Guide to Singapore Goods and Services Tax
Goods and Services Tax (GST) is a consumption tax and is thus a tax on consumer spending. It is collected by GST-registered businesses on supplies of goods and services to their customers. Generally, each business in the chain of supply from manufacturer through to retailer charges GST on their sales and is entitled to deduct from this amount the GST that it paid on its purchases. Thus, each business in effect charges GST only on the value that it adds to the good or service. GST is known as Value-Added Tax (VAT) in many other countries. However, not all supplies of goods and services are subject to GST in Singapore. This article will provide you an overview of the GST in Singapore.
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GST is one of the four pillars of the overall tax structure of Singapore. The other three include personal tax, corporate tax, and property tax. The current GST rate stands at 7%. This article provides a detailed guide to GST from a Singapore business owner’s point of view.
GST is a consumption tax that is charged by a business each time the business sells a product or service to another business or an individual within the territory of Singapore. Key characteristics of GST in Singapore include:
- The business selling the goods or service is responsible for collecting the tax and for paying it to the authorities;
- GST is only charged by GST-registered businesses. A business must register for GST if its annual turnover exceeds S$1 million. For small businesses that do need meet this threshold, GST registration is optional. Unregistered businesses neither have to collect GST nor remit it to the government;
- GST is also levied on the import of goods (in this case it is collected by Singapore Customs);
- Certain goods and services are exempt from the scope of GST; for instance, the provision of most financial services, the sale and lease of residential properties, and the importation and local supply of investment-oriented precious metals;
- Goods exported and services offered to overseas clients are exempt from the GST tax which means that no tax is charged on them;
- A GST registered business can claim credit for the GST that it has paid for its inputs (called Input Tax) and offset it against the GST that it has collected from its customers (called Output Tax) when calculating the GST tax amount due from the business to tax authorities. Thus, the business only pays GST tax to the authorities on the amount of “value it adds” to its products.
When Singapore first introduced GST in 1994, the rate of this tax was 3%. In 2003 and 2004, the government increased the rate of GST to 4% and 5% respectively. Since 2007, the rate of GST has been 7%.
The sections below provide more detailed information about various aspects of Singapore GST.
GST is NOT applicable to all transactions of goods and services. It’s applicable under the following two cases:
Case 1 – Supply of Goods and Services
- Supply is made by a GST-registered business or a business liable to register for GST; and
- Supply comes under the scope of GST i.e. GST is applicable to the supply; and
- Supply is received in Singapore; and
- The purpose of the supply is for the furtherance of a business of the taxable person. This implies that the tax is not applicable in the case of personal transactions of the supplier.
Under this case, the business supplying the good or service is responsible for charging GST (on behalf of the government) and in turn paying it to the government by filing periodic GST tax returns.
The term ‘supply’ in general has the following meaning for GST purposes:
- A supply is anything provided for a “consideration” in return. For instance, a petrol station providing petrol to its customers is a “supply of goods” because the petrol station receives money as consideration for the petrol that it provides.
- GST will be applicable only when the “place of supply” is Singapore. This means the physical location of the goods must be in Singapore when transferring the ownership of the goods. For instance, if a company in Singapore sells goods to an overseas company, but the ownership of the goods is transferred in Singapore to a customer of the overseas company, then in such a situation the GST will be applicable.
Case 2 – Import of Goods and Services
All goods imported into Singapore are subject to GST. When goods are imported, the tax is paid on the Value of Import. The Value of import will include any custom duty payable and the Cost, Insurance, and Freight (CIF) etc. The GST on the import is charged by the Singapore Customs.
Singapore tax authorities have provided the following example to compute the value of import and the GST applicable:
|GST @ 7%||$1,092|
|Cost of Goods||$10,000|
|Insurance and Freight||$2,000|
|Value of Import||$15,600|
Exempt & Zero-Rated Supplies
In Singapore there are three types of supplies where GST is not applicable:
Type 1 – Exempt Supply
The Fourth Schedule of the GST Act exempts certain goods and services from GST. These include:
- Provision of financial services, (example: issue/sale of shares).
- Importation as well as the local supply of precious metals.
- Sale and lease of residential properties.
Type 2 – Out-of-scope Supply
Supply of goods and services that take place outside of Singapore are outside the scope of the GST Act and are not taxable. To prove that the transaction occurred overseas, and not in Singapore, you will have to maintain certain documents.
Type 3 – Zero-rated Supply
GST is charged at the rate of 0% (hence the term ‘zero-rated’) to the supply of:
- Goods that are exported, and
- Supply of services to foreign-based clients.
The principal applicable in the case of zero-rated supplies is that at the point of supply you must ensure that the goods you are supplying are being exported and that you have the documents to prove that the goods are being exported. However, you can still claim input tax deduction on the GST tax you paid for any inputs that were used in producing the zero-rated goods or services.
GST Registration Requirements
As explained earlier, GST is charged by GST-registered businesses only. The GST-registration requirement depends on the taxable turnover of the business. However, a business can also voluntarily register for GST.
A business must register for GST when:
- On a Retrospective Basis
When the taxable turnover in a specific quarter plus the previous three-quarters exceeds S$ 1 million.
- On a Prospective Basis
When there are reasonable grounds for one to believe that the taxable turnover will exceed S$ 1 million in the next 12 months.
You can voluntarily (i.e on your own will) register your business for GST even if your annual turnover does not exceed S$ 1 million. Note that you will not be able to get a credit for the input tax that you pay until you register for the GST. Therefore, for businesses that have a low margin and high input costs, it may make sense to register even before they meet the revenue threshold.
Exemption from Registration
A business is exempt from registering for GST even if the annual taxable turnover exceeds S$ 1 million on a specific condition that the supplies made by the business are wholly or mainly zero-rated supplies. Upon approval, you will be exempt from collecting GST on your sales as well as from filing GST returns. The drawback, however, is that you cannot claim the GST that you incur on any business purchases.
To register for GST, you can use one of the following options:
- Apply online at mytax.iras.gov.sg;
- Seek the services of a corporate services provider;
- Submit form GST F1 – “Application for Registration” with the required documents attached.
The registration process and the documents required for submission differ on the basis of the legal form of the Singapore business. The government processing time for a GST-registration application is less than a week.
Once registered, a business must remain registered for a minimum period of two years.
Filing GST Returns
A GST-registered business has to file GST tax returns and account for GST to the Internal Revenue and Tax Authority of Singapore (IRAS). Here are the key points about filing GST tax returns:
- GST tax returns must be filed electronically either on a monthly or quarterly basis.
- GST tax return and the payment of the GST amount are due one month from the end of the GST accounting period.
- Even in the case of no GST transactions during an accounting period, the business must still file a nil return.
When calculating the GST amount due, a business needs to determine net GST. For this, we must first understand input tax and output tax:
- Input tax is the GST tax that a business pays to other businesses who supply goods and services to the business.
- Output tax is the GST tax that GST-registered business charges to others (i.e. its customers) when it sells goods and services to them.
You can compute the net GST amount as the difference between the input and output tax. If the input tax is greater, you will receive a refund from IRAS whereas if output tax is greater you will have to pay the tax amount to IRAS.
For example: If your input tax is $20 and the output tax is $10, IRAS will refund the Net GST of $10. However, if your output tax is $20 and input tax is $10, you will have to pay Net GST of $10 to IRAS.
If the IRAS has to refund GST amount to a business, the refund will be made as follows:
- In case of monthly accounting period – Within one month.
- In the case of quarterly accounting period – Within three months.
The following conditions must be met in order to receive a refund:
- You have to file all the GST returns in a timely manner.
- Your business must not be under an audit by the Comptroller.
- You must not have any outstanding taxes or payments to pay.
Severe penalties apply when GST regulations are violated. For example:
- If the business fails to pay the GST amount within one month from the end of the accounting period, the amount of penalty is equal to 5% in case of late payment. The tax authority then issues a demand notice for the payment. If, after 60 days from the date of the demand note, the tax amount still remains unpaid; the business will have to bear an additional penalty of 2%. The additional penalty can in no case exceed 50%. The maximum penalty is thus 5% + 50% = 55%.
- On failure of filing the return, IRAS issues a “Notice of Assessment” with an estimated tax. The amount of penalty is 5% on the estimated tax. For late submission, IRAS imposes a penalty of $200 for every month of non-submission of the return. The maximum penalty in such cases is $10,000.
Should Your Business Register for GST?
Soon after you have registered your Singapore company, you will be confronting the decision whether to register for GST. If your business falls under the category of mandatory registration (see above section), you are by law required to register for GST. On the other hand, if GST registration is not mandatory for your business, the followings factors will help you decide if registration will be beneficial for your business:
Factor 1 – Net GST
As explained earlier, if you are a GST-registered business, you can offset any input tax you paid (assuming the corresponding goods and services were used or will be used for the purpose of your business) against the output tax you collected (i.e. net GST). Therefore if your business pays a sizable amount of input tax, it may be a good idea to register for GST even if your business does not meet the annual revenue threshold.
Factor 2 – Record keeping & Filing Obligations
Once a business is GST-registered, the law imposes certain recordkeeping, accounting, and filing obligations that your business must adhere to. This imposes certain additional costs and overhead on your business that you must take into consideration when deciding on GST registration.
Factor 3 – Charging GST to Your Customers
Once you are GST registered, you must charge GST on all GST taxable supplies of goods and services to your customers. This is an additional amount that your customers must pay. If many of your competitors are not GST-registered, your goods and services may be perceived as more expensive (because of GST) compared to competitors.
Factor 4 – Customer Perception
Depending on your type of business, if you are not GST-registered, your customer might have a negative perception of you i.e. you are a small-type business and hence potentially unreliable.
If GST registration is not mandatory in your case, it’s important to take into consideration the above factors. A professional and reputable accounting or corporate services firm can evaluate your specific business case and make a proper recommendation regarding GST registration of your business.
Special GST Schemes
The Singapore government offers various general and industry specific schemes to eliminate unnecessary GST complexity where appropriate. Examples of these schemes include:
Major Exporter Scheme (MES)
According to the scheme, the businesses do not have to pay GST at the time when goods are imported. This implies that MES approved businesses can import non-dutiable goods without having to pay the tax amount to Singapore Customs.
Gross Margin Scheme
Under this scheme, the GST will be chargeable on the gross margin (the selling price – purchase price) and not on the full value of the goods.
Zero GST (ZG) Warehouse Scheme
The Singapore Customs is responsible for the administration of this scheme. According to the scheme, the approved business can store the non-dutiable overseas goods in the ZG Warehouse, without having to pay GST on such goods. The GST is payable only when the goods that the business imports are removed from the warehouse for local consumption.
When launching your business in Singapore, it is essential to understand the various aspects of the Goods and Services Tax. The GST rates, types of supply, available schemes all differ from business to business. To ensure that you comply with the law, avail the maximum benefits under various schemes, and file your GST returns in a timely manner, it is advisable to seek assistance from a professional and reputable corporate services firm.
If you are a GST-registered supplier, to determine your taxable turnover, you will consider the standard-rated and zero-rated supplies. Whereas, you will not include the exempt supplies in your taxable turnover. Thus, you can claim input tax credit for your taxable supplies that include zero-rated supplies, but you cannot claim the credit for exempt supplies.