The government of Hong Kong passed a law increasing the maximum tax-deductible limit for voluntary contributions to Mandatory Provident Funds (MPF). The tax-deductible limit was raised from HKD 36,000 to HKD 60,000 per year per person. This legislation, the Inland Revenue and MPF Schemes, entered into effect on 1 April 2019.
The new legislation addresses Hong Kong’s aging population by encouraging employees to increase their voluntary savings to better prepare for their retirement. Similar to the MPF employees’ mandatory contributions, MPF employees’ voluntary contributions are deducted by employers from employees’ monthly pre-tax salary and paid directly to MPF trustees. The tax-deductible limit of HKD 60,000 will reduce employees’ taxable income base.
Employers should encourage their employees to take advantage of this higher tax benefit by increasing voluntary contributions to MPF. The government of Hong Kong announced its plan to further increase the maximum tax-deductible limit in the future. The thresholds and timeline of the future increase have not been set.