What is Mandatory Provident Fund in Hong Kong

Hong Kong, crowned Asia’s premier financial hub is a popular business destination. As a new employer in Hong Kong, there are certain rules and different regulations that you need to be made aware of. There are numerous different regulations and schemes which people in Hong Kong must follow. This is especially seen with the Mandatory Provident Fund (MPF).

MPF stands for ‘Mandatory Provident Fund’, which is a compulsory savings scheme that covers all employees and self-employed people aged 18-64 in Hong Kong. To many people, it is a safety net for your retirement in Hong Kong. For others, it is a stockpile of money that can be used and taken out in time on the promise you have fully stopped working in Hong Kong. The MPF scheme and ordinance (MPFSO) was created and initiated by the Hong Kong Government in response to the rapidly ageing workforce back in 1995. The MPFSO creates a framework for implementing employment related MPF schemes for workers in the labour force to receive financial benefits when they retire.

Following this move, the MPFSA was set up in 1998 to administer the operation of the MPF System which was eventually launched in the year 2000. As of 2015, over 85% of the labour force in Hong Kong was safeguarded with some form of retirement protection plan. This is a dramatic increase of only 33% in 2000. Now that you’re familiar with the MPF we will now get into things that you get as an employer in Hong Kong. This includes opening an MPF account, making MPF contributions and MPF tax deduction.

The Different types of MPF Schemes

In total there are three different types of MPF schemes:

• Master Trust Schemes
• Employer-sponsored Schemes
• Industry Schemes

Master Trust Scheme

The Master Trust Scheme is the most common of the three different types of MPF schemes. It operates by pooling together contributions from different participating employers and their employees, as well as the self-employed. This scheme is open to workers whose employers are also participating in the Master Trust Scheme, as well as self-employed individuals with accrued current benefits. Examples of this are sick pay and personal time-off, which can be transferred from other schemes.

Employer-Sponsored Scheme

The employer-sponsored scheme is a limited to employees of a singular employer and any affiliate companies. Due to membership restrictions, the scheme is significantly more cost-effective for larger corporations rather than SMEs

Industry Scheme

The industry scheme is a scheme only applicable for those employees where there is a labour demand. This is more common if the business applying for the industry scheme MPF is in the catering or construction industry. This is also common if the employee in the company are casual employees. This means the employee is hired for a short-term engagement with less than 60 days. These casual employees are not required to change schemes when they change your occupation as long as they remain in these two specific industries, provided that the old and new employers have a registered number under the same industry name.

How do you choose which MPF scheme is best for you

Because the main purpose of the MPF is to provide means of a retirement fund for the employees of the business, some major factors to consider when deciding which type of Mandatory Provident Fund you wish your employees will take will be dependent on numerous factors such as

• Company stability
• Level of funds at risk
• Miscellaneous Charges
• and Customer Support (when choosing your trustee)

How do you enrol your employees in an MPF Scheme?

Enrolling your full-time and part-time employees into an MPF scheme within the first 60 calendar days of employment (not working days) is your legal obligation as an employer.

Your employee’s probation period is included within the 60-day employment rule. The process to enrol your employees in an MPF scheme is easy to digest and quite straightforward:

1. Provide your employees with an enrolment form for your MPF scheme of choice
2. They will then need to indicate to you their investment portfolio (there types of funds), personal particulars, self-certification which includes their tax residency (This is where they need to indicate whether they have been taxed outside of Hong Kong) and sign a form confirming whether they have or have not.
3. They will then submit a completed form to your trustee to set up an MPF account.

If your employee is unable to return the completed information to you by the expected time frame, the employer is still legally required to submit the form to your trustee before the 60-day deadline to fulfil your obligation as an employer even if its incomplete.

What is the employer contribution to MPF?

Both you as the employer and the employee must contribute 5% of the employee’s relevant income as mandatory contribution unless they are exempted under the MPF Schemes Ordinance. You are required to contribute to your employee’s income, even if it falls below the minimum monthly relevant income rate. This rate is capped at $1,500 if your worker’s income exceeds the maximum income level. If you have chosen to enrol your more casual employees in the Industry Scheme, your employer contribution will be based on their daily income not monthly income. Here is a table for employer MPF contribution scale:

If you want to improve your workers’ retirement protection, you can make additional voluntary MPF contributions on top of the mandatory 5%. Arrangements of such voluntary contributions are defined by the scheme, which you can find out from your designated trustee.

When do I start making MPF contributions for my workers?

You will need to remit contributions to your employees once every contribution period, which usually is in line with the salary period. Here is a general overview of the steps you will take:

1. You need to calculate your employee’s relevant income.
2. Then calculate your mandatory contribution for each salary period with MPF Calculator.
3. Deduct the employee’s mandatory contributions from their income.

Filing Tax Deductions for MPF Contributions

Employers can claim tax deductions for your mandatory and voluntary contributions under Profit Tax to the extent that is does not exceed 15% if your employee’s annual income. Depending on your business nature, you will need to file the profit tax return and supplementary forms with the IRD (Inland Revenue Department). If your business is a newly registered business, you will receive your first profits tax return about 18 months after the date of commencement or incorporation. This will need to be filed within 1 month from the date of issue. Employers who are eligible for e-filing services and choose to do so will be given a 2-week extension from the default due date.

Do you need any help with your MPF Filing? Primasia would be happy to assist you with understand how to manage your mandatory provident fund and how to incorporate your business in Hong Kong from anywhere in the world. Please click here to visit the  Primasia Corporate Services website and learn more about company registration in Asia, as well as the wide range of corporate services we offer.

Primasia Corporate Services is a Hong Kong based corporate services provider that has been supporting its clients in Asia for over three decades. Among several of our services, Primasia Hong Kong (Primasia) offers our clients Online Accounting services, China Company Incorporation services, Virtual CFO services, MPF Filing services, Profit tax filing services, Employment return filing services, Wholly Foreign Owned Enterprise (WFOE) incorporation and registration services etc. One of our services which we are proud to be offering our clientele is our investment visa and working visa Hong Kong services.

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