Singapore Tax Guide for U.S. Persons (IRS Basics of CPF Reporting)
International Tax is hard. When it comes to Singapore and the United States, the difficulty is compounded due to the fact that:
- There is no bilateral tax treaty between the U.S. and Singapore
- There is no totalization agreement between the U.S. and Singapore
- The SSA refers to CPF as Privatized Social Security
- The IRS issued memoranda identifying CPF Contributions and Growth as taxable (even if non-distributed)
Singapore Tax Guide
1. Tax – Deferrals and Growth
Learn how the CPF contributions and growth are taxed by the U.S.
2. Reporting – FBAR, FATCA, Schedule B & More
Learn how to disclose the account information to the IRS.
3. Amnesty – IRS Foreign Reporting Amnesty Options
Learn how to get into compliance if you have not properly paid tax or reported the account information to to the IRS.
1. CPF & U.S. Tax
When it comes to the U.S. taxation of the CPF, unfortunately the IRS has already determined that it is taxed twofold:
– First, the deferrals from the employer on behalf of the employee that are placed into the CPF ‘fund’ are taxed now, and not deferred.
– Second, the growth within the fund is taxed as well.
At a future date, when you take a withdrawal, you are not taxed again on the withdrawal of the previously taxed money. Rather, you are taxed presently on the growth within the fund (since that is the income that is being generated), and then that same income can subsequently be withdrawn, tax-free.
*The withdrawal is a separate issue — but it is not taxed solely as a result of you actually “touching” the money vs. when it grew within the fund.
How is a CPF Taxed in Singapore?
As provided by the IRAS in Singapore:
-Compulsory CPF Contributions relating to employment in Singapore: Not Taxable
-Voluntary CPF Contributions relating to employment in Singapore, i.e. amount in excess of compulsory contributions to be made by employer: Taxable
-Contributions made from 1 Jan 2004 relating to employment outside Singapore: Not Taxable since the contribution is a foreign-sourced income
-Contributions relating to Director’s Fees: Taxable
Voluntary CPF Contributions
Employers may also make voluntary CPF contributions to an employee’s CPF account.
Voluntary CPF contributions made by the employer relating to employment in Singapore are taxable. The employer must prepare Form IR8S if there is excess CPF contributions made in the current year and give the form to the employee.
If the excess employer’s contributions have been brought to tax and the employer has claimed or is claiming a refund, the employee should forward the completed Form IR8S to IRAS. IRAS will then review the employee’s assessment accordingly.
Generally, CPF withdrawals are not taxed. There are various rules, exceptions, etc. involving:
- How old the person is taking the withdrawal?
- How much is the withdrawal?
- is the person still a Singaporean Citizen or Resident?
- What the purpose of the withdrawal?
- What portion remains for retirement?
Isn’t CPF the Same as U.S. Retirement?
Not really, but kind of, sort of…
As to retirement, such as a 401(k), it is not compulsory. While it is typically a good idea to max out your 401(k), you are not required to do show no matter who your employer is or where you live.
If you are working in Singapore, then you have to have salary contributed to the CPF; it is compulsory. If you do not work in Singapore (and there are some other more complex rules involving whether you work for a foreign employer, or Singaporean employer) then you do not have to contribute to the CPF.
For example, since Singapore does not allow dual citizenship, if you are a Singaporean citizen residing in United States as a Legal Permanent Resident or Visa Holder and earning income in the United States from a U.S. employer, then no contributions from the US employer would go to the CPF.
In other words, just because you are a Singaporean citizen does not mean you are required to have contributions from all sources.
Instead of being compulsory, a 401K is voluntary.
Example of Retirement – 401K
David is a US person who works for a U.S. company. This company defers $10,000 each year of David’s salary into his 401(k). That $10,000 is eliminated from David’s tax for the current year. Instead, at a future date when David’s retirement kicks in and he begins taking withdrawals, he will be taxed on the withdrawals at that time.
Purpose: Presumably, David is at a higher tax bracket during his working years versus retirement nears, and therefore he will be taxed at a lower tax bracket upon withdrawal.
Is it the Same as U.S. Social Security?
No, not really.
U.S. social security contribution is relatively simple, and a way of life for U.S. Persons (subject to any applicable totalization agreement). We all pay (subject to a totalization agreement) 6.2 percent and your employer pays 6.2 percent. If you’re self-employed, you pay 12.4 percent. You don’t pay Social Security taxes on earnings greater than the annual cap. You and your employer each pay 1.45 percent.
When a person reaches a certain age, they begin receiving social security payments and the age in which a person begins taking social security can vary.. A person can typically elect to begin receiving U.S. Social Security at different ages, and then based on the total income received by the person, that will determine whether a portion or all of their social security is taxed (when a person earns less additional income, then less of the social security is taxed, and vice versa).
Differences between the CPF and U.S. Social Security
– Social Security is a defined benefit; CPF ROI (Distributions) will vary based on investment type and value of the fund.
– CPF has various designated accounts for different purposes; Social Security is a single monthly payment.
– You may be able withdraw the a majority of CPF balance in one withdrawal (or in full under limited circumstances)
– A CPF has a set amount of money (based on earnings) per person that can be withdrawn in full, U.S. Social Security does not; it is a continued benefit.
– A CPF has an account number, specific to the individual, social security does not.
– You cannot choose the fund for investments or investment strategy for Social Security, but you can for a CPF (many different types of investment strategies and risks).
U.S. CPF Taxation – 4 Common Examples
CPF – Non – U.S. Person (Employer Deferrals)
Michael is a Singaporean citizen resides in Singapore. While residing in Singapore he works for a Singaporean company and the company defers money into the CPF each year. The money is allocated into various different accounts within the CPF, and then grows just as a 401(k) would grow.
Michael (absent certain exceptions) is not able to access that money during his working years but will be able to access the money upon retirement (or other milestone). Of course, Michael is a non-U.S. person with not U.S. Income, so the IRS cannot tax him at all on the income.
CPF – U.S. Person (Employer Deferrals)
David is a U.S. citizen and Singaporean Resident who resides in Singapore. While residing in Singapore he works for a Singaporean company and the company defers money into the CPF each year. The money is allocated into various different accounts within the CPF, and then grows just as a 401(k) would grow.
The IRS taxes the deferred income; it is not exempt for U.S. Tax.
This is true, even though (absent certain exceptions) David not able to access that money during his work years.
CPF – Non – U.S. Person (Growth within the Fund)
If a person is in non-US person, then there will be no impact from a US tax perspective; in other words, the IRS would have no business being involved in an non-US person’s non-US retirement. The fund would grow over the lifetime of the investment and then when it is time to retire, the individual can take certain withdrawals.
CPF – U.S. Person (Growth within the Fund)
Unfortunately, if the employee is a US person and there is growth within the fund, then the IRS will tax the growth within the fund. For example, if Brian has a CPF that generated $6,000 in passive income, then Brian will pay tax on the growth — even though he is not withdrawing the money, and even though he would most likely avoid paying any Singaporean tax at that time.
2. CPF and U.S. Reporting
When it comes to reporting your CPF account on your U.S. tax return, it can get a little more complicated. This is typically because many practitioners handle international tax but continue to represent individualists without proper knowledge of the area of practice.
They tell their clients the following (common misconceptions):
- CPF is just like retirement, so it doesn’t need to be reported.
- FATCA agreement says you don’t have to report it.
- You didn’t withdraw any income, so you don’t have to report it.
- It is Government mandated, so it doesn’t need to be reported.
- It’s just like US Social Security ,and doesn’t need to be reported.
These are all incorrect assumptions, as follows:
The rules regarding reporting foreign retirement, investments, and other types of accounts are very clear. The FBAR and other reporting forms are not limited to just bank accounts. It includes all different types of financial accounts and there is no specific exclusion for retirement accounts. Therefore, simply because you have not accessed your CPF does not mean you do not have to report it.
The FATCA Agreement Says I Do Not Have to Report
Some FATCA agreements exclude certain types of reporting. Primarily it is the foreign government/entity that doesn’t have to report it, not the U.S. person. Therefore, if you are a U.S. person, then you are required to report the CPF (if it otherwise meets the threshold reporting requirements).
My CPF Didn’t Distribute any Income
Just because you didn’t receive or “touch” any income, does not have any impact on the reporting aspect of the CPF. In fact, if you have a CPF account, chances are you are earning income, even if you are not withdrawing the income (see above analysis). Nevertheless, even if it wasn’t earning any income, that does not impact whether or not you have to report it; you do have to report it.
A CPF is Government Mandated
Just because you are required to contribute to a CPF, (and just because the government may be exempt from reporting the CPF) does not impact reporting; you still have to report it.
It is Social Security and Non-Taxable
See above analysis regarding Social Security, but since it has a definitive amount of money, and an assigned account number — it would have to be reported.
What Forms Do I Report the CPF on?
FBAR (FinCEN 114)
We start off with the FBAR, because it is one of the IRS International Reporting forms that receives the most amount of press. The FBAR is used to Report Foreign Bank and Financial Accounts on an annual basis.
The form has a relatively low threshold requirement of $10,000. In other words, if you have an annual aggregate total of foreign accounts (including life insurance or retirement funds) that on any day of the year exceeds $10,000, then you are required to report this form. It does not matter if the money is in one account or spread over numerous accounts. And, it does not matter if the account is in your home country of citizenship or if you opened the account before relocating to the United States.
The US government does not look into the semantics that deeply; rather, if you meet the threshold requirement then you have to file the form.
When it comes to the FBAR, one of the main concerns are the FBAR Penalties.
A penalty for failing to file FBARs. United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
Form 8938 is a byproduct of FATCA (Foreign Account Tax Compliance Act). It is a form that is required to be filed with the tax return each year when a person meets the threshold requirements for filing. Unlike the FBAR, which is an electronic form which is submitted directly to the Department of Treasury (The FBAR is not submitted with your tax return), Form 8938 is part of your tax return.
Form 8938 requires you to provide extensive information regarding foreign accounts and specified foreign assets. For example, with the FBAR, reporting is limited to accounts and insurance policies (although those terms can have a very broad meaning). Conversely, with form 8938, the person must report Income — along with assets and accounts.
Therefore, if you were to own stock of a foreign company, that would be considered a Specified Foreign Asset that would need to be reported on a Form 8938 — but would not be reported on an FBAR.
Moreover, with the FBAR, a person is required to report the maximum balance in the account, but is not required to report any income that is generated from the accounts. The 8938 is more depth than that. Rather, with form 8938, a person must report the account balance along with the annual income that is generated from form 8938 accounts or assets.
Additionally, the income must be broken down by type of income earned (such as royalties, dividends, interest, capital gains) and/or whether the income was earned through a custodial or deposit account and/or it was earned through one of the specified foreign assets.
Form 8938 Penalties
Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
Schedule B, Foreign Accounts
In almost all situations, if a person has ownership, joint ownership, an interest in, or signature authority over a foreign account (yes, accounts from your home country are considered “Foreign”) the individual will have to mark “Yes” on Schedule B.
This is true, even if you do not meet the FBAR filing threshold, and/or the Form 8938 (FATCA) threshold filing requirement. Schedule B is not asking you how much; rather, it is just asking whether you have any ownership or signature authority over any foreign accounts.
IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) is an IRS Form required to be filed by individuals who have any interest in a Passive Foreign Investment Company — whether or not they received an Excess Distribution, as long as they are not otherwise exempt from filing.
Unlike IRS Form 5471, there is no minimum ownership requirement. Technically, even if you have “fractional ownership,” of a PFIC you are still required to file — unless you meet one of the very limited exemptions/exclusions.
Moreover, the mere ownership of Foreign Mutual Funds and other foreign passive investments (that you do not technically own in a PFIC company) requires you to file the form.
The form can be daunting, especially when the filer also has a tax liability in accordance with form 8621.
Form 8621 Penalties
Notwithstanding Excess Distribution calculations, the “main non-numerical” penalty associated with form 8621 is completely unfair (you can read here about the sheer horror of the “Excess Distribution calculation“).
Why? Because technically, while there is no specific numerical penalty included regarding non-filing of Form 8621, a tax return is still considered to be “open” until the 8621 is filed. In other words, the statute of limitations countdown for the IRS to audit your tax return (usually 3 years) does not even begin to tick if the 8621 hasn’t been filed.
Even if you try to argue the return only remains open as to the 8621, but in reality, the IRS will most likely take you to task as to the whole return. Even if you could convince the agent that a post statute audit should be contained to 8621 issues, the IRS would just need to show some relation from the 8621 to other parts of your return to avoid that issue.
A Bit More on PFIC/CFP Rules
Typically, people invest in a Passive Foreign Investment Company accidentally, when they were not apprised of the severe tax consequences prior to investing in the PFIC. The most common “Accidental” PFIC is for foreign mutual funds.
Your CPF may have for mutual funds in it, but that may not necessarily be sufficient to make the entire CPF reportable on Form 8621.
Whether or not you have to file a form 8621 would depend specifically on your particular facts and circumstances. If you are in the situation and believe do You have a mutual fund/PFIC issue, you should speak with experience counsel.
Form 3520-A is a bit different than form 3520. Form 3520-A is required to be filed by a US person if the US person owns a foreign trust. A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under section 6048(b).
Each U.S. person treated as an owner of any portion of a foreign trust under the grantor trust rules (sections 671 through 679) is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.
The problem with this form is that if the owner/trustee of the trust does not report the form, then technically the trust may be subject to fines and penalties, which can be very substantial, depending on the facts and circumstances of the reporting.
Form 3520-A Penalties
A Penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Bit More on Foreign Trust/CPF Rules
The same type of issue similar to a PFIC may occur the situation which you may have a foreign trust. Typically, in these types of situations unless you have contributed more to the fund then the employer and/or are highly compensated employee, reporting a CPF as a foreign trust may not be required.
With that said, you may wish to speak with an experienced tax attorney on this issue.
3. Non-CPF issues to consider
While the focus of this article involves CPF, there are other issues to consider as well, include:
- Foreign Trusts
- Foreign Business Ownership
- Foreign Real Estate
- Foreign Social Secuity
- Other Foreign Assets
4. IRS Voluntary Disclosure/Foreign Amnesty
If you have not properly reported your CPF to the US tax authorities you may have an issue. Since the nondisclosure is typically accompanied by the nondisclosure of the income generated, you may also have a potential penalty for not reporting.
Depending on the facts and circumstances you may qualify for one of the following programs:
- OVDP (Expired on 9/28)
- IRS Voluntary Disclosure (Non-OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Reasonable Cause
We Specialize in Safely Disclosing Foreign Money
We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)
Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Examples of areas of tax we handle
- Unfiled Tax Returns
- Unreported Income Penalties
- International Tax Investigations (FATCA and more)
- FBAR Investigations
- International Tax Evasion
- Structuring Investigations
- Eggshell and Reverse Eggshell Audits
- Divorce and Offshore Accounts
- Foreign Mutual Funds
- Foreign Life Insurance
- Fixing Quiet Disclosure
- Foreign Real Estate Income
- Foreign Real Estate Sales
- Foreign Earned Income Exclusion
- Subpart F Income
- Foreign Inheritance
- Foreign Pension
- Form 3520
- Form 5471
- Form 8621
- Form 8865
- Form 8938 (FATCA)
Who Decides to Disclose Unreported Money?
What Types of Clients Do we Represent?
We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist
Our Managing Partner, Sean M. Golding, JD, LLM, EA holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)
He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.
Less than 1% of Tax Attorneys Nationwide
Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.
The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.
IRS Penalty List
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 5472
The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
A Penalty for failing to file Form 926
The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
What Should You Do?
Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.
Be Careful of the IRS
With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)