Reporting & U.S. Tax on Hong Kong Mandatory Provident Fund
Reporting & U.S. Tax on Hong Kong Mandatory Provident Fund: The Hong Kong Provident fund is a form of retirement fund. A provident fund is similar to 401K/Social Security hybrid. Several Asian countries have provident funds as a means of retirement, including: Singapore (CPF), Malaysia (MPF), and Thailand (TPF). Since the U.S. and Hong Kong have not entered into a bilateral tax treaty, there is no tax treaty to refer to when analyzing the investment (e.g., pension vs. social security).
*This article updates our prior article
The Hong Kong government describes the provident fund as:
The MPF System in Hong Kong was designed to form the second pillar of this approach: a mandatory, privately managed, fully funded contributio
To help the ageing workforce save for their retirement, the Mandatory Provident Fund Schemes Ordinance (“MPFSO”) was enacted in 1995 and later supplemented by subsidiary legislation in 1998, 1999 and 2000. The MPF System was launched in December 2000.
Since there is no treaty, and the MPF is not identified by the U.S. as a 401/402 retirement plan, there is a high likelihood the contributions and growth are taxable.
Here is a basic introductory analysis of how to evaluate the MPF:
A. Is there a Tax Treaty with Hong Kong and the U.S.?
No. The U.S. has not entered into an Income Tax Treaty with Hong Kong. Therefore, since there is no Tax Treaty, there is no provision(s) regarding how to treat retirement (for a detailed provision on how to treaty, please refer to the U.S. and UK tax treaty). And,. the MPF is not defined as an IRA or 401K in the U.S.
B. Is the MPF Retirement or Social Security?
The MPF is a probably categorized as form of retirement when compared to the U.S. social security system.. The MPF refers to the term “retirement” often within its own writings, and unlike social security, there are different investment schemes available, depending on the employee/employer status etc.. Moreover, the employees/employers can make voluntary contributions, have their own personal account numbers etc. So, while the MPF takes on many characteristics of social security, there is a high likelihood that the U.S. would categorize it as a form of pension or retirement.
C. What Has the IRS Ruled?
The IRS has not made any definitive ruling on how to treat the Hong Kong Provident Fund. But, like Hong Kong, Singapore has its own provident fund (Central Provident Fund). And, the U.S. has also not entered into a treaty with a tax treaty with Singapore either.
As to the CPF, the IRS has issued two Memoranda:
- Contributions on behalf of the employer are taxable.
- The Growth/Accruals within the fund are taxable.
Here is the Golding & Golding detailed analysis on U.S. taxation of Singaporean CPF funds.
Do I have to pay U.S. taxes on MPF income?
Many tax attorneys take the position that since there is no treaty, and the earnings are not per se classified as social security, then it is presumably taxable. Even though the SSA (Social Security Administration) refers to CPF and other provident funds as “privatized social security,” the SSA is not the IRS.
So in the example with the CPF above, even though the SSA refers to provident funds as “social security,” the IRS’ general position is that the contributions and earnings are taxable.
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