MPF tax deduction in Hong Kong: how mandatory contributions cut your salaries tax

This article is a rewrite of a report from April 2012.

When the “green bomb” (tax return) lands each April, employees must declare salaries tax — and self-employed people profits tax — but many forget to claim the MPF mandatory-contribution deduction. For the 2011/12 tax year it was worth up to HK$2,040, and skipping the field meant giving it up.

How does the MPF tax deduction work?

Claiming the MPF tax deduction was straightforward: in Part 4, item 4.3 of the individual tax return — “mandatory contributions to recognised retirement schemes in the capacity of employee” — members entered the total mandatory contributions made in the tax year, deducting that amount from assessable income. Recognised schemes covered both MPF and ORSO occupational retirement schemes. Self-employed people claimed the same deduction against profits tax.

How much tax could you save?

Assuming monthly mandatory contributions at the then-cap of HK$1,000, the annual total was HK$12,000. Under the 2011/12 progressive rates:

No matter how many MPF schemes a member joined, the annual deduction was capped at HK$12,000 for 2011/12 — extra accounts did not raise it.

Were voluntary contributions deductible?

Employees got no tax deduction for voluntary contributions, but employers did: mandatory plus voluntary contributions an employer made for an employee, up to 15 per cent of the employee’s total annual remuneration, were deductible against profits tax.

What changed when the contribution cap rose?

From June 1, 2012, the maximum relevant income rose from HK$20,000 to HK$25,000 a month, lifting the mandatory-contribution cap from HK$1,000 to HK$1,250. That did not affect the 2011/12 return, but from 2012/13 the deductible amount rose — to HK$14,500 for members earning HK$25,000 or more a month, and to HK$15,000 for 2013/14 if the income ceiling stayed unchanged.