AN OVERVIEW ON GOODS AND SERVICES TAX (“GST”) IN SINGAPORE
By Eddie Lee, Robert Yam & Co.
Generally, GST is levied at the current rate of 7% on the:
- Local supply of goods and services in Singapore by any taxable persons in the course, or furtherance of a business; and
- Import of goods into Singapore by any persons.
As a major source of governmental revenue, GST is the same as Value Added Tax in many other countries and is charged to buyers and end-consumers when goods and services are procured, used, or when goods are imported into Singapore. GST is collected at multiple levels from the purchases of materials, at every stage of production to the different stops of the distribution chains, until final consumption in Singapore.
The government has signalled its intention to hike the GST rate by a further 1% or 2% within the next few years.
Basis for Compulsory GST Registration
From January 2019 onwards, it is compulsory for a business in Singapore to register for GST purposes with IRAS if it has an annual taxable revenue of more than SGD 1 million at the end of each calendar year (i.e. the Retrospective View) or if its annual taxable revenue is expected to exceed more than SGD 1 million over the next 12 month period (i.e. the Prospective View).
The business must review by 31 December of each calendar year and register for GST by either 30 January of the following calendar year under the Retrospective View, or within 30 days from the time of forecasting that it will exceed the SGD 1 million threshold of its annual taxable revenue under the Prospective View.
A business may also choose to voluntarily register for GST, which may be approved at the discretion of the IRAS and on the condition that it remains registered for at least two years.
Types of GST Supplies
The types of goods and supplies in Singapore may be classified as taxable (standard rated or zero-rated) or GST exempt. The following is a brief narration of each type of supplies:
Standard Rated (7% GST)
Most goods and services supplied by a taxable GST business
Zero Rated (0% GST)
Export of goods and provision of services classed as “international services” under Section 23 of the GST Act
Current GST is not applicable on exempt supplies relating to financial services, sales and rental of residential properties, importation and supply of certain precious metals
Sale of goods which are not physically present in Singapore and delivered outside Singapore and all other kind of non-business transactions
GST on imported services
This has been suspended but will come into effect from 01 January 2020
GST on digital products through overseas vendors
This is a new GST regime which will be introduced from 01 January 2020.
How GST is Charged and Collected in Singapore
A GST-registered business is required to charge and collect GST output tax on the supplies of its goods and services. This output tax must be accounted and paid to IRAS on a quarterly basis. If it purchased goods from other taxable businesses and paid GST input tax on them, it may then claim input tax credit against the output tax it has collected. The difference between output tax and input tax is then accounted and paid to IRAS on a quarterly basis.
In the case of zero-rating a supply, it happens when goods are sold and exported out of Singapore or, in the provision of taxable services, it is a supply of international services by reference to Section 21(3) of the GST Act. In this situation, a GST-registered business will charge 0% GST on its supplies but nevertheless can claim input tax credit on its taxable purchases or GST paid on its importation of goods. A GST refund from IRAS is commonly due under such a scenario.
In the case of an exempt supply, no GST is to be charged but, at the same time, no GST credit may be claimed for GST input tax on goods and services which were acquired for the purpose of making the exempt supplies.
New GST Regimes Introduced from 01 January 2020
Presently, supplies of services from overseas businesses not belonging in Singapore, which are provided to businesses as well as consumers, are left untouched by the existing GST regime. To widen the GST dragnet to include these imported services, the Singapore government announced in the 2018 Budget that the following GST regimes will be introduced with effect from 01 January 2020:
- Reverse Charge (“RC”) to levy GST on Business-to-Business (“B2B”) supplies of imported services; and
- Overseas Vendor Registration (“OVR”) regime to collect GST on Business-to-Consumer (“B2C”) supplies of imported digital services.
In relation to the above, B2B supplies refer to supplies made to GST-registered persons, including companies, partnerships, and sole-proprietors, whereas B2C supplies refer to supplies made to non-GST registered persons, which include individuals and businesses that are not registered for GST.
RC Regime on B2B Supplies
Most businesses in Singapore which received B2B supplies of imported services will not be affected by this new RC regime if they make wholly taxable supplies in Singapore. However, the liability to RC will arise in the case of a GST registered business which:
- Has exempt supplies that will not allow a claim full input tax credit; or
- Is a registered charity or voluntary welfare organization that receives non-business receipts.
Hence, inter-branch transactions and intra-GST group transactions will also be liable to the new RC regime where the business is unable to claim its input tax in full. This may happen in a case where B2B supplies of imported services are made by a foreign head office to its partly exempt Singapore branch or between a Singapore member and a foreign member of a partly exempt GST group, where B2B supplies of imported services are made to the Singapore member.
Lastly, a non-GST registered business is liable to RC registration if it procures B2B supplies of imported services exceeding SGD 1 million in a 12-month period and is also not entitled to claim full input tax credit if it becomes a GST-registered person.
Getting Ready for RC Compliance
The new RC regime may result in potential GST liability for some businesses. Hence it is critical to determine whether the business is liable for RC registration where it is not making wholly taxable supplies and is a recipient of B2B supplies of imported services. The following are a few tips for businesses in Singapore to help get ready for RC compliance when the new regime kicks in from 01 January 2020.
- Review the vendors database and divide it into local and overseas vendors. In respect of overseas vendors, aggregate the value of the imported services to determine whether RC registration is required.
- Separately, new tax codes should then be created to segregate the transactions where RC is applicable
- Multinational groups should ensure that all cross-border transactions are properly recorded in the accounts, as some of the inter-branch or intra-group GST transactions may be subject to GST under RC rules
- Plan ahead and budget for potential GST costs arising from RC transactions. It may be prudent to update and test the accounting systems, and provide training to the staff in charge of GST reporting to get ready for actual roll out of the RC regime.
- Ensure that record-keeping and documents are complete and adequate for GST compliance review.
- B2B supplies of imported services will fall outside the scope of RC if they are received and paid before 01 January 2020. Hence, affected GST registered businesses need to be aware that RC:
a. Is applicable in full if payments are made and services completed after 01 January 2020;
b. Is apportioned if partial payment and services are completed after 01 January 2020.
Businesses may wish to consider making full payments to their overseas suppliers before 01 January 2020 or request their overseas suppliers to issue invoices for services completed up to 31 December 2019 for payment prior to implementation of RC.
Record Keeping for RC Transactions
IRAS will update the GST return to be filed from 2020 with a new field to disclose the value of imported services subject to RC, the value of output GST due to B2B supplies of imported services, and the apportioned value of input GST claims. The relevant documents and records to be retained for RC transactions, as well as GST compliance review, shall include:
- Overseas supplier invoices;
- Transactional listings for reverse charge;
- Evidence of payment, accounting system records, or journal entries to support the reverse-charge transactions;
- Contracts or agreements with the overseas supplier; and
- Input tax apportionment workings.
OVR Regime on B2C Supplies of Digital Services
From 01 January 2020, overseas vendors and electronic marketplace operators are required to register for GST in Singapore if they:
- Have an annual global turnover exceeding SGD 1 million; and
- Make B2C supplies of digital services to consumers in Singapore exceeding USD 100,000.
They are required to charge and account for GST on B2C supplies of digital services made to non-GST registered consumers in Singapore.
For the purposes of the OVR regime, digital services are defined as services supplied over the Internet or an electronic network and the nature of which renders the supply essentially automated with minimal or no human intervention, and impossible without the use of information technology
Who Is an Electronic Marketplace Operator (“EMO”)?
Under certain conditions, a local or an overseas operator of an electronic marketplace is one who is the supplier of digital services made by them through the electronic marketplace to a non-GST-registered consumer in Singapore. In such cases, the EMO is required to include the value of these services to determine their GST-registration liability.
A GST-registered EMO is required to charge and account GST on B2C supplies of digital services made through their marketplace to consumers in Singapore on behalf of the overseas suppliers, in addition to digital services made by them directly to the same consumers in Singapore.
Under the OVR regime, overseas vendors are required to obtain at least two comparable evidences of their consumers’ status on their “belonging in Singapore” to determine that the B2C supplies of digital services are supplied in Singapore. This could include one payment proxy (credit card or bank account information) or access proxy (IP address or mobile phone country code).
The GST registration and reporting requirements for GST-registered EMO is expected to be scaled down and simplified.
Eddie LeeRobert Yam & Co., Singapore
T: +65 6338 1133
Robert Yam & Co. Public Accounting Corporation is an established local accountancy firm in Singapore with a history of more than 40 years of practice. Their core business is auditing and assurance, and accounting and tax services. They also provide professional services in business consultancy, tax advisory, regulatory compliances, risks assessments, company liquidation, and investigation.
Eddie Lee is an accredited tax advisor with more than 30 years of experience in the Singapore taxation industry. He is a senior tax director of Robert Yam & Co. PAC.
Published: Indirect Taxes Newsletter, No. 09 Autumn 2019 l Photo: f11photo - stock.adobe.com