IRS Treatment & US Tax of CPF Singapore
US Tax of Singapore CPF: We get it. You just learned that the CPF (Central Provident Fund) you have in Singapore is taxable and reportable in the U.S. You scour the internet expat forums and other blogs, hoping to find a glimmer of hope that your Singapore CPF is not taxable in the U.S., since it is essentially like Social Security in Singapore, right?
So, does the IRS Treat CPF as Social Security or Pension and what are the US Tax of Singapore CPF requirements?
In a memoranda dated back to 1996, the IRS actually revised its position from an earlier memo to further scrutinize the CPF and include both contributions and growth as taxable in the U.S.
And, because there is no bilateral tax treaty nor totalization agreement in place between the U.S. and Singapore, Taxpayers do not have an opportunity to submit a treaty position form 8833.
Why does the IRS Take This Position?
While the CPF has some of the flavor of U.S. Social Security, it is overall most analogous to pension.
Social Security in the U.S.
In the U.S., both the employer and employee contribute to Social Security.
- It goes into a single fund
- Unless A totalization agreement applies, employed U.S. persons are required to pay into it – whether or not the Employer is U.S. or Foreign (some limitations may apply)
- There is no distinction between who owns “what” portion; it is a “group fund”
- Taxpayers cannot choose the investment portfolio
- Taxpayers cannot cash out
- If you die before you receive any…your beneficiaries cannot “cash out” (spouse payments may apply)
- There is no account number
In Singapore, both the employer and employee contribute to Social Security, but that is where the similarities end.
- It goes into Separate Funds
- Each person has their own portion of it, like your 401K account
- Taxpayers can choose the investment portfolio
- Taxpayers can cash out when certain milestones are met
- If a Taxpayer dies before they receive the full amount, they may appoint nominees (or else the money is distributed under intestacy laws).
- Taxpayers can withdraw the full amount based on various milestones or loss of nationality
- Taxpayers do not have to contribute if they do not work for a non-Singapore employer
- Taxpayers can apply for funds during their lifetime (example to “secure” government funded housing”) before reaching 55, without having to lose nationality or become disabled.
Basic Framework of the CPF
In Singapore, the CPF is contributed to from both employers and employees. It is referred to as Social Security and retirement and in Singapore and is mandatory.
As provided by the Central Provident Board:
“Working Singaporeans and their employers make monthly contributions to the CPF and these contributions go into three accounts:
Ordinary Account – the savings can be used to buy a home, pay for CPF insurance, investment and education.
Special Account – for old age and investment in retirement-related financial products.
Medisave Account – the savings can be used for hospitalisation expenses and approved medical insurance.”
Totalization Agreement with the U.S for Singapore CPF?
As provided by the SSA:
Totalization Agreements, also referred to as bilateral agreements, eliminate dual social security coverage (the situation that occurs when a person from one country works in another country and is required to pay social security taxes to both countries on the same earnings).
Each Totalization Agreement includes rules intended to assign a worker’s coverage to the country where the worker has the greater economic attachment.
The agreements generally ensure that the worker pays social security taxes to only one country, provided the worker and the employer meet the procedural requirements under the agreement for obtaining an exemption from the other country’s social security taxes.
The goal of a Totalization Agreement: To avoid a taxpayer from having income withheld in each jurisdiction for employment.
Unfortunately, the U.S. does not have a bilateral tax treaty or totalization agreement with Singapore to avoid dual withholding of employee earnings.
Contributions to the CPF
Employers and employees make contributions to the fund. But, only when an employee works for a Singaporean Employer.
In addition, employers do not need to make contributions for employees who are neither citizens nor permanent residents of Singapore.
Unlike the U.S., if a person in Singapore and employed with a Work Permit, CPF is not required until the employee becomes a permanent resident.
Withdrawal of CPF Savings
Unlike Social Security in the U.S. that results in the ability to receive payments, the CPF has a set value based on the amount contributed, which can be withdrawn starting at age 55.
As provided by the Central Provident Fund Board:
“You can choose to take out part of your withdrawable CPF retirement savings from age 55. If you are still working or have other sources of income, you can choose to leave these savings in the respective accounts to earn interest rates of up to 6% per year and withdraw your CPF retirement savings only when you need it.”
Retirement Sum Scheme vs. CPF Life
Only recently (2009) did Singapore introduce the CPF Life, which resembles U.S. Social Security. With the Former, the employee is only eligible for monthly payouts (interest earned on sum) until is was depleted. Under the latter, the person is eligible for lifelong payouts.
No Treaty 8833 is Available for Singapore CPF
Form 8833 is used to take a “Tax Treaty Return Position” with a treaty country.
Since there is no treaty with Singapore, there is no treaty position Form 8833 position to take.
FBAR & FATCA Reporting
The CPF is reported on the FBAR and Form 8938 (FATCA). Oftentimes, there will be a mutual fund component that may require a PFIC.
Out of Compliance?
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