How to Navigate the Mandatory Provident Fund (MPF) as an Employer | Company formation in Hong Kong

Estimate time to read: 5 min

Latest Articles

August 02, 2021

How to Navigate the Mandatory Provident Fund (MPF) as an Employer

Hong Kong, adorned as the premier financial capital of Asia, is a popular business location. As a new employer in Hong Kong, before you start your recruiting process, you need to be aware of numerous regulations and schemes – especially the Mandatory Provident Fund (MPF).

What is MPF in Hong Kong?

MPF stands for Mandatory Provident Fund, a mandatory pension scheme that protects both Hong Kong workers and self-employed citizens aged 18-64. You can think of it as a retirement safety net.

In reaction to the increasingly aging population back in 1995, the Obligatory Provident Fund Schemes Ordinance (MPFSO) was introduced by the Hong Kong government. The framework for the implementation of employment-related MPF schemes is created by the MPFSO for workers in the labor force to receive financial benefits upon retirement.

Concerning this transformation, in 1998, the Mandatory Provident Fund Schemes Authority (MPFA) was formed to oversee the activity of the MPF program, which was finally introduced in 2000. As of 2015, over 85 percent of Hong Kong’s labor force was protected by some form of retirement insurance, compared to just 33 percent in 2000.

Now that you have a basic understanding of MPF, let’s dig deeper into your must do’s (known as your legal requirements) and provisions that you get in Hong Kong as an employer (your freedoms), including opening an MPF account, making MPF expenditures and deducting MPF taxes.

The different types of MPF Schemes in Hong Kong

The required MPF trustee(s) and the scheme must be chosen by any employer (s). Also, it is important to display a participation certificate on the grounds of the office.

There are three types of MPF schemes:

  1. Master Trust Schemes
  2. Employer-sponsored Scheme
  3. Industry Schemes

Master Trust Scheme

The most common kind of MPF scheme is the Master Trust Scheme. It functions by pooling the contributions of the various participating employers and their employees, as well as the self-employed, to achieve investment economies of scale. It is open for workers whose employers participate in the Master Trust Scheme to be transferred from other schemes, as 2 well as self-employed persons and persons with accrued benefits such as sick pay and personal time off.

Employer-sponsored Schemes

On the other hand, the Employer Scheme is limited to the workers of a single employer and its associated firms. The system is more cost-effective for major companies due to membership limitations.

Industry Scheme

The Industry Scheme applies only to employees with high labor mobility, particularly in the hospitality and infrastructure projects, and especially to casual employees (hired for short-term engagement of fewer than 60 days or on an ad-hoc basis). As long as they remain in these two industries, casual employees are not required to change schemes when they change jobs, provided the old and new employers have registered under the same industry method.

How to decide which MPF device is better for you?

Since MPF is intended to provide your staff with retirement insurance, when it comes to selecting your trustee, you will want to weigh considerations such as business stability, the risk level of funds, miscellaneous charges, and customer service.

Choosing a bank, for example, is comparatively low risk, and opting for an insurance fund will offer a more diversified investment portfolio for you. To assist you in making an educated decision, you may refer to the list of MPF certified trustees.

When Do You Need to Register?

Now let’s clarify the 60-day law first. Employees who are working for fewer than 60 days are prohibited from entering the MPF program, excluding casual employees as specified under the MPFSO.

Moreover, in the first 60 days of work, it is mandatory to register all full-time and part-time workers as well as those serving a probation period (holidays and weekends included). Please keep in mind that casual workers in the building and hospitality sectors are not protected by the 60-day work law.

It is also important to remember that whether a Saturday, a public holiday, a gale warning day, or a black rainstorm warning day is the 60th day of work, the registration date is extended to the end of the next day, which is not a Saturday, a public holiday, a gale warning day, or a black rainstorm warning day.

Although, as exemptions occur, there are a few cases:

  1. People from abroad who have joined Hong Kong for no more than 13 months for work or self-employment.
  2. People who enter Hong Kong for jobs or self-employment from abroad and who are protected by pension schemes abroad.
  3. Domestic employees and Self-employed
  4. Professionals and self-employed individuals who, on the date of implementation of the related clause of the Mandatory Provident Fund Schemes Ordinance, have crossed the age of 64 years, i.e. 1 Dec 2000.
  5. Employees of the European Union Office in Hong Kong of the European Commission.
  6. Those shielded by mandatory pension plans or provident fund schemes, such as public servants and teachers who are sponsored or granted school grants.
  7. Members of occupational retirement programs to whom exemption certificates are issued.

When Can You Withdraw Your MPF?

If you have reached the age of 65, in a lump sum or increments, you will revoke the rewards you amassed through your career. You can still, however, cancel the privileges early. Although there are special cases, according to the policy, where incentives should be revoked before you turn 65.

Permanent departure from Hong Kong

You must confirm that you have left or will be leaving Hong Kong to live elsewhere with no chance of returning to work or resettling as a permanent resident in Hong Kong. You will need to give documentation that you are entitled to live in a city outside of Hong Kong.

Terminal illness

A medical certificate granted by a licensed medical practitioner or registered Chinese medicine practitioner must be given specifying that you have a condition that, in the view of the practitioner, is likely to limit your life expectancy to 12 months or less.

Early retirement

One needs to be at least 60 years old, with no thought of being working or self-employed again, and both jobs and self-employment have ended. In a lump sum or installments, you may cancel your accumulated benefits.

Total incapacity

A medical certificate granted by a licensed medical practitioner or registered Chinese medicine practitioner must be given to certify that you have been permanently incompetent to perform the specific type of work you have been doing.

Death

The accrued privileges of a deceased member are, according to the policy, part of the member’s inheritance and must be further asserted by the personal representative of the scheme member or by the Official Administrator.

What is the employer contribution to MPF?

You (the employer) and the employee shall pay 5% of the applicable salary of the employee as a required allowance unless they are exempted under the MPF Schemes Ordinance (MPFSO). You are expected to add to the salary of your workers, even though it falls below the minimum relevant monthly compensation ($7,100). If the salary of the staff reaches the statutory income limit ($30,000), it is capped at $1,500. Refer to the table below for the MPF contribution scale for employers.

Employer Contribution for Non-Casual Employee under Master Trust Scheme:

Monthly Relevant IncomeEmployer ContributionEmployee Contribution
Less than $7,100 Relevant income x 5%Not required
$7,100 to $30,000

Relevant income x 5%

More than $30,000

Capped at $1,500

Employer Contribution for Casual Employee under Industry Scheme:

Daily Relevant Income 

Employer Contribution

Employee Contribution

Less than $280

$10

Not required

$280 to less than $350

$15

$350 to less than $450

$20

$450 to less than $550

$25

$550 to less than $650

$30

$650 to less than $750

$35

$750 to less than $850

$40

$850 to less than $950

$45

More than $950

Capped at $50

How Much Is MPF in Hong Kong?

Both working people and employers are expected to make obligatory payments annually to an MPF scheme of 5 percent each (a cumulative MPF percentage of 10 percent) of the applicable salary of the employee. The minimum and highest applicable income ranges are protected by all categories. The minimum and gross applicable salary amounts are $7,100 and $30,000, respectively, if an individual collects paychecks annually.

For contribution periods beginning on or after 1 November 2013, the current minimum relevant income level of $7,100 per month applies, whereas for contribution periods beginning on or after 1 June 2014, the current maximum relevant income level of $30,000 per month applies.

Relevant income also refers to all monetary payments to an employee paid or payable by an employer, as well as for:

  • Commissions
  • Gratuities
  • Allowances
  • Wages
  • Salary
  • Bonuses
  • Perquisites
  • Leave pay
  • Fees

Even so, under the Employment Ordinance, this provision prohibits severance compensation or long-service payments.

As an employer, it is appropriate to determine the relevant salary of the employee and the number of mandatory contributions for each contribution duration (wage period), subtract the amount from the income of the employee as their obligatory contributions, and remit the contributions of the employee to the trustee of the MPF, along with the contributions of the employer from the accounts.

At last, on or before the day of the contribution, the required payments for the contribution period should be remitted to your MPF trustee. In general, the contribution day is the 10th day of each month for monthly-paid workers. The payments for the September allocation period can, for example, be paid to your trustee on or before 10 October.

Some Common MPF Service Providers

Until you choose the right MPF provider for your company, you should consider a few factors.

According to the Hong Kong Monetary Authority (HKMA), there are 14 licensed trustees on the market from either local banks or insurance firms offering this service.

It is advised that before you make a decision, you remember the following:

  1. Charges applied
  2. Different fund choice
  3. Service level
  4. Stability of the company

Sun Life

Sun Life Finance, Inc. is a financial management corporation widely recognized as a life insurance company in Canada. It is one of the leading firms of any kind in the country.

A total of four schemes are proposed by this firm:

  1. Rainbow Scheme
  2. Basic Scheme
  3. Master Trust Scheme
  4. Comprehensive Scheme

HSBC

HSBC Holdings is a British holding company of banks and financial services established back in 1865. HSBC has opened branches in Hong Kong and Shanghai for the first time. The name HSBC is derived from the Hong Kong and Shanghai Banking Corporation initials.

Two schemes they offer. The HSBC Mandatory Provident Fund-SuperTrust Plus is the first one. The HSBC Mandatory Provident Fund-ValueChoice is the second one. These are both Master Trust Schemes.

Manulife

Manulife has been a famous and leading brand for over 120 years in Hong Kong. This institution has become one of the city’s largest financial services providers, providing 2.2 million clients in HK and Macau a wide selection of security and wealth goods and services.

A total of 29 constituent funds covering diversified investment options are offered by the Manulife Global Select (MPF) scheme, covering stock funds (international, domestic, single market, and sector), bond funds (international, regional, and single market), mixed-asset funds (lifestyle and target date), insured funds, and money market funds.

Filing Tax Deductions for MPF Contribution in Hong KongSome Common MPF Service Providers

A favorite subject of an entrepreneur, tax deductions. Under Profits Tax, you can demand tax exemptions on your involuntary and charitable donations to the degree that you do not reach 15 percent of the taxable salary of your employee.

You would need to apply the benefits tax return and supplemental form(s) to the Inland Revenue Department, depending on the size of your business (IRD). Corporations should refer to BIR51, Business Partnership / Individuals Other Than Corporations should refer to BIR52, whereas BIR54 should refer to non-resident persons.

When your company is newly licensed, about 18 months from the date of incorporation or registration, you will obtain your first tax return on income. Annually, the issuance of corresponding profile tax returns falls on the first working day of April. Within 1 month from the date of issue, you will need to file the benefits tax return and the appropriate supplementary form(s).

Employers qualifying for the e-filing program for benefit tax returns and wanting to do so will be granted a 2-week extension from the default due date.

Do you need any help? We will assist you from anywhere in the world with integrating your organization in Hong Kong, along with any questions you might have on MPF.

Conclusion

Contributing to an MPF framework means contributing to the future of the workers. And all successful managers tend to do so. After all, following the conclusion of their career, any hard-working worker deserves a nice pension fund.

If you have any problems regarding MPF then Vita Liberta will help you in solving all your queries. Feel free to contact us today!

Office in Hong Kong

Address: Office room 77, 7/F, Woon Lee Commercial Building, 7-9 Austin Ave, Tsim Sha Tsui, Kowloon, Hong Kong

Contact 

Email: legal@vitaliberta.com
Office Tel: +85268416177
Skype: ygrtima

Subscribe Now