For a US person retiring in Canada, the RRSP is a rare piece of good news: the US–Canada treaty defers tax on the income growing inside it. Americans in Hong Kong and Singapore have no such treaty. Neither Hong Kong nor Singapore has an income tax treaty with the United States, so the Mandatory Provident Fund (MPF) and the Central Provident Fund (CPF) get no treaty-based pension recognition and are analysed entirely under general US domestic rules.
That sounds ominous, and it is often overstated. “No treaty” does not mean “taxed on every dollar of growth each year.” For a properly characterised employer plan, US domestic law itself provides a measure of deferral — the trick is knowing which set of rules applies and getting the up-front piece right.
The right lens: a §402(b) employees’ trust
The MPF is an employer-established, funded arrangement holding retirement benefits for employees. The characterisation that best fits it is a funded, non-exempt employees’ trust under section 402(b) — not a grantor trust owned by the employee. That distinction drives the whole result.
Under §402(b), two things happen, and they happen at different times:
- Employer contributions are taxed up front. When the employee’s right to the contribution is substantially vested, the employer’s contribution is included in the employee’s income (§402(b)(1), via §83). MPF benefits vest immediately, so the employer’s 5% is US wages in the year contributed — even though the employee never touches the cash.
- The internal growth is not taxed as it accrues. The trust’s earnings — interest, dividends and gains inside the plan — are deferred until distribution (§402(b)(2), taxed under the §72 annuity rules when paid out). This is the key point many summaries get wrong: for the ordinary employee, the year-by-year growth in the MPF is not currently taxable.
There is one important exception. Because a foreign plan cannot meet the US coverage and non-discrimination tests, a highly compensated employee can be pushed into current inclusion of their entire vested accrued benefit each year under §402(b)(4). So the clean deferral described above is the rule for the typical employee; a highly compensated owner-employee needs a closer look.
The moving parts for an American in Hong Kong
Consider the MPF, where employee and employer each contribute 5% of relevant income, subject to statutory caps. Each year:
- Employer contribution — current US-taxable compensation when vested (immediately, for the MPF).
- Employee contribution — made from already-taxed salary; builds US tax basis, no deduction.
- Internal growth — deferred; recognised on withdrawal, not annually (non-highly-compensated employee).
The characterisation also softens the notorious PFIC problem. If the employee is a beneficiary of an employees’ trust rather than the owner of the underlying funds, they generally do not hold the MPF’s constituent funds directly, so an annual Form 8621 for each fund is usually not required while the money stays inside the plan. (Take the aggressive grantor-trust view instead, and the PFIC look-through — and its annual forms — come straight back. The characterisation is doing real work here.)
Worked example: MPF for a US employee, one year
Relevant income at the MPF cap, contributions of HK$18,000 each side, and 6% growth on an opening balance of HK$300,000. Illustrative figures.
| Item | Amount (HK$) | US treatment |
|---|---|---|
| Employer contribution | 18,000 | Current taxable compensation (wages), vested immediately |
| Employee contribution | 18,000 | From after-tax salary; adds US basis, no deduction |
| Opening plan balance | 300,000 | — |
| Internal growth at 6% | ~18,000 | Deferred — not taxed this year (§402(b)(2)) |
| US income recognised this year | ~18,000 | Employer contribution only |
Only the employer contribution — roughly HK$18,000 — is picked up currently. The ~HK$18,000 of internal growth is left to be taxed when the benefit is eventually paid out. Contrast this with the grantor-trust position, which would drag that growth into income now and add PFIC forms on top. On distribution years down the line, the accumulated growth is taxable under §72, while the after-tax employee contributions and the already-taxed employer contributions come back as basis, tax-free — which is exactly why tracking basis over a career matters so much.
The reporting overlay — and Rev. Proc. 2020-17
Whatever the income-tax characterisation, the foreign-trust reporting question is separate. If the MPF is a foreign trust, Form 3520 and Form 3520-A can be required, with steep penalties.
Rev. Proc. 2020-17 exempts certain “tax-favored foreign retirement trusts” from Forms 3520 and 3520-A where the plan is government-regulated, provides retirement benefits, is tax-favoured locally, has contribution or value limits, and reports to local authorities. Many practitioners consider compulsory schemes such as the MPF and CPF to qualify. Two cautions: the edges are genuinely unsettled, and relief from the form is not relief from the tax — the exemption removes a filing, it does not change the §402(b) analysis above.
Regardless of the trust question, the accounts themselves are reportable:
- FBAR (FinCEN Form 114) — where foreign financial accounts aggregate over US$10,000.
- Form 8938 — where the higher, status- and residence-based thresholds are met.
The parallel picture: CPF in Singapore
Singapore’s CPF runs on the same fault line but is a harder case. It is mandatory and government-administered, splitting contributions across the Ordinary, Special and MediSave accounts, with interest credited by the government rather than earned on pooled investments.
- Employer contributions are generally current taxable compensation.
- Employee contributions build after-tax basis.
- Government-credited interest is the contested item. The better view for an employees’-trust-style analysis defers it until withdrawal, but because CPF is a government social scheme rather than a classic employer trust, some advisers treat the credited interest as current income. The position should be taken deliberately and documented.
- The PFIC problem is generally absent — CPF interest is government-credited, not delivered through investment funds — which removes a layer of complexity the MPF carries.
Practical guidance
- Pin down the characterisation first. The §402(b) employees’-trust view — employer contribution taxed up front, growth deferred — is the sensible default for the MPF; the grantor-trust view is harsher and generally unnecessary. Document the position.
- Mind the highly-compensated exception. Owner-employees and high earners may face current inclusion under §402(b)(4); model that separately.
- Track basis relentlessly. After-tax employee contributions and already-taxed employer contributions are your tax-free basis on distribution. That record is easily lost across a career and hard to rebuild.
- Choose the reporting posture deliberately. Decide, with advice, whether the plan qualifies under Rev. Proc. 2020-17 — and keep FBAR and Form 8938 telling the same story each year.
- Watch fund choices anyway. If any facts push toward direct ownership of the constituent funds, the PFIC regime is waiting; fund selection is one of the few levers an employee controls.
The MPF and CPF are compulsory — an American cannot opt out. But with the right characterisation, the US result is far more benign than the “no treaty, so taxed on everything” shorthand suggests: pay tax on the employer contribution as it vests, defer the growth, keep the basis records clean, and file defensibly.
