5. I am a member of a Mandatory Provident Fund Scheme (“MPFS”). What is the tax treatment of the accrued benefits that I would receive or be deemed to have received from the MPFS upon my termination of employment?

There are different scenarios. See below for the appropriate tax treatment:

Relevant portion	Reason for withdrawal	Whether Taxable
Employee's mandatory contributions	Employment terminated under any circumstances	Always fully exempt
Employee's Voluntary contributions	Employment terminated under any circumstances	Always fully exempt
Employer's mandatory contributions	Employment terminated under any circumstances	Always fully exempt
Employer's voluntary contributions	(1) Retirement, death or incapacity (lost of working ability due to injury/illness) (2) Termination of service (a) 10 years of service or more (b) Less than 10 years of service	Exempt Exempt If the sum does not exceed the Proportionate Benefit, it is fully exempt. If exceeded, the amount exceeding the PB is taxable.

Proportionate Benefit = Accrued benefits^# x No. of months of service*
120

# The part relating to employer's voluntary contributions
* Only completed months of service will be counted

Example

If after serving 7 years 6 1/2 months an employee left his employment, and from the MPFS he received accrued benefits representing his employer's contributions of $100,000, the amount that will be exempt from Salaries Tax should be:

PB = $100,000 x 90 complete months
120
= $75,000

For more details on the taxation matters relating to MPFS, please read the MPF Circular Letter No.1 issued by the Inland Revenue Department.