Should Small Businesses in Singapore Register for GST Voluntarily?

should-small-businesses-in-singapore-register-for-gst-voluntarily

In Singapore, businesses with annual taxable turnovers exceeding or are likely to exceed S$1 million from the sale of taxable goods and services are required to register for Goods and Services Tax (GST). 

If your company’s annual taxable turnover does not exceed S$1 million, it is generally up to you to decide if you wish to register your business for GST voluntarily. 

While registering for GST means that you may incur additional business and compliance costs, registering for GST voluntarily could be beneficial to your business. In this article, we will discuss the key reasons why you should register for GST. 

Why do some businesses register for GST voluntarily? 

There are four main reasons why businesses should register for GST voluntarily. 

  • If your suppliers are mostly GST-registered

If your suppliers are mostly GST-registered, it makes financial sense to register for GST because you will be able to recoup or claim the GST that you paid when buying goods or services from these suppliers. 

For instance, if you bought goods from your supplier at $1,000 and your supplier charges you GST at $70. You will be able to recoup the $70 from the Government if you are GST-registered. 

  • If your customers are mostly GST-registered

If most of your customers are GST-registered, you will be able to increase your sale prices to include GST as your customers will be able to claim the GST that they incurred. 

However, if most of your customers are mostly end consumers who are not GST-registered, it means that they will not be able to claim the GST that they have incurred. As you may have difficulty raising prices in this case, your profits may be affected as you now have to pay GST that you collect from your customers to the Government. 

For instance, if each business sells an item at $100 in the marketplace, but you have to pay 7% GST to the Government out of the $100, this will cut into your profit margin. If you wish to raise the price of your item to $107, your prices may not be as competitive since other businesses are selling the same item at $100. 

  • If you make sales to overseas customers 

If you have been selling goods and services to overseas customers, you will not have to charge them GST. This is because the export of goods and services are zero-rated in terms of GST. 

This will benefit you as you will be able to claim GST on the supplies you bought from GST-registered suppliers. 

For example, say you bought wood worth $1,000 from a GST-registered supplier in Singapore and the supplier charges you $70 more for GST. If you crafted a table out of the wood and sold it to an overseas customer, you will not need to charge the customer GST. However, when filing your GST return, you can claim the $70 GST that you initially paid as input tax. 

  • If you wish for more business credibility 

Since businesses are required to register for GST if their annual taxable turnover exceeds or is likely to exceed S$1 million, you can create the impression that your company is well-established with an annual taxable turnover of more than S$1 million if you registered for GST. 

Does my business qualify for voluntary GST registration? 

You may apply for GST registration on a voluntary basis if your business:

  • Makes taxable supplies (i.e. sale of goods or services in Singapore); or
  • Makes only out-of-scope supplies (e.g. sale of goods that did not enter Singapore or goods in transit); or
  • Makes exempt supplies of financial services (e.g. provision of international services); or
  • Procures services from overseas service providers and you would not be entitled to full input tax credit even if you were GST-registered. 

You will be required to complete two e-Learning courses – “Registering for GST and Overview of GST – and pass the quiz before submitting the GST registration form. These e-learning courses are not required if you have experience managing other existing GST-registered businesses, if the person who prepares your GST returns is an Accredited Tax Advisor or Practitioner, or if your business is applying to be registered under the Overseas Vendor Simplified Pay-only Registration Regime

What happens after registering for GST? 

  • Charge GST 

Upon registering for GST, your business must charge GST at 7% on the goods or services it provides in Singapore, and pass this on to the Inland Revenue Authority of Singapore (IRAS). Before passing it on to IRAS, your company is allowed to deduct any GST that it has paid on its business purchases. 

  • File GST returns 

Ensure that you have proper bookkeeping processes in place to ensure that you file GST returns in a timely manner. This is because late filing will result in penalties and fines as well as undue stress and resources being diverted away from business development. 

  • Be open to GST audits 

Be prepared that IRAS will audit GST-registered businesses from time to time. This may mean that your customers and suppliers may be contacted by IRAS to furnish records or confirmations to verify your declarations in your GST returns. 

  • Remain GST-registered for 2 years 

All voluntarily-registered businesses must remain registered for 2 years. Thus, prior to registering for GST, you should weigh the pros and cons of registration before making your final decision. 

Should I voluntarily register for GST? 

Deciding if you should register for GST voluntarily is a critical business decision. With sound reasoning and proper planning, your business will be able to reap the benefits of GST registration. A lack of planning however, may result in non-compliance and the waste of valuable resources to make right your GST returns. 

At Corporate Services Singapore, our professional tax specialists will guide you in determining whether GST registration is ideal for your business set-up. For professional advice on making the best out of Singapore’s GST tax regime, talk to us today! 

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