Kong but later returning, MPF contributions must resume, and early withdrawal cannot be claimed again for the same reason.
- Other Cases: Medical certification of total incapacity for normal work, terminal illness prognosis, or death.
Tax Effects of MPF Contributions
MPF contributions provide tax deduction benefits for both employers and employees. Employers can claim deductions up to 15% of an employee's annual salary as expenses, while employees can claim income deductions up to 5% of their salary (maximum HK$18,000).
Employees may also enroll in tax-deductible voluntary contribution products for additional deductions. Note that to qualify for these benefits, enrollment must be in MPF schemes specifically designed for tax deductions.
Offsetting MPF Contributions Against Severance Payments
Under Hong Kong employment law, employees with 2 or more years of service qualify for severance payment (Severance Payment) in specific circumstances, such as redundancy layoffs. Employees with 5 or more years of service qualify for long service payment (Long Service Payment) under certain conditions (e.g., health reasons, death, or resignation due to retirement). (No duplicate payments required.)
Severance is calculated as two-thirds of the monthly salary in the month prior to termination (or the average monthly salary over the prior 12 months) multiplied by years of service. (Monthly salary cap: HK$22,500; total cap: HK$390,000.)
Employers may currently offset severance against vested MPF mandatory contributions. Offset methods include: (1) the employer advances the severance to the employee and recovers the amount from the MPF trustee; or (2) the employee receives the offset amount directly from the MPF trustee.
Note that a bill prohibiting the offsetting of MPF mandatory contributions against severance payments has been proposed, effective from 2025. If enacted, offsets could be banned as early as 2025, so employers should monitor legislative updates and prepare accordingly.
Conclusion
Hong Kong's MPF system may appear straightforward but involves numerous details requiring attention. To prevent errors and ensure compliance, engaging professional assistance is recommended.
Olive & Vine provides MPF management along with various HR services. For inquiries on this topic or other Hong Kong corporate matters, please contact contact@oliveandvinehk.com or use the customer support section on our website.
Frequently Asked Questions (Q&A)
Yes. For regular employees, enrollment is mandatory if the employment period is 60 days or more, regardless of working hours. For casual employees, MPF enrollment is required regardless of the length of employment. (Please note that the definitions of regular and casual employees in Hong Kong differ from those in Korea, so careful interpretation is required.)
For regular employees, even if each contract is less than 60 days, continuous employment will be regarded as maintaining an employment relationship of 60 days or more, and MPF enrollment is therefore required. The 60-day condition applies only to regular employees. Casual employees must enroll in MPF regardless of the employment period. (As the distinction between regular and casual employees in Hong Kong differs from Korea, careful interpretation is necessary.)
In this case, you will have MPF accounts under more than one scheme. You may choose to transfer and consolidate your existing MPF assets into the new MPF scheme, or retain them in the existing scheme. If you do not have the details of your previous MPF at the time of joining the new employer (which often happens immediately after changing jobs), you may apply for the transfer personally at a later stage without your employer’s assistance. The decision is entirely up to the individual.
Yes. Self-employed persons in Hong Kong must enroll in the Mandatory Provident Fund (MPF) scheme.
The company’s MPF trustee is selected by the employer, and during the employment period, the employer contributes to the MPF scheme chosen by the employer. Employees may transfer their own contributions (excluding the employer’s portion) to a personally selected MPF scheme once per calendar year. Even after such a transfer, the employer continues to make contributions to the employer-selected MPF scheme.
Enrollment in MPF is exempt if covered by an overseas retirement scheme or if the employment period in Hong Kong is 13 months or less. If employment is initially 13 months or less without enrollment but is extended, MPF enrollment is required starting from the 14th month.
If MPF information is lost, contact the Mandatory Provident Fund Schemes Authority (MPFA) at www.mpfa.org.hk.
Mandatory contributions for employees with monthly income below HKD 7,100 are exempt; however, the employer must still enroll and make their mandatory contributions. If personal MPF account details are lost, refer to the response for Q7.
Additional contributions are voluntary and determined by the employment contract or the employer’s welfare policy between the employer and employee, with no legal requirement.
This material covers general information and does not provide solutions for any specific issues of any company or individual. Differences in legal terms may exist due to the translation into Korean to aid understanding. Olive and Vine does not assume any legal responsibility or guarantee the accuracy, completeness, or usefulness of this information. This material cannot replace legal or consulting advice; please consult with a professional if necessary.
