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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.

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