There are more and more multinational companies operating in China are taking up the country's voluntary Enterprise Annuity system to recruit and retain the local staff, growth in the popularity of the defined benefit plan with individual accounts faces a hurdle -- the absence of a national policy for tax incentives. The Mercer superannuation and consultancy group says tax concessions for employer contributions vary from 4 to 12.5 per cent of an employee's income, depending upon the province.
Furthermore, employer contributions to the Enterprise Annuity plan are pre-tax but employee contributions are post-tax. This is something that we have to take note.
In Hong Kong, by comparison, tax incentives for its Mandatory Provident Fund (MPF) are clear. Derek Young, chief executive of financial planning group ipac Asia, explains at mandatory contributions are 5 per cent by employers and 5 per cent by employees of the employees' monthly salary. Contributions are tax-deductible for employers and employees within limits. Employees' mandatory contributions, for instance, are tax-deductible up to HK$12,000 a year.
Interest and capital gains -- whether earned in a pension fund or from privately held investments owned by individuals -- are not taxed. And no exit tax applies to the MPF.
Young says individuals can make voluntary contributions to the MPF or the ORSO (an older version of the MPF) schemes but these are not tax-deductible.
Young says most investors in Hong Kong prefer outside pension funds, because the desire to have access to the money 65 years ago to save.
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