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Singapore – Treatment of Employee Benefits Given via Cash Reimbursements

Singapore – Treatment of Employee Benefits Given via Ca

The Central Provident Fund (CPF) Board in Singapore recently provided an update to the treatment of cash reimbursements made under employee/flexible benefits schemes which will take effect from 1 January 2020. Consequently, reimbursements for dental treatment for an employee’s spouse and child will no longer attract CPF contributions while reimbursements to an employee for holiday-related expenses will attract CPF, regardless of whether such reimbursement is attributable to the employee or his/her immediate family member.

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The Central Provident Fund (CPF) Board in Singapore recently provided an update to the treatment of cash reimbursements made under employee/flexible benefits schemes which will take effect from 1 January 2020.1  Consequently, reimbursements for dental treatment for an employee’s spouse and child will no longer attract CPF contributions while reimbursements to an employee for holiday-related expenses will attract CPF, regardless of whether such reimbursement is attributable to the employee or his/her immediate family member.

WHY THIS MATTERS

Flexible benefit schemes are commonly used by employers to allow employees to claim reimbursement for a variety of staff benefits.  However, operating such schemes may create additional complexity in respect of Central Provident Fund contributions.  

This update brings greater clarity around certain forms of cash reimbursements and the application of CPF contributions. 

Background

In general, CPF contributions are payable on wages which are paid to employees as reward for services rendered. Section 2(1) of the CPF Act defines wages as remuneration in money, including any bonus, due or granted to a person in respect of this employment.  Wages include payments for employee’s expenses which are not necessarily incurred on behalf of the employer (i.e., reimbursement of personal expenses).  In contrast, cash reimbursements to employees for expenses incurred necessarily on behalf of the employer (i.e., business expenses) are not regarded as wages for CPF purposes, provided that the reimbursement does not exceed actual expenditure.

Summary: Treatment of Employee Benefits via Cash Reimbursement

Effective 1 January 2020, the CPF treatment of employee benefits via cash reimbursement is summarized below.

Cash Re-imubrsements Subject to CPF?
Employee  Employee's   spouse  Employee's child 
Medical treatment2, 3    No No No
Dental treatment2, 3 No No1 No1
Holiday benefits Yes1 Yes Yes
Other benefits4 Yes Yes Yes

Applicable with effect from 1 January 2020.

Expenses incurred locally or overseas (including medical tests such as blood tests, x-ray, etc.) must be deemed necessary by a registered doctor, dentist, or Traditional Chinese Medicine (“TCM”) practitioner.

Expenses incurred on health screenings or medical examinations that are not part of medical treatment by a registered doctor, dentist, or TCM practitioner (i.e., employees go for the health screening or medical examination on their own accord), will attract CPF contributions.

CPF contributions are payable on reimbursement of personal expenses (e.g., medical insurance, gym memberships, vision care, child care, elderly care fees, etc.)

KPMG NOTE

This update is a welcome change as it provides greater clarity on the overall CPF treatment of select cash reimbursements under flexible benefit schemes and provides further consistency on the CPF treatment for reimbursement of personal expenses.  This is expected to ease the administrative burden on employers when undertaking CPF reporting. 

RELATED ARTICLE

This article is excerpted, with permission, from “Update to Central Provident Fund (‘CPF’) treatment of employee benefits given via cash reimbursements – Effective 1 January 2020,” in Tax Alert (Issue 09, November 2019), a publication of the KPMG International member firm in Singapore.

FOOTNOTE

1  See this webpage of the Central Provident Fund Board.  

The information contained in this newsletter was submitted by the KPMG International member firm in Singapore.

© 2020 KPMG Tax Services Pte Ltd., a Singapore corporation and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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