Under Singapore law, an employer generally must contribute a certain proportion of each employee’s wages to the Singapore Central Provident Fund (CPF). The employer is permitted to withhold up to half of the amount required to be contributed from each employee’s wages.
The following IRS Memorandum is an excellent resource regarding the taxation of Singapore CPFs: https://www.irs.gov/pub/lanoa/pmta00173_6973.pdf
How Singapore CPF Accounts are Categorized in the US
All retirement plans under U.S. law are either defined benefit or defined contribution.
- A defined benefit plan provides a specified payment amount upon retirement.
- A defined contribution plan allows employees and employers to contribute and invest the funds over time; the amount in the pension will depend on the investment growth.
The CPF is a defined contribution plan. A defined contribution plan can be qualifying or non-qualifying.
We can assume that CPF accounts are non-qualifying and do not receive tax-favorable treatment.
Generally, CPF accounts will be employees’ trusts per IRC 402(b).
Singapore CPF Employer Contributions
Section 402(b)(1) provides that contributions made by an employer to an employees’ trust are included in the employee’s gross income.
Section 1.402(b)-1(a)(1) of the regulations provides that employer contributions to a nonexempt employees’ trust shall be included as compensation in the employee’s gross income for the taxable year in which the contribution is made, but only to the extent that the employee’s interest in such contribution is substantially vested as defined in § 1.83-3(b).
Singapore CPF: Taxed When Funds are Made Available
Under § 402(b)(2), the amount actually distributed or made available to any distributee by any such trust is taxable to the distributee in the year so distributed or made available under § 72.
Under § 1.451-2(a), amounts are considered made available from the Fund whenever a participant would be entitled to receive the distribution upon giving notice of intent to withdraw those amounts.
Singapore CPFs funds can be made available for a wide variety of reasons including public housing, public transportation, home insurance, private housing, health care, purchase of various types of investments, parents’ retirement needs, college education, and life insurance. In addition, funds can be withdrawn when the person is no longer a resident or citizen of Singapore.
The IRS Memorandum states regarding accrued CPF income that “the availability of distributions from the Fund for a wider variety of purposes under the changes made to the Fund may result in the taxation of amounts made available from the Fund under § 402(b)(2) in a greater variety of circumstances.” This indicates that the the growth within the CPF will be taxed annually.
Which international forms are needed for a CPF account?
If your foreign accounts exceed the eligible thresholds, you must report the CPF account on the FBAR and Form 8938.