Previously, we introduced the Things you need to know for filing Employers Return in Hong Kong. Mandatory Provident Funds (“MPF”) are compulsory retirement schemes / pension funds that are created by the Hong Kong government and are provided by approved private organizations. MPFs are a key aspect in the management of a Hong Kong company and its staff. In this article, we look to explain what a Hong Kong MPF is and what are the contribution rules and regulations that employers must consider before hiring their first employee.
What you will learn from this article:
1. What is an MPF in Hong Kong?
The MPF is a fully funded contribution system that was launched in 2000 and is mandatory for those who wish to retire in Hong Kong. The system is privately managed. Master Trust Schemes is one of the most common MPF schemes. These accounts can be opened by employers, employees, self-employed people, and those who want to open a personal or voluntary contribution account. Personal pension accounts can be opened by employed, self-employed, and voluntary contributors.
Master Trust Schemes may include:
- Contribution accounts
- Personal accounts
- TVC accounts
Employer-sponsored and industry schemes are available to individuals based on their occupation. Employer-sponsored MPF schemes are designed for employees of one company, while industry schemes typically cater to workers in fields such as catering and construction.
For more information on MPF schemes, fund types, and features, please visit the MPFA website.
2. What are an employer’s obligations under the Hong Kong MPF regulations?
Employers must also complete the one-time obligation of assisting their employees in opening MPF accounts. Except for exempt persons, an employer should enroll both full-time and part-time employees who are at least 18 but under 65 years of age in an MPF scheme within the first 60 days of their employment. However, if an employment relationship ends prior to the 60th day of employment, no MPF arrangement is required.
Upon successful enrollment, employers must meet ongoing obligations of remitting contributions to their employee’s MPF schemes once every contribution period. Contributions for monthly-paid full-time employees are typically made on the 10th day of each month.
Employers and employees are each required to make regular mandatory contributions to an employee’s MPF scheme. The MPF employee contribution and MPF employer contribution should each be 5% of the employee’s relevant income, subject to relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are $7,100 and $30,000 respectively. People who are self-employed need to pay 5% of their income in taxes. In addition to the mandatory MPF payments, you can choose to make additional voluntary contributions to your account.
To make payments to their employees, employers are required to calculate their employee’s relevant income and the amount of mandatory contribution that must be made for each contribution period. The employer must then deduct the calculated amount from their employee’s income and remit that sum to their MPF account.
3. Is MPF taxable in Hong Kong?
An employee can claim a tax deduction for contributions they make to an MPF scheme, subject to a maximum cap of 18,000 HKD. Voluntary contributions may or may not be tax deductible, depending on the specifics of the payment and the MPF scheme.
4. How to set up an MPF account?
Setting up an MPF account is a simple process. Hong Kong’s Mandatory Provident Fund Schemes Authority (“MPFA”) maintains a list of MPF Approved Trustees that employers may consider. For instance, the HSBC MPF plan provides individuals with a wide variety of investment schemes such as those focused more on global bonds, Hong Kong and Chinese equities, and so on. Simply contact your chosen MPF providers and complete the relevant employer application forms for the scheme of your choice. Once an employer has successfully enrolled in an MPF scheme, they will be issued an employer’s identification number, demonstrating their obligation to assist your employees in their retirement schemes.
5. What are the employee contribution rules under the Hong Kong MPF regulations?
Employees do not face as many compliance obligations as their employers do. However, it is vital for employees to ensure that they make the regular mandatory contribution of 5% of their relevant income to their relevant scheme as mentioned above.
6. Are there exemptions under Hong Kong MPF contribution rules?
Not all employees working in Hong Kong must be enrolled under an MPF scheme. Expatriates residing in Hong Kong for employment purposes can obtain permission to be exempted from the Hong Kong Government. Permission can only be granted if the employee in question is either a member of an overseas retirement scheme or will reside in Hong Kong for a period of 13 months or less.
MPFA will discover any employers who are not complying by investigating complaints and proactively inspecting their premises. We will enforce against any employers who don’t comply with the law (including those attempting to avoid paying MPF contributions). If an employer deducts employee pay for MPF contributions or fails to enroll their employees in an MPF scheme, they will be penalized. The following measures will be enacted:
- Request employers to take immediate action to rectify the situation
- Subject to a surcharge of 5% if an employer defaults on their contributions
- File a civil claim in court to recover mandatory contributions and surcharges that are in arrears
- Impose fines on employers who do not comply with the law
- Prosecutes non-compliant employers or individuals, along with their officers, directors, and partners
If an employer does not comply with MPFA, they may be subject to the following penalties:
|Types of employers’ non-compliance||Penalty|
|Failure to enroll employees in an MPF scheme|
|Failure to pay mandatory contributions to MPF trustees (Deduced 5% from employees’ income)|
|Failure to pay mandatory contributions to MPF trustees (Without deducting 5% from employees’ income)|
|Provide false or misleading information to MPF trustees or MPFA|
MPFA may impose financial penalties as follows:
|Types of employers’ non-compliance||Financial Penalty|
|Failure to pay mandatory contributions to MPF trustees on time||$5,000 or 10% of the amount due, whichever is greater|
|Failure to provide monthly pay records to employees||$10,000 for the first failure, $20,000 for the second failure and $50,000 for subsequent failures|
|Failure to notify MPF trustees in writing of an employee’s end of employment||$5,000 for the first failure, $10,000 for the second failure and $20,000 for the subsequent failures|
|Failure to update your company’s information with the MPF trustees in writing e.g. changing the name, address or phone number|
For more details, please refer to MPFA website.
8. How to withdraw MPF upon leaving Hong Kong?
Many people will only start to withdraw their MPF funds upon retirement. But what if you’re moving away? In this case, you may be eligible for MPF Hong Kong early withdrawal.
Early withdrawal is only available if you’re permanently leaving Hong Kong. If you have already left, or are planning to leave Hong Kong soon, you must make a statement confirming that you will not return for work or to settle as a permanent resident. Worth noting- if you withdraw your funds and then reapply to your provider later on under the same reasoning, MPF won’t be paid a second time.
In order to withdraw funds, you must first apply to the relevant MPF scheme and provide:
- Identity documents, for example, HKID card
- Claim form for MPF withdrawal due to permanent departure from Hong Kong
- Statutory declaration form to confirm your permanent move
- A document that shows you’re allowed to live in a place outside of Hong Kong
How can FastLane help?
We understand that matters relating to MPF calculation and payroll administration are time-consuming tasks that require a significant amount of the company’s resources. Fastlane is a company that specialises in HR process improvement using cloud-based solutions and the assistance of our experts and appropriate payroll programs. We can manage these essential business tasks, such as payroll, MPF account setup and your employee’s enrollment into your chosen MPF scheme on your behalf.
As one of the Xero Platinum Partners, FastLane is experienced and capable to use one of the most well-known cloud payroll softwares, Xero, to offer our clients precise and efficient payroll services and help them manage payroll tasks more efficiently. In addition, through our partnership with Deel, a company that provides a worldwide payroll service to enable business hiring from 150 countries, FastLane is able to offer more comprehensive payroll services to satisfy the specific need of our clients.
Get in touch with our professional advisor by dropping an email or arranging an appointment with us!