GST is a tax that is levied on all services consumed in Singapore whether they are procured from local or overseas suppliers. According to current GST rules, services (other than exempt supplies) supplied by a supplier belonging in Singapore is subject to GST while the same services supplied by a supplier belonging outside Singapore is not.
To level the GST treatment for all services consumed in Singapore, the Minister for Finance announced in Budget 2018 that the following regimes will be implemented from 1 Jan 2020 to tax imported services:
- Reverse Charge regime,which taxes services imported by GST-registered entities in Singapore, such as companies, partnerships and sole proprietors
- Overseas Vendor Registration regime, which taxes services imported by non-GST registered businesses and persons in Singapore
Reverse Charge Regime
The following guide is for GST-registered companies, partnerships or sole proprietorships that wish to purchase digital services such as advertising, consultancy, accounting and IT services for business purposes.
How does Reverse Charge work?
Under the Reverse Charge regime, the recipient of the services will account for GST on the services he imports, as if he were the supplier. He may claim GST as his input tax, subject to normal input tax recovery rules.
For example, a subsidiary in Singapore, Subsidiary A, pays its Head Office in Switzerland a royalty payment of SGD 1.2 million for the right to use its in-house IT systems. Under the Reverse Charge regime, Subsidiary A will be required to account for output tax of SGD 84,000, which is 7% of SGD 1.2 million.
Assuming Subsidiary A’s input tax recovery rate is 90%, Subsidiary A will be entitled to claim input tax of SGD 75,600, which is 90% of SGD 84,000.
Who will be subject to Reverse Charge?
If you call into any of the following categories of entities and persons, you will be subject to Reverse Charge:
- GST-registered persons that are:
- Not entitled to claim input tax in full, such as banks, insurance companies, residential property developers (i.e. make exempt supplies or receive non-business receipts), or
- Belongs to a GST group that is not entitled to claim input tax in full, or
- A fully taxable person that elects to apply Reverse Charge
- Non-GST registered persons that are:
- Procures services which are within the scope of Reverse Charge from overseas suppliers exceeding SGD 1 million in a 12-month period; and
- Not entitled to claim input tax in full if he were GST-registered (i.e. make exempt supplies or receive non-business receipts)
What Must My Business Do?
- For most GST-registered businesses
For most GST-registered companies, partnerships or sole proprietorships buying digital services from overseas suppliers for business purposes, they may provide their GST registration number to the GST-registered overseas suppliers so that GST will not be charged. This is because GST-registered overseas suppliers should not charge GST for digital services sold to GST-registered entities in Singapore.
GST-registered companies, partnerships or sole proprietorships that provide incorrect or false information to overseas suppliers for non-business purchases may face penalties of up to 3 times the amount of tax chargeable and a jail term of up to 7 years.
- For GST-registered partially-exempt businesses
In addition, there is a small group of GST-registered businesses that are required to perform a reverse charge whenever they buy digital services from overseas vendors with effect from 1 Jan 2020. These are partially-exempt businesses that cannot claim any GST refunds or can only seek partial refunds, such as financial institutions, investment-holding companies, developers of mixed-use properties and charities and voluntary welfare organisations.
Under the reverse charge mechanism, GST-registered entities are required to account for GST on the value of their imported services as if they were the suppliers. The GST-registered business would be allowed to claim the GST paid as its input tax, subject to input tax recovery rules.
- For non-GST registered business
If you are buying digital services as a non-GST registered business, you may become liable for GST registration if the total value of your imported services for a 12-month period exceeds SGD 1 million and you would not be entitled to full input tax credit even if you were GST-registered.
Once registered for GST, you will be required to account for GST on both your taxable supplies and your imported services which are subject to reverse charge.
Overseas Vendor Registration Regime
If you belong outside Singapore, you are required to register for GST in Singapore if you have an annual global turnover exceeding SGD 1 million, and make supplies of digital services to customers in Singapore exceeding SGD 100,000. Once registered for GST, you are required to charge and account for GST on supplies of digital services you make to customers in Singapore.
For Electronic Marketplace Operators
Whether you are a local or an overseas operator of an electronic marketplace, you may be regarded as the supplier of the digital services made by the overseas suppliers through your marketplace under the Overseas Vendor Registration Regime.
In such cases, you are required to include the value of these services to determine your GST registration liability. If you are liable for GST registration or are already GST-registered, you are required to charge and account for GST on supplies of digital services made through your marketplace to customers in Singapore on behalf of the overseas suppliers, in addition to digital services made by you directly to customers in Singapore.
To ease your compliance burden, if you are an overseas operator, you may register under a simplified regime, with reduced registration and reporting requirements.
Overseas Company B is an online store that lists and sells mobile applications on behalf of developers worldwide. In 2019, its global turnover was SGD 5 million. The sales of mobile applications by overseas developers through the online store to customers in Singapore amounted to SGD 80,000 during the year. In the same period, the total amount of support services and commission Overseas Company B provided to customers in Singapore was SGD 30,000.
In order to determine if it should register for GST, Overseas Company B must sum up the value of digital services it made to customers in Singapore SGD 30,000 and the digital services made by its overseas suppliers through its platform SGD 80,000.
As Overseas Company B’s global turnover and supplies to customers in Singapore exceeded SGD 1 million and SGD 100,000 respectively, it is liable for GST registration under the overseas vender registration scheme.
At Corporate Services Singapore, our professional tax specialists will guide you in determining whether Reverse Charge applies for your business. For professional advice on the Reverse Charge regime and Overseas Vendor Registration regime for your business set-up, give us a call at 6602 8286 or email us at firstname.lastname@example.org today.