Hong Kong Construction Company Setup: Levies and MPF Rules

At a glance

Registration requirements, levy rates, thresholds and exemptions are as most recently published by the Buildings Department, the Construction Industry Council and the relevant ordinances.

Contractor registration: first establish which class you are in

In this trade, forming a company does not by itself let you take on works.

Depending on the class and scale of the works, registration with the Buildings Department may be required — as a registered minor works contractor (company or individual), for example. Registration requirements generally involve relevant qualifications, experience and safety training certificates.

In practice the first step is not registering; it is establishing which class the work you intend to take on falls into. Different classes mean different registrations, with quite different requirements. Confirm this with the Buildings Department or a professional familiar with construction registration.

The construction industry levies: three million is the line

Two ordinances each impose a levy:

• Construction Industry Council Ordinance — 0.5%
• Construction Workers Registration Ordinance — 0.03%

The threshold: works with a total value not exceeding HK$3,000,000 are generally not liable (the threshold rose from one million to three million on 30 July 2018).

Three practical points:

One: it is calculated on “total value of the works”, not on your profit. On a three-million-plus job, the levy is on the total value even if your margin is ten percent.

Two: build it into the quote. Leave it out at the start and you absorb it later.

Three: keep the records. Records of the levy and the value of the works are kept along with your accounting records.

MPF: the item this trade most often misses

This deserves its own section, because a shortfall means making it good with a surcharge, and the MPFA checks these two industries most closely.

Construction has an MPF industry scheme, designed for casual employees who move between sites.

The key difference: a casual employee under an industry scheme contributes even where employed for fewer than 60 days. The 60-day exemption under an ordinary scheme does not apply.

Which is to say:

• “They only worked two days” — contributions due
• “They’re leaving after this job” — contributions due
• “They’re casual, not proper staff” — contributions due

The reason is practical: many people in this trade change employer daily, and under the ordinary rule they would never accumulate any MPF.

For the full rules see do part-timers and casuals need MPF.

Employees’ compensation insurance: cover and trades declared accurately

Injury risk is high in this trade, which makes two points especially important:

One: declare the trades accurately. Declaring clerical work where the job involves working at height, heavy lifting or power tools can lead to a dispute when something happens.

Two: notify changes in headcount. Numbers move a lot in this trade; do not wait until renewal. Someone added or a trade changed, tell the insurer straight away.

Not having employees’ compensation insurance is a criminal offence, and without cover an injured employee’s compensation falls on the employer. See employees’ compensation insurance.

Subcontracting: define responsibility clearly

Subcontracting is normal in this trade, but note:

One: whose employees are the subcontractor’s employees? This determines where MPF, employees’ compensation insurance and injury liability sit. Put it in the contract.

Two: does the subcontractor have employees’ compensation insurance? The main contractor can be drawn in. The practical approach is to ask for a copy of the policy and keep it on file.

Three: keep records of payments and retention. These feed your accounts and your tax position.

Judgements of this kind involve legal liability, so take advice case by case — particularly for large or long-running subcontracting arrangements.

Bookkeeping: record by project

For an ordinary company a monthly profit and loss is enough. For a construction company it is not.

Record by project: each project’s revenue, costs, amounts received and amounts outstanding. Because:

• Only then do you know which projects make money and which lose it
• The year end requires work in progress to be dealt with — costs incurred with revenue not yet recognised
• Retention usually arrives much later and cannot be treated as received
• Materials and labour have to map back to a project, not sit in one aggregate figure

None of this needs a complex system — one sheet per project is enough. But without it, the year end means reconstructing the split from memory.

The order to do things in

One: establish the class of works and the registration required.

Two: form the company — limited liability matters particularly in this trade, where claims can be large.

Three: before your first hire, put industry scheme MPF and employees’ compensation insurance in place.

Four: build the levy into your quotes (where the total value exceeds three million).

Five: record by project from the first project onwards.

We do bookkeeping, company secretarial work and employer filing support — setting up project-based bookkeeping, and handling MPF and the employer’s return. Contractor registration and the technical side belong with a professional in the trade.

Talk to us, or get started.

This is general information and does not constitute legal, registration or accounting advice. The contractor registration regime, levy rates, thresholds and exemptions are as most recently published by the Buildings Department, the Construction Industry Council and the relevant ordinances; MPF and employees’ compensation arrangements follow the MPFA and the Labour Department.