Unlike other developed economies, Hong Kong does not have a comprehensive social security system funded by social security contributions. Social security benefits are funded mainly from Hong Kong’s fiscal reserve.
The Mandatory Provident Fund scheme (‘MPF’) system was set up under the Mandatory Provident Fund Schemes Ordinance (Chapter 485) in December 2000 to provide an employment-based retirement protection system. MPF schemes are privately managed defined contribution schemes approved by the Mandatory Provident Fund Schemes Authority. Except for exempt persons, employees and self-employed persons who are at least 18 but under 65 years of age are required to join an MPF scheme.
Employees and employers are each required to make regular mandatory contributions calculated at 5% of an employee’s relevant income, subject to the minimum and maximum relevant income levels. For monthly-paid employees, the minimum and maximum relevant income levels are HKD 7,000 (EUR 777.50) and HKD 30,000 (EUR 3,332.16) respectively. This means the mandatory contribution payable by employers and employees will not each exceed HKD 1,500 (EUR 166.61) each month.
Employers can claim tax deductions for the mandatory contributions and for any voluntary contributions made for the employees, to the extent that they do not exceed 15% of each employee’s total emoluments. Employees can claim tax deductions for their mandatory contributions subject to the current maximum amount of HKD 18,000 (EUR 1,999.30), i.e. HKD 1,500 (EUR 166.61) x 12 per year. Voluntary contributions made by employees are not tax deductible.
Legislative proposals have been tabled by the Hong Kong Legislative Council, which, if passed, will provide tax deductions of up to HKD 36,000 (EUR 3,998.59) per year for any voluntary contribution made by employees to MPF schemes (this deduction ceiling includes the tax deduction for any premium paid to a deferred annuity scheme).