The Singapore Central Provident Fund is an important compliance issue for US owners of foreign accounts in Singapore. In fact, it could be the most common problem for these taxpayers. In this article, I would like to provide an overview of the main US tax compliance requirements for US taxpayers who have a Singapore Central Provident Fund account.
What is the Singapore Central Provident Fund?
The Singapore Central Provident Fund is basically a compulsory savings plan to which all working Singapore citizens and permanent residents and their employers are required (by the Singapore government) to contribute certain amount of their earnings. This savings scheme is meant to fund the workers’ future retirement, healthcare and housing needs.
The Fund is administered by the Cental Provident Fund Board which reports to the Ministry of Manpower and is charged with the task of investing the contributed funds.
Structure of the Singapore Central Provident Fund
The Singapore Central Provident Fund consists of various sub-accounts: Ordinary Account, Special Account, Medisave Account and Retirement Account. The Fund also includes various Retirement Schemes, Medical Schemes (most common Medisave and Medishield), and Protection Schemes.
Sometimes, an account holder uses the Ordinary Account to fund investment schemes. One of the most important and obscure of them is the Special Discounted Shares (“SDS”) Scheme which allowed the owners of a Singapore Central Provident Fund account to obtain Discounted Singapore Telecom (“Singtel”) shares. This opportunity was provided only in 1993 and 1996. Additional loyalty shares were granted to owners who held on to Singtel shares.
US Tax Obligations: Reporting of Singapore Central Provident Fund Account
A Singapore Central Provident Fund account is a reportable foreign financial account for US tax purposes. Hence, such an account should be disclosed on both FinCEN Form 114 (FBAR) and FATCA Form 8938 as long as the applicable filing threshold is met.
Both, FBAR and Form 8938 require that the highest value of such an account is disclosed. Usually, this is not very challenging as long as there were no withdrawals from the account. The reason for it is because the value of the account is indicated on the first page of each CPF statement. The FBAR currency exchange rates should be used to translate this value for the purpose of FBAR and FATCA reporting.
If there were withdrawals, then the taxpayer is required to calculate the highest value of his account prior to the withdrawal.
US Tax Obligations: Reporting Income from Singapore Central Provident Fund
In addition to reporting the highest value of a Singapore Central Provident Fund account, a US taxpayer is required to disclose all income from the account on his US tax return. Usually, this means the reporting of interest income – all of the CPF sub-accounts generate interest income typically paid at the end of the year.
This income reporting requirement, however, also covers any other income produced by the account, including any dividends paid by Singtel shares and proceeds from any sales of Singtel shares. These are items that are often missed even by US tax accountants and attorneys due to their unfamiliarity with the SDS scheme.
The interest and dividend income should be converted to US dollars based on spot rates. Then, the converted values should be reported on Schedule B of Form 1040.
Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Singapore Central Provident Fund
The reporting of a Singapore Central Provident Fund account is one of the biggest sources of US tax noncompliance among individual US taxpayers who own financial accounts in Singapore. Besides what I listed above, there may be other applicable US tax requirements to such an account.
This is why, if you own a Singapore Central Provident Fund account, you need to contact Sherayzen Law Office for professional help. Our firm can help you not only properly disclose the account for US tax purposes, but also correct any prior noncompliance related to the reporting of this type of an account or any income it generated.