Basics of FATCA Singapore – Bank Certification Letter, CPF Account, Unit Trust & Life Insurance/Assurance
- 1 FATCA Singapore – FAQ
- 2 FATCA Singapore – Basics
- 3 FATCA Singapore Reporting – How does it Work
- 4 What to do – Singapore FATCA FAQ
- 5 Is my CPF Fund Reportable?
- 6 Do I pay Tax on the Non-Distributed CPF Earnings?
- 7 If my CPF is Not Reported, How Do I Get Caught?
- 8 UOB Trusts – Are they Reportable in the U.S.
- 9 Do I pay Tax on the Non-Distributed but Accrued UOB Trust
- 10 Foreign Life Insurance/Assurance – Do I Report it to the IRS
- 11 Foreign Life Assurance – Do I Pay Tax on Annual Earnings
- 12 Foreign Bank Letter aka FATCA Letter aka Certify U.S. Status
- 13 Which Singaporean Banks & Firms “FATCA” Report?
- 14 Get Into Tax and U.S. Government Compliance
- 15 Golding & Golding, A PLC
FATCA Singapore – FAQ
FATCA is the Foreign Account Tax Compliance Act and it is a U.S. law designed to reduce international and offshore tax evasion. Under FATCA, foreign countries such as Singapore enter into agreements with the U.S. Government to report U.S. Taxpayer information to the United States Government/IRS.
These agreements are called IGAs (Intergovernmental Agreements) and they are reciprocal between the U.S. and Foreign Country. Thus, not only will the foreign countries report account information to the United States, the United States will also report taxpayer information to the foreign country.
Therefore, if a foreign country has its own offshore compliance program in place and/or is currently planning on complying with CRS (common reporting standard – the global version of FATCA, aka “GATCA”) then it could spell big trouble for the taxpayer, who may find himself or herself out of compliance in multiple countries.
Based on U.S. Law, it is crucial to stay in compliance with the IRS as a primary concern as the IRS has significant fines and penalties it regularly levies against US taxpayers who are required to report to the United States, but failed to do so. Moreover, the IRS may levy or seize both your U.S. and Foreign Property/Money.
FATCA Singapore – Basics
Singapore is a FATCA reporting country that entered into a model 1 IGA in 2015. As such, Singapore is actively reporting any individual that has a foreign account in Singapore to the United States if that person is considered to be a U.S. Resident/U.S. Tax Payer. Unfortunately, the definition for US residents is very broad and generally includes:
- U.S. Citizens
- Legal Permanent Residents/Green-Card Holders including those that recently relinquish their green card
- Nonresidents or U.S. Residents who are non-Green-Card Holders but meet the Substantial Presence Test
- US Citizen Ex-Pats residing outside of the United States
FATCA Singapore Reporting – How does it Work
More than likely if you have a Foreign Account and may be considered a U.S. Taxpayer/ U.S. Resident, you will receive a FATCA letter from your Singaporean Bank, Insurance Company, Investment firm, or CPF fund. This form will ask you to certify under penalty of perjury as to whether you are a US taxpayer. If you are, and meet any of the aforementioned classifications then you are required to complete a W-9 Form.
Thereafter, at various intervals throughout the year the foreign bank or investment firm will report your information to the U.S. Government.
If the Internal Revenue Service, Department of Treasury, or Department of Justice learns that you have foreign accounts and then determines that you have not reported the accounts or the income information on your tax return for file the necessary annual FBAR aka FinCEN 114 form (Report of Foreign Bank and Financial Accounts), you could be in serious trouble.
That is because the fines and penalties associated with failing to comply can be as high as 100% value of the foreign account, including but not limited to the IRS issuing levies, liens and/or seizures of your U.S. or foreign accounts and property. Moreover, depending on the facts and circumstances of your case the IRS may launch a criminal investigation through the special agents.
What to do – Singapore FATCA FAQ
At Golding & Golding, we have represented numerous clients from Singapore and Malaysia, with a single disclosure in Singapore exceeding $15,000,000 from Singapore – which successfully was accepted by the IRS under the Streamlined Program.
Often times, clients have common fact scenarios which eventually lead them to our office, where we can cost-effectively resolve the matter them. To that end, we have prepared a brief Singapore FATCA FAQ (Frequently Asked Questions) geared specifically to Singapore due to the number of clients and inquiries receive from individuals with accounts in Singapore.
Is my CPF Fund Reportable?
Generally, the answer is yes if you are an individual (as opposed to an institution). There appears to be some confusion regarding the reporting of these accounts. While the foreign financial institution that holds the CPF may be exempt from reporting under the IGA it has with United States, that does not mean individual account holders in the United States are exempt from reporting as well.
In other words, a CPF is similar to a 401(k)/Social Security hybrid. With a CPF, generally the individual will have an account number associated with the “investment.” While the CPF receives deferred tax treatment in Singapore, the same is not true in the United States. Even though the individual may not be able to withdraw the investment at this time, it does not mean that the individual is exempt from reporting it to the US. Government.
Thus, to err on the side of caution it would be to report this account on your annual FBAR statement, along with your 8938 if you are required to file it (the threshold requirements for the 8938 are higher than for the FBAR)
Do I pay Tax on the Non-Distributed CPF Earnings?
This can get very complicated, depending on the specific facts and circumstances of your investment. Generally, if the CPF increases in value due to the fact that interest or dividends were earned (even if it was reinvested), then it must be included on your tax return. You do not get the same benefit that you do for a 401K/social security even though it is essentially a retirement/tax deferred scheme.
You can take some solace in the fact that if you pay the tax now, then in the future when that money is actually distributed, you will receive a tax credit against the taxes you already paid for the re-invested income; in other words, you do not take double tax. Rather, you pay tax on the money now before you get a chance to “pocket it” but you get a tax credit later when it is distributed.
*This is not fair, especially if you are in a lower tax rate when you retire and the money is distributed, but there is little that can be done to avoid it.
If my CPF is Not Reported, How Do I Get Caught?
There are many ways in which unsuspecting individuals get caught with unreported accounts. Just because the foreign institution did not report the information, does not mean that the IRS or US government does not otherwise have the information. In fact, many foreign institutions are simply reporting all the accounts they have instead of parsing through all different types of accounts and then making sure to report only the non-CPF accounts; in other words, it is simply too costly for many foreign financial institutions to implement protocols the parse out different accounts – it is easier for them just to report all the accounts and anybody who may be a US person, US resident or nonresident subject to US tax.
UOB Trusts – Are they Reportable in the U.S.
A UOB Trust is reportable in the United States. The problem becomes as to how it should be reported. The trust should definitely be reported on the FBAR because it is a foreign account. Even though it is called a trust, technically it is a type of investment vehicle similar to an investment account.
It only gets more complicated from here…
Depending on the specific facts and investments included in the trust at issue (Such as whether the trust has mutual funds in it) the investment may be considered to be a PFIC (Passive Foreign Investment Company). If you know anything about PFICs, then you know they are very complicated and are taxed very egregiously. That is because the United States hates PFIC as it is considered competition for domestic mutual funds and other U.S. investments opportunities.
When it comes to determining which forms you will have to file and if the Trust qualifies as a PFIC, we recommend speaking to your attorney in some detail regarding the investment. Usually it will be reported on either one of two forms: The 8938 (Statement Of Specified Foreign Assets) or the 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund).
If it is a PFIC that must be reported on an 8621 (and does not qualify for any of the exemptions for reporting), it will require a complex analysis to determine whether there was any excess distributions and/or if you qualify now for any election such as the Qualifying Elective Fund (QEF) or Market-to-Market (MTM) and/or whether you prefer to go the traditional route – which is simpler at first, but usually more costly in the long run.
Do I pay Tax on the Non-Distributed but Accrued UOB Trust
Yes. Just because the investment “reinvests” earned income such as interest payments or dividend back into the principal does not mean it gets to be excluded from your tax return.
Think about it like this: if your investment earns $5000 of interest income that is reinvested by the fund back into the fund, the way the IRS sees it is that you received $5,000 and then reinvested it – even if you never touched it.
Foreign Life Insurance/Assurance – Do I Report it to the IRS
Generally, life insurance or “life assurance” is reportable to the U.S. government. It is reportable on an FBAR as well as an 8938 if you meet the threshold requirements. Whether or not a life insurance for life insurance/assurance policy must be reported will usually boil down to whether there is a surrender value; aka “can you turnaround and sell that policy for value.” If so, what is the value or “surrender value” that you can sell it for — that is the dollar amount that must be reported on your tax return.
Foreign Life Assurance – Do I Pay Tax on Annual Earnings
Yes. When you are earning Bonus, Dividends, or Interest (including capital gains that is a factor) you are earning income. It does not matter that the income derives from a life assurance/insurance policy that you may not be able to obtain full value for at this time (aka “Cash Out”). It does not matter if the earnings going to a separate account which either you do not touch, or you are not allowed to access. From the US government’s perspective, it is earned income and that income is accrued and therefore must be reported on your tax return.
Foreign Bank Letter aka FATCA Letter aka Certify U.S. Status
Since Singapore has signed a FATCA Agreement and is actively reporting U.S. Taxpayers, if you received a FATCA Letter from your Foreign Bank, it is important that you take action before the IRS contacts you first and you lose the opportunity for Offshore Disclosure.
A FATCA Letter means serious business. If you are a U.S. Citizen, Legal Permanent Resident, or Foreign National subject to U.S. Tax and you received a FATCA letter, it is important you act quickly.
There are very strict time requirements in responding to a FATCA letter and the failure to do so can result in fines, penalties and even the forfeiture or downgrading of your foreign account.
Here is a Link to a Recent Article we drafted: Have Your Received a FATCA Letter?
Which Singaporean Banks & Firms “FATCA” Report?
There are thousands upon thousands of Foreign Financial Institutions (“FFIs”) that are actively reporting US resident and taxpayer information to the US government. You can click here to find a link that will identify each and every institution in Singapore that has agreed to report.
Some common banks that are reporting, include:
- Bank of Singapore
- DBS Bank
- POSB Bank
- Far Eastern Bank
- Oversea Chinese Banking Corporation
- United Overseas Bank
- Bank of America
- Bank Of China
- Bank of East Asia
- Hong Kong and Shanghai Banking Corporation
- JP Morgan Chase
- Sumitomo Mitsui Banking Corporation
Get Into Tax and U.S. Government Compliance
If you are out-of-compliance, your first step is to determine the best way back into compliance. Below please find a brief summary of FATCA, Reporting Requirements (8938 and FBAR) and Offshore Disclosure (OVDP, Streamlined Offshore Disclosure, and FBAR Delinquency)
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.