2. How are the contributions made to an MPF scheme deducted for tax purposes?

With effect from 1 December 2000, employees (full-time or part-time) and self- employed persons, except persons exempt under the Mandatory Provident Fund Schemes Ordinance , are required to participate in MPFS. For employees or self-employed persons earning over $5,000 per month, the mandatory contribution is 5% of the person's income., up to a maximum mandatory contribution of $1,000 per month or $12,000 per year.

Under Section 26G and Schedule 3B of the Inland Revenue Ordinance, mandatory contributions to MPFS are deductible in computing the assessable income/profits of an employee or a self-employed person. The maximum deduction is $12,000 for each year of assessment , not including contributions made by a self-employed person in respect of his/her employees. All contributions other than mandatory contributions are voluntary contributions and are not deductible for tax purposes .

Scenarios for employees with a single source of salary income are as follows:

Scenarios for persons receiving both salaries income and business profits are as follows:

*Note: Normally the profit derived from a partnership business is not reported on “Individual” Tax Return (B.I.R.60). But if the taxpayer switched from an “employee” to a “partner of a business” during the year of assessment, all of the relevant income/profit can be reported through an Individual Tax Return.