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Unraveling Tax Deductions FAQ

What is a Qualifying Deferred Annuity Policy (QDAP)?

The Insurance Authority (IA) is certifying deferred annuity products that can meet the criteria for a Qualifying Deferred Annuity Policy (QDAP). Starting from April 2019, Hong Kong taxpayers can apply for tax deductions when buying a QDAP. By offering these tax concessions, the Government aims to encourage HK citizens to prepare better for their retirement lives.

 

What is the difference between a QDAP and other deferred annuity plans in the market?

The biggest difference is that taxpayers can apply for a tax deduction with a QDAP, but not for an unqualified deferred annuity plan.

To qualify as a QDAP, a plan has to meet a number of requirements: for example, the premium payment period has to be at least 5 years, and the annuitant can only receive the annuity payouts when he/she reaches the age of 50 or above. In addition, the minimum total premium is set at HKD 180,000 and the minimum length of the annuity period is at least 10 years.

Most general annuity plans in the market have no such limitations in the above mentioned areas, and are launched by different insurance companies. If you are interested in an annuity plan, but wish to have more flexibility, such as to pay all the premiums in a lump-sum, or to receive a stable annuity payout before the age of 50, then you can consider other annuity products.

 

What are the benefits of using a deferred annuity plan for retirement savings?

A deferred annuity is a kind of long-term insurance product. In general terms, after you make contributions to the insurance company in a lump sum or on an instalment basis, you will receive a stable income from the insurance company in a certain number of years (usually when you have retired) to cover your daily expenses in retirement. A deferred annuity has the following advantages:

  • To help you make a better budget: You receive a regular income (e.g. monthly) from the insurance company within the annuity period, and thus enjoy a stable income stream. This means you can budget your daily expenses based on the amount you receive every month.
  • To help you enjoy greater peace of mind: As life expectancies are getting longer, if you live too long, you might have to spend carefully to avoid using up your savings. Some annuity plans, however, allow for annuity payment periods up to the age of 100. In other words, you would receive a stable income until you are 100, so you don’t have to worry about being too long-lived.
  • To help you make your calculations: Hong Kong taxpayers can apply for a tax deduction through QDAP. The tax amount saved can be used to cover daily expenses, or put into other investment plans, to help you reach your financial goal.
 
How much tax deduction can I enjoy with a QDAP?

Taxpayers can apply for tax deductions for the qualifying deferred annuity premiums paid for the QDAP. The maximum tax saving per assessment year is HKD 60,000 (HKD 60,000 is the aggregated maximum limit of the total tax savings allowed for QDAP and TVC) per person. Based on the prevailing highest tax rate (i.e. 17%) for salaries tax/personal assessment, the maximum tax savings can reach HKD 10,200.

 

  QDAP

Maximum tax deduction

per fiscal year

(per insured person)

 HKD 60,000

 

If this suits your personal or family needs, you could consider purchasing different kinds of annuity products or even other tax deductible financial products, to increase your protection as well as to utilise the tax deduction quota: The HKD 60,000 mentioned above is a shared quota among QDAP and TVC per taxpayer per assessment year. In other words, a taxpayer can claim tax deductions for the qualifying deferred annuity premiums and the contributions made to the TVC.

Please note that the tax deduction arrangement under this web page is provided for your reference only and does not necessarily mean you will be eligible for tax deduction available for QDAP premiums you have paid. The tax deduction arrangement under this web page is based on the features of the product as well as certification by the Insurance Authority (“IA”) and not the facts of your own situation. You must also meet all the eligibility requirements set out under the Inland Revenue Ordinance and any guidance issued by the Inland Revenue Department of Hong Kong Special Administrative Region (“IRD”) before you can claim these tax deductions.

Any general tax information provided is for your reference only, and you should not make any tax-related decisions based on such information alone. You should always consult with a professional tax advisor if you have any doubts. Please note that the tax law, regulations or interpretations are subject to change and may affect related tax benefits including the eligibility criteria for tax deduction. Sun Life Hong Kong Limited is not responsible for informing you about any changes in the laws and regulations or interpretations, and how they may affect you.

Please note that only qualifying annuity premiums due and paid during a year of assessment will be eligible for tax deduction for that year of assessment. Subject to IRD’s discretion, all or part of the qualifying annuity premiums paid during the grace period but due in the previous year of assessment may or may not be eligible for tax deduction for that year of assessment. Further information on tax concessions applicable to QDAP may be found at the webpage of IA www.ia.org.hk/en. You may also refer to the website of IRD or contact IRD directly for any tax related enquiries.

If you are interested in purchasing a QDAP product, you should understand the policy features and risks associated with such QDAP product and the relevant risks (including but not limited to the risk of significate financial loss upon early surrender) disclosed in the relevant product brochures provided by different insurers in the market.

Remark:

The above information is based on and compiled with information from sources that is deemed to be reliable, but Sun Life Hong Kong Limited does not guarantee the accuracy or completeness of such information, and will not accept any liability for the information. All information contained in this document is a general guide for reference only, and is not any form of guarantee or professional advice.

What is the tax concession program?

The qualifying premiums paid by the clients for himself and his dependents* for VHIS certified plans on or after 1 April 2019 can be applied for tax deduction.

*Dependents include the taxpayer’s spouse and children, and the grandparents, parents, brothers or sisters of the taxpayer or his/ her spouse. Dependents refer to “specified relatives” defined in the Inland Revenue Ordinance (Cap. 112), subject to the then prevailing underwriting and administrative rules of Sun Life Hong Kong Limited. For meaning of “specified relative”, please refer to the website of the Inland Revenue Department.

  VHIS certified plans

Maximum tax deduction

per fiscal year

(per insured person)

 HKD 8,000

 

For example, a policyholder purchases VHIS policies for himself, his wife and

his daughter, he will be entitled to have the following tax deduction:

 

Annual Premium

(HK$)

Premiums eligible for tax

deduction (HK$)
Policyholder 10,000 8,000
Wife 5,000 5,000
Daughter 3,000 3,000
Total 18,000 16,000

The exact amount saved from tax payment is subject to the marginal rate of the taxpayer.

Remark:

The above information is based on and compiled with information from sources that is deemed to be reliable, but Sun Life Hong Kong Limited does not guarantee the accuracy or completeness of such information, and will not accept any liability for the information. All information contained in this document is a general guide for reference only, and is not any form of guarantee or professional advice.

For details of tax deduction, please refer to IRD website.

For details of VHIS, please refer to Health Bureau VHIS website.

 

 

QDAP & VHIS

 

How are Policy Owners informed of the tax deductible amount to enjoy tax deduction?

We will provide our clients with premium payment record every year to assist them in applying for tax deduction. An annual summary will be sent to Policy Owners within 40 days after the end of a year of assessment. It will state the total amount of due and paid premiums and the tax deductible amount during the year of assessment. 

 

Are premiums of rider benefits, premium refund and levy tax deductible?

No. Only premiums for QDAP and VHIS certified plans which are due and paid are tax deductible. Premium of rider benefits, premium refund and levy are not counted as qualifying premium and hence are not tax deductible.

 

If there is any premium refund after a Policy Owner has filed a tax return and claimed tax deduction in respect of the qualified premiums paid, what should the Policy Owner do?

The Policy Owner are required to notify the Commissioner of the Inland Revenue Department of such refund within 3 months from the date of refund.

 

What is the tax deduction limit for a married couple?

In every year of assessment, each taxpayer can claim up to HKD 60,000 tax deduction on premium paid for QDAP, and up to HKD 8,000 for VHIS certified plans.

If the married couple are both taxpayers, they can claim a maximum amount of tax deductions of HKD 120,000 (QDAP) and HKD 16,000 (VHIS) so long as the tax deductions claimed by each taxpayer do not exceed the individual limit. If only one of the married couple is taxpayer, the maximum amount of tax deduction allowed to the taxpayer is his/her individual limit.

 

For reinstated policies, clients have to pay all overdue premiums with interest in one go. Will this affect tax deduction?

When the client pays all overdue premiums with interest in one go upon reinstatement, the total amount of premiums (without interest) will be considered as the due and paid amount in the same year of assessment and it will be shown in the Annual Summary. However, the tax deduction limit for the year of assessment in which reinstatement takes place will remain unchanged. Therefore, comparing to paying the premiums due on time, the tax deduction amount under reinstatement may be less.

 

Please note that the tax deduction arrangement under this web page is provided for your reference only and does not necessarily mean you will be eligible for tax deduction available for QDAP premiums you have paid. The tax deduction arrangement under this web page is based on the features of the product as well as certification by the Insurance Authority (“IA”) and not the facts of your own situation. You must also meet all the eligibility requirements set out under the Inland Revenue Ordinance and any guidance issued by the Inland Revenue Department of Hong Kong Special Administrative Region (“IRD”) before you can claim these tax deductions.

Any general tax information provided is for your reference only, and you should not make any tax-related decisions based on such information alone. You should always consult with a professional tax advisor if you have any doubts. Please note that the tax law, regulations or interpretations are subject to change and may affect related tax benefits including the eligibility criteria for tax deduction. Sun Life Hong Kong Limited is not responsible for informing you about any changes in the laws and regulations or interpretations, and how they may affect you.

Please note that only qualifying annuity premiums due and paid during a year of assessment will be eligible for tax deduction for that year of assessment. Subject to IRD’s discretion, all or part of the qualifying annuity premiums paid during the grace period but due in the previous year of assessment may or may not be eligible for tax deduction for that year of assessment. Further information on tax concessions applicable to QDAP may be found at the webpage of IA www.ia.org.hk/en. You may also refer to the website of IRD or contact IRD directly for any tax related enquiries.

If you are interested in purchasing a QDAP product, you should understand the policy features and risks associated with such QDAP product and the relevant risks (including but not limited to the risk of significate financial loss upon early surrender) disclosed in the relevant product brochures provided by different insurers in the market.

Remark:

The above information is based on and compiled with information from sources that is deemed to be reliable, but Sun Life Hong Kong Limited does not guarantee the accuracy or completeness of such information, and will not accept any liability for the information. All information contained in this document is a general guide for reference only, and is not any form of guarantee or professional advice.

For details of tax deduction, please refer to IRD website.

For details of VHIS, please refer to Health Bureau VHIS website.