Deduction for Contributions to Mandatory Provident Fund Schemes and Recognised Occupational Retirement Schemes

Some of the contributions that you make to a mandatory provident fund (MPF) scheme or a recognised occupational retirement (ROR) scheme can be deducted from your assessable income. Here you learn about deductible amounts under both types of schemes, and how different types of employees and self-employed people can claim deductions in different situations.

Mandatory Provident Fund Schemes

Under the provisions of the Inland Revenue Ordinance (IRO), mandatory contributions to MPF schemes are deductible in computing your assessable income as an employee or assessable profits as a self-employed person's own contribution. All contributions other than mandatory contributions are voluntary and are not deductible. The maximum deduction for each year of assessment is :

Year of assessment Maximum deduction
($)
2010/11 to 2011/12 12,000
2012/13 14,500
2013/14 15,000
2014/15 17,500
2015/16 onwards 18,000

 

Employees

The following examples explain the tax treatment for employees in various situations.


Example 1: Single income source – tax treatment in general

The table below gives common scenarios for employees with a single source of income for the year of assessment 2015/16.

Monthly Income

Mandatory Contributions

(per year)

Voluntary Contributions

(per year)

Allowable Deductions

$10,000

$6,000

-

$6,000

$10,000

$6,000

$3,000

$6,000

$20,000

$12,000

-

$12,000

$30,000

$18,000

-

$18,000


Example 2: Fluctuating income

An employee received a total income of $500,000 during year of assessment 2015/16. His income fluctuated over the year and he was exempt from the MPF scheme for April to June 2015 when his earnings fell below $5,000. For the remaining 9 months he made mandatory contributions of $1,500 per month. A deduction of $13,500 will be allowed in computing his assessable income for the year.


Example 3: Two employments and two MPF schemes

An employee worked for Company A and Company B and received monthly salaries of $30,000 and $20,000 respectively. During the year of assessment 2015/16, he made mandatory contributions to each of his employers’ MPF schemes. Although the total mandatory contributions during the year were $30,000, the maximum amount deductible under salaries tax is $18,000 only.


Example 4: Two employments and one MPF scheme

An employee received annual salaries of $180,000 from his principal employment. During the year of assessment 2015/16, he made mandatory contributions of $9,000 and voluntary contributions of $6,000 to a MPF scheme during the year. He also received $3,500 per month ($42,000 for the year) from a part-time employment and was exempt from participating in the MPF scheme of his part-time employer. His net assessable income will be $222,000 (income from the two employments) less the mandatory contributions of $9,000.


Example 5: Director’s remuneration

An executive director receiving a salary under a contract of employment is required to join a MPF scheme and is entitled to claim tax deduction for his mandatory contributions. The deduction shall not exceed the maximum deductible amount for the relevant year. A director who receives director’s fees as an office holder is not an employee and is not required to participate in MPF scheme. Any contributions made at the director’s own initiative are voluntary and not deductible.

 

Self-Employed Persons

The following examples explain the tax treatment for various types of self-employed persons.


Example 6: Single business owners

A sole proprietor of a business earned profits of $1,000,000 in a year of assessment. During the year of assessment 2015/16, he made mandatory contributions of $18,000 to a MPF scheme as a self-employed person. In computing the assessable profits of the business, a deduction of $18,000 will be allowed.

If you are a self-employed person you can make a declaration of income to the trustee of the MPF scheme to determine the amount of mandatory contributions without obtaining a tax assessment from the Inland Revenue Department.

 
Example 7: Owners of multiple businesses

A person operated 3 businesses as a sole proprietor and held interests in 3 partnerships. The aggregate income (including profits and losses) of all these businesses for the year of assessment 2015/16 was $300,000.  Under the MPF Ordinance, his mandatory contribution to a MPF scheme should be $15,000 for year of assessment 2015/16. The allowable deduction under profits tax will be $15,000.


Example 8: Proprietor’s spouse as employee

A proprietor made mandatory contributions of $18,000 in the year of assessment 2015/16 as a self-employed person. His wife assisted him in running the business and joined the MPF scheme. Her contribution during the same year was $10,000. As the IRO does not permit the spouse of a proprietor to claim a deduction for MPF contributions, only the mandatory contributions of $18,000 made by the proprietor will be allowed as a deduction in calculating the assessable profits of the business.


Example 9: Both employed and self-employed

A person received salary income and operated a business at the same time. He made mandatory contributions of over $18,000 to a MPF scheme as an employee and a self-employed person in the year of assessment 2015/16. However, the aggregate deductions under the salaries tax and profits tax will be $18,000 only. The following table explains this situation:

 

Income

Mandatory Contributions

Allowable Deductions

Salaries

Profits

(Proprietorship)

$120,000

$100,000

$6,000

$5,000

$6,000

$5,000

Salaries

Profits

(Proprietorship)

$500,000

$400,000

$18,000

$18,000

$18,000

Nil

Salaries

Profits

(Proprietorship)

$120,000

$500,000

$6,000

$18,000

$6,000

$12,000

Salaries

(Employment ceased on 30 April)

Share of profits

(Partnership)

$10,000

 

 

$300,000

$500

 

 

$15,000

$500

 

 

$15,000

 

 

Recognised Occupational Retirement Schemes

If you opt to participate in a MPF-exempted ROR scheme, contributions you make to that scheme are also deductible, subject to the following restrictions:

  • the amount deductible is the lesser of two amounts, that is, the amount you actually contributed to the ROR scheme or the amount of mandatory contribution that you would have been required to pay had that scheme been an MPF scheme; and
  • the maximum deduction for each year of assessment is :
Year of assessment Maximum deduction
($)
2010/11 to 2011/12 12,000
2012/13 14,500
2013/14 15,000
2014/15 17,500
2015/16 onwards 18,000


Example 10: Single income source

An employee received annual remuneration of $180,000 during the year of assessment 2015/16. He opted to participate in the MPF-exempted ROR scheme offered by his employer. The contributions deductible under salaries tax in two scenarios are as follows.

Contributions to ROR Scheme

Mandatory Contributions to MPF Scheme

Allowable Deductions

$18,000

$9,000

$9,000

$5,400

$9,000

$5,400


Example 11: MPF and ROR schemes contributions

An employee received annual remuneration of $120,000. He made contributions of $6,000 to a MPF scheme and $5,000 to a MPF-exempted ROR scheme at the same time. The allowable deduction will be $6,000, the amount contributed to the MPF scheme.

How to Lodge a Claim

You should claim your deductions in Part 4.3 of the Tax Return – Individuals (BIR60) for the relevant year of assessment. You can lodge a claim on the form IR831 if you have not claimed the deduction in your tax return.  If you want to submit the form on-line, more details on the program and the online submission of e-Forms are available through the following link.

More on e-forms

Supporting Documents

You need not submit documents together with your tax return to support your claim. However, you should keep proper records, including computations of accrued benefits in the schemes, annual benefit statements and, where a transfer to another MPF scheme has taken place, the relevant transfer statements. These should be sent to the Inland Revenue Department for inspection when required.

Further Information

Information about the frequently asked questions is available through the following link.

Frequently asked questions about deductions for contributions to MPF and ROR schemes
Last revision date: May 2016