VHIS Concessionary Tax Deduction Guide

The Voluntary Health Insurance Scheme (VHIS) was launched on 1 April 2019. Apart from its product purchase details, VHIS concessionary tax deduction is one of the appealing selling points. Today, we unravel every detail of this scheme’s tax deductions.

How much tax deduction can I enjoy each year?

Typical medical insurance plans do not qualify for tax deductions, but the government is now encouraging the general public to purchase VHIS Certified Plans and has allowed premiums paid for VHIS Certified Plans to be eligible for tax deduction through tax regulation revision. VHIS can be classified into two types of Certified Plans – Standard Plan and Flexi Plan. Under the scheme, both are eligible for tax deductions when requirements are met.

From 1 April 2019 onwards, citizens (being taxpayers) who purchase VHIS Certified Plans for themselves or specified relatives, as defined under the Inland Revenue Ordinance, can apply for tax deduction. Each insured person is eligible for annual maximum tax deduction of HKD8,000 on the premiums paid, with no limit on the number of specified relatives being insured. Therefore, you can apply for tax deduction claims within the 2019/20 assessment year, if you are qualified.

Insure for whom will bring the greatest benefit

Specified relatives include the taxpayer's spouse and children, and the taxpayer or his/her spouse's parents, grandparents and siblings. If you (being taxpayer) purchase the VHIS Certified Plans approved by the Food and Health Bureau, you are eligible for tax deductions.

Insurance companies charge premium as set out in the standard premium table, based on the insured person’s gender and age. As the premium paid is a deciding factor on how much tax can be deducted, the policyholder’s age will affect the tax deductible amount.

Before purchase, you should discuss amongst your siblings, spouse and parents how you could maximize the benefit.

Insured persons as the unit

The amount of tax deductible is based on the number of insured persons. For example:

  • If you purchase three VHIS Certified Plans for yourself, your premium eligible for tax deduction is still capped at HKD8,000.
  • If you purchase three VHIS Certified Plans, two for specified relatives and one for yourself, the corresponding premium eligible for tax deduction is HKD24,000 (3 x HKD8,000).

However, the maximum deductible limit is based on the number of insured persons and cannot be combined, and is limited at HKD8,000 per insured person each year. If the premium sizes of three VHIS Certified Plans are HKD5,000, HKD6,000 and HKD10,000 respectively, the policy with HKD10,000 premium exceeds the HKD8,000 limit, and the exceeded amount cannot be used to cover the difference in the deductibles of the other two policies. So, the final amount eligible for deduction is only HKD19,000 (HKD5,000 + HKD6,000 + HKD8,000).


Utilise tax deductibles

Salaries tax formula:

Net chargeable income = (total income – VHIS tax deductibles – other allowances) x tax rate

For example, if your annual salary is HKD186,000, with HKD132,000 of tax allowances, the first HKD50,000 of net chargeable income in 2018/19 tax year is 2% and 6% thereafter. Therefore, the amount of tax you are required to pay is HKD1,240 ([HKD186,000 – HKD132,000 – HKD50,000] x 6% + HKD50,000 x 2%).

If your VHIS Certified Plan purchases entitle you to a HKD5,000 deduction, your tax payable will only be HKD980 ([HKD186,000 – HKD 5,000 – HKD 132,000] x 2%).


Utilise tax deductibles

However, if you purchase VHIS Certified Plans for your specified relatives, you are entitled to more tax concessions. For example, Mr. Lee has a family of eight, which include his wife, two kids who are around 20 years old and parents of over 60 years old from both sides of the family. With an annual family income of HKD980,000, the tax allowance for the married couple is HKD264,000, each child^ is eligible to a tax deduction of HKD120,000 and each dependent parent is entitled to a HKD50,000 deduction.

If Mr. Lee’s family does not own any VHIS products:
Net chargeable income*: HKD980,000 – HKD264,000 – HKD120,000 x 2 – HKD50,000 x 4 = HKD276,000
Personal assessment on the first HKD200,000*: HKD16,000
Taxable amount: HKD76,000 x 17% =  HKD12,920

But if Mr. Lee purchases a VHIS plan for himself, the tax deductible amount will be different. Assuming the deductible premium from his VHIS plan is HKD5,000:
Net chargeable income*:  HKD980,000 – HKD264,000 –  HKD120,000 x 2 –  HKD50,000 x 4–  HKD 5,000=  HKD 271,000
Personal assessment on the first HKD200,000*:  HKD16,000
Taxable amount:  HKD71,000 x 17% =  HKD12,070

If Mr. Lee purchases VHIS plans for his entire family of eight, assuming the deductible premium from each VHIS plan is HKD5,000, his taxes will look like this:
Net chargeable income*:  HKD980,000 –  HKD264,000 –  HKD120,000 x 2 –  HKD50,000 x 4 –  HKD5,000 x 8 = HKD236,000
Personal assessment on the first HKD200,000*:  HKD16,000
Taxable amount:  HKD36,000 x 17% =  HKD6,120

It is evident, purchasing VHIS Certified Plans for your specified relatives and yourself can help you save a lot on taxes. It is a win-win situation to have both medical coverage and concessionary tax deduction.


Mr Lee Case Example

The above product information is based on the Standard Plan under VHIS for reference. Details shall be as such published from time to time by the Hong Kong government. VHIS products across insurance companies may differ. Please read carefully, analyse and compare the terms and conditions of each insurance product before application.

The article content is for reference only. FWD or its affiliates or any director or employee of FWD or its affiliates expressly disclaims all liability for the use or interpretation by others of information contained in this document (including third party responsibility). Users are responsible for making their own assessment of all information contained in this document or are advised to seek independent advice from appropriate professionals.

^If during a year of assessment you maintain an unmarried child under 18 years old or over 18 but under 25 years old and receiving full-time education in a university, college or other similar educational establishment, or over 18 years old but unable to work because of physical or mental disability, you are entitled to claim an allowance for the child.

*Personal assessment on the first HKD200,000 under 2018/19
Calculated at progressive rates during the year of assessment, the above calculation excludes approved charitable donations, expenses for self-education, contributions to MPF or recognised occupational retirement schemes, depreciation allowance, home loan interests, interest payments to produce rental income from properties, deduction for elderly residential care expenses and other deductions. For details on the amount of tax payable, please visit the government website or consult your tax advisor.

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