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24 June 2019 | by LexisNexis Hong Kong

The Hong Kong Government introduced the Inland Revenue and MPF Schemes Legislation (Tax Deductions for Annuity Premiums and MPF Voluntary Contributions) (Amendment) Bill 2018 (“Amendment Bill”) to encourage voluntary savings for retirement. The Amendment Bill was passed by the Legislative Council on 20 March 2019 and came into effect on 1 April 2019.

Previous position

The current MPF mandatory contributions by employees are tax deductible under salaries tax, personal assessment and profits tax for the self-employed.

The existing mandatory MPF contribution for an employee is 5% of the relevant income. Under the preservation requirements, scheme members can withdraw the accrued benefits at the age of 65 or subject to conditions by law in circumstances such as an early retirement at age 60 or above. Such grounds include permanent departure from Hong Kong, total incapacity, terminal illness, small balance in an MPF scheme and death.

Voluntary MPF contributions are not subject to preservation requirements and not tax deductible.

New Amendments to tax deductions

On top of their mandatory contributions, employers, employees and self-employed persons are free to make voluntary contributions. A taxpayer’s aggregated maximum tax-deductible limit is HKD$60,000 per year for both deferred annuity premiums and MPF TVCs. For claiming the said tax deductions, a taxpayer could make MPF TVCs of HKD$60,000, pay HKD$60,000 of deferred annuity premiums, or purchase a combination of both the MPF TVCs and a qualifying deferred annuity.

For a married couple, tax deduction for deferred annuity premiums can cover for the couple as joint annuitant, or either the taxpayer or the taxpayer’s spouse as a sole annuitant. A taxpaying couple can also allocate tax deductions for deferred annuity premiums amongst themselves, in order to claim the total deductions of HKD$120,000, provided that the deductions claimed by each taxpayer do not exceed HKD$60,000.

Conclusion

The Amendment Bill reforms the previous pension system. It encourages taxpayers to purchase deferred annuities and/or make MPF voluntary contributions.

According to the Financial Services and the Treasury Bureau, “The proposed tax deductions aim to encourage the working population to save more for retirement as early as possible to manage longevity risks”. The new changes encourage voluntary savings and offer more options to people when making financial arrangements for their retirement. The relevant authorities such as the MPF Authority, Insurance Authority and the Investor Education Center will cooperate and advise employees on different retirement plans, which would best suit their needs and preferences.

For more information on tax laws, please see:

Annotated Ordinances of Hong Kong – Inland Revenue Ordinance (Cap 112); Stamp Duty Ordinance (Cap 117)

Encyclopaedia of Hong Kong Taxation – Volume 1, 3 & 4

Halsbury's Laws of Hong Kong – Taxation and Revenue

Hong Kong Encyclopaedia of Forms and Precedents – Taxation and Revenue

Lexis Advance® Practical Guidance - Tax

For enquiries about the above publications, please contact your Account Manager via sales.hk@lexisnexis.com

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