How do self-employed persons calculate their Mandatory Provident Fund (MPF) contributions and relevant income?

The Mandatory Provident Fund (MPF) Ordinance stipulates that all employers and employees in Hong Kong are required to participate. So, as a self-employed person, do you need to join a Mandatory Provident Fund (MPF) scheme? The answer is yes, this article will answer the MPF contribution questions and related accounting and tax issues for self-employed persons.

How are Mandatory Provident Fund (MPF) contributions calculated for self-employed persons?

Under the current MPF Ordinance, except for exempted persons, all full-time and part-time employees, as well as self-employed persons, whether sole proprietors or partnership partners, are required to participate in the Mandatory Provident Fund (MPF) plan.

In the Mandatory Provident Fund (MPF) scheme, the mandatory MPF contribution of self-employed persons is the same as that of employees, which is 5% of their income, subject to the maximum income (HK$30,000 from 2014) and the lowest (HK$7,100 since 2014) income level.

Remember that at least 30 days before the end of each financial period, self-employed persons must report the relevant income for the next financial period to the MPF trustee for record and MPF calculation Contribution amount, the next paragraph will detail how self-employed persons calculate their income.

How is the relevant income calculated for self-employed persons?

The Mandatory Provident Fund (MPF) Ordinance states that self-employed persons (including sole proprietors or partnership business partners) can calculate and report their own income in the following ways:

• Refer to the “Assessable Profits” on the latest tax notice issued by the Inland Revenue Department as the relevant income;

• Refer to the basic allowance as defined in Section 28 of the Inland Revenue Ordinance as the relevant income;

• make an income declaration to the MPF trustee; or

• Use the highest relevant income level for each year as the relevant income.

In addition, in the event of a business loss but no profit, the self-employed person can apply to the MPF trustee for suspension of mandatory MPF contributions, and submit and report the loss in the form of a statement until the Profits of self-employed persons return to the minimum relevant income level.

Mandatory Provident Fund (MPF) scheme tax deduction for self-employed persons?

When it comes to tax deduction, with reference to the Inland Revenue Ordinance, self-employed persons who are subject to profits tax can still deduct mandatory contributions to MPF schemes when calculating their taxable income or profits.

As a tax-deductible item, self-employed persons can deduct the same amount of Mandatory Provident Fund (MPF) contributions for tax deduction, up to a maximum of HK$18,000 for each year of assessment.

Self-employed with multiple businesses?

If a self-employed person owns more than one business at the same time and is a shareholder of each business, assuming that the total profit of all businesses during the year of assessment is HK$500,000, the mandatory MPF contribution for that year The amount is still HK$18,000 and the tax deduction is also HK$18,000.

Self-employed people are employed at the same time?

Similarly, if a self-employed person operating a business is employed at the same time and needs to pay salaries tax, he needs to join the Mandatory Provident Fund (MPF) scheme as an employee and a self-employed person respectively. Once the contribution exceeds HK$18,000, the salaries tax and Under Profits Tax, a maximum of HK$18,000 in total can be deducted.

Employed spouse as employee?

It should be noted that if the spouse of the self-employed person assists the business development as an employee and thus participates in a Mandatory Provident Fund (MPF) scheme, the current Inland Revenue Ordinance does not allow the self-employed person to deduct the MPF of his/her spouse. ) Mandatory contributions are deducted as profits tax profits, so the profits tax deduction of the self-employed person can only be Mandatory Provident Fund (MPF) contributions under his name, up to a maximum of HK$18,000.

The above information is for reference only. If you have any questions about accounting, MPF, we welcome your enquiries.