Hong Kong Introduces Pension Contribution Tax Incentive

To encourage retirement planning, Hong Kong has introduced new legislation which delivers tax incentives for voluntary pension contributions.

After debate by the Hong Kong government, an amendment bill to the Inland Revenue and MPF Schemes Legislation was passed on 20 March 2019, and came into effect on 1 April 2019. The bill essentially introduced the possibility for employees in Hong Kong to make a new type of contribution, known as a tax deductible voluntary contribution (TVC), to their pension schemes.

Planning for the Future

With research suggesting that the number of people aged 65 and older in the city will reach 2.58 million by 2064, the introduction of TVCs comes as Hong Kong continues to get to grips with the prospect of a rapidly ageing population. These voluntary contributions to Mandatory Provident Fund (MPF) schemes are designed to boost retirement planning and saving amongst the city’s younger workforce by not only delivering a degree of convenience and flexibility, but offering savers a new tax incentive.

What is a TVC?

Tax deductible voluntary contributions are special contributions made by eligible employees into a TVC Account within their MPF scheme (if the scheme allows it). The contributions are flexible in the sense that there is no mandatory frequency or amount of contribution, and convenient in the sense that account holders can transfer their balance of another TVC account at any time.

What are the tax advantages of TVCs?

Taxpayers are entitled to claim tax deductions for tax deductible voluntary contributions to their MPF scheme, a feature which distinguishes TVCs from Employee Standard Voluntary Contributions (EEVC) and special Voluntary Contributions (SVC).

The TVC account allows for tax deductible contributions up to a cap of HK$60,000 for the 2019/2020 YA. This means contributing employees would be able to make an additional HK$60,000 deduction from their salaries tax payable, should they choose to contribute that amount to their TVC account during the relevant tax year.

How does the TVC calculation work?

Under the standard Hong Kong tax rate of 15%, an example of the benefits of TVC is as follows:

  • An employee who earns HK$720,000 per year, and makes HK$18,000 in mandatory MPF contributions would be taxed HK$105,000 - on a total taxable income of HK$702,000.
  • Making additional TVCs of HK$60,000 over the year, the employee’s total taxable income (including mandatory contribution) would amount to HK$642,000.
  • After TVC deductions, the employees’ salaries tax due would therefore be HK$96,300 - a saving of HK$9,000.  

Who is eligible for a TVC account?

Employees who wish to make TVC contributions must be:

  • Current members of a Registered MPF Scheme (including self-employed members)
  • Current MPF Scheme personal account holders
  • Current members of MPF Exempted ORSO schemes

To apply for the TVC account, eligible employees must complete the Tax Deductible Volunteer Account Holder Application form, which may be available online through some MPF scheme providers. 

When are TVC funds available to savers?

While EEVC funds are made available to employees when they cease employment, and SVC funds can be withdrawn freely (subject to terms and conditions), TVC funds can only be withdrawn upon retirement, at age 65. Certain exceptions may be made in the case of early retirement, sickness or illness, or departure from Hong Kong.

Which MPF schemes offer TVC accounts?

While the majority of MPF schemes offer their members TVC accounts, as of April 2019 some do not. To find out more about the features of an MPF scheme, consult the MPFA’s comparative platform to learn more. 

Can a TVC account be transferred?

Yes, transferring a TVC account balance between MPF schemes is possible at any time. To facilitate the transfer, members must submit a transfer request form to their scheme’s trustee.

To learn more about tax and social security in Hong Kong, explore activpayroll’s dedicated Hong Kong Global Insight Guide...