US citizens and taxes paid on MPF

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  1. #1

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    US citizens and taxes paid on MPF

    Can someone with US tax expertise explain how I must handle IRS tax on Mandatory Provident Fund (MPF) gains, losses, and withdraws?

    (I am a US citizen working in HK and file tax forms with the IRS yearly.)

    Example questions which I have:

    1. Should I treat the holdings of my MPF account as individual stock purchases and pay capital gains tax for each security separately?
    2. What are the tax considerations if I choose to withdraw the entire amount upon leaving Hong Kong forever?
    3. Does form 8621 apply to MPF?


    Thanks for assistance.

    (I'm not seeking an explanation of foreign earned income exclusions; the question is specific to MPF.)
    Last edited by paul9; 26-04-2010 at 04:40 PM.

  2. #2

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    Is anyone able to answer?


  3. #3
    fth
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    Oh dear, this is what I do (I think as I get them prepared by my accountant).

    1. No deductions from salary for my contributions and my employer contributions are taxable as wages.

    2. You need to fill out form 8621 which relates to a passive foreign investment company. That means that you have to mark to market your funds returns every year and any gain is taxable as income.

    3. As the IRS does not recognize the MPF as a pension scheme (lack of tax treaty for a start), I can't imagine why withdrawing the money when you leave should cause problems.

    4. If you work for a US company try and find if you can set up an alternative scheme to your MPF, eg a 401k. Otherwise set up an IRA, US$5000 per annum versus c. US$3,050 which is the maximum compulsory amount you can put into your MPF. Charles Schwab offer this service for people living in HK, E-trade don't. In order to do this you must have taxable income (i.e, be above the c. US$90k threshold).
    Generally avoid any form of non-US collective mutual fund, especially if it wrapped up in an insurance policy unless you have it cleared with a professional US tax advisor. The reason is that in the US mutual funds distribute income and tax forms to their holders every year. Non-us ones don't and allow in most cases for people to defer the tax until they exit their investment.

    Last edited by fth; 03-05-2010 at 12:12 PM.

  4. #4

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    Agree with most of what fth says except for treating an MPF as a passive foreign investment company (PFIC). An MPF is a non-qualified pension plan and not taxed as a PFIC. It ends up being treated more like a nondeductible traditional IRA. When you leave Hong Kong and take your MPF with you, you will pay US tax on the earnings of the account. While living and working in HK all contributions, employee's and employer's, to an MPF are taxable in the year contributed, or when vested.


  5. #5
    fth
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    CPA4U - can we discuss offline?


  6. #6
    fth
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    you will pay US tax on the earnings of the account
    Does that mean you can defer the earnings?

  7. #7

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    Quote Originally Posted by fth
    Does that mean you can defer the earnings?
    Yes, the earnings are deferred.

  8. #8

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    I tend to agree with CPA4U. One could elect to treat the MPF as a corporation (and hence a PFIC) but I think a valid interpretation is that it is a fund in which you have direct claim and accordingly, not differentiable (is that a word?) from you personally. Think of it like a Charles Schwab account. I'll note that I am actually a tax advisor but please take my comments with a grain of salt as I am not an expert on MPF issues.


  9. #9

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    I should have read CPA4U's answer more carefully -- I am not sure that I agree that the earnings of the MPF are deferred -- I think that the earnings (dividend, interest, etc.) are currently taxable to you (unless there is a way to qualify the fund under the US IRA rules -- that may be what CPA is referring to). So I would say that the contribution is not deductible, the income is taxable (in the US) but cashing out the MPF when you leave is not a taxable event (except to the extent you trigger gains, etc., by disposing of the investments therein). However, it may very well be that CPA4U knows something that I don't. Good luck.