6. 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) | Exempt
|
(2) Termination of service with 10 years of service or more
| Exempt
| |
(3) Termination of service with less than 10 years of service
| If the sum does not exceed the Proportionate Benefit, it is fully exempt.
If exceeded, the amount exceeding the Proportionate Benefit is taxable. | |
| (4) Other circumstances | 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.
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