The GST (Goods and Services Tax) is a tax levied on certain expenditures. Most purchases of goods and services in Singapore are subject to GST as are imported goods. This tax is known as Value-Added Tax or VAT in other countries. The current Singapore GST tax rate is 7%. This tax is added to the price that companies charge for their goods and services.
GST-registered businesses in Singapore must charge this tax on applicable goods and services, collect it and pass it on to taxing authorities. Therefore, it does not increase costs directly attributed to the business. GST registered companies are responsible for collecting the tax and remitting it to the Singapore tax authority.
The government-mandated the collection of Goods and Services tax in 1994. This tax mechanism was modeled after the Value Added Tax legislation in the United Kingdom and the Goods and Services Tax legislation in New Zealand. The Inland Revenue Authority of Singapore is responsible for administering, assessing, collecting and enforcing payment of GST.
Overview of GST Singapore
If your business is registered to collect goods and service tax, you are responsible for collecting this tax from your customers for the goods and services you provide and that require payment of GST. You must then remit the tax that you collect to tax authorities through the tax filing system. Even if your company is incorporated in Singapore, it will not automatically be registered to charge this tax. You must complete this step on your own to remain compliant with the law when you are subject to compulsory GST registration.
Some businesses are not required to register for GST based on the value of their annual revenue (turnover). Companies that have crossed certain thresholds must apply to the Inland Revenue Authority of Singapore to become GST registered. They must complete the registration process before charging or collecting GST.
Purpose of Goods and Services Tax in Singapore
The Singapore GST is widely perceived as a way to lower personal income tax and corporate income tax rates while providing a steady income stream to the government. This tax provides a predictable and stable tax income regardless of the state of the economy. Because it involves a lower cost of administration and collection, it is a more efficient tax than others. This tax only applies when people spend their money, so it is often considered fairer. It also encourages people to save and invest, which helps maintain a more stable economy.
The GST and Types of Supplies
Before understanding GST in Singapore, you must understand how supplies are divided in the country. Singapore classifies supplies into four categories. The category that the supply falls into determines the tax rate, as follows:
- Standard-rated supplies – These supplies are taxed at 7%.
- Zero-rated supplies – These supplies are taxed at 0%.
- Exempt supplies – The GST does not apply to these supplies.
- Out-of-scope supplies – The GST does not apply to these supplies.
What Is the GST Rate?
The tax rate for the Goods and Services Tax is currently 7%.
However, lawmakers plan to introduce an increase to the GST to 9% sometime between the year 2021 and 2025, depending on a variety of political factors.
What does the GST Apply to?
The 7% GST applies to taxable supplies. Most local goods or services that are made in Singapore are considered a taxable supply unless they are exempt. Taxable supplies may be subject to the standard GST rate, or they may be zero-rated.
Most local sales of goods and services are subject to the standard rate. Zero-rated supplies of goods and services are subject to a zero percent rate for GST. However, GST registered entities that make zero-rated supplies can claim the input tax paid on purchases.
The GST is not chargeable on exempt supplies. Therefore, input tax incurred in making exempt supplies is not claimable. Charging GST when it does not apply is considered a serious offense in Singapore and can result in significant penalties.
Exemptions for GST
There may be exemptions that apply in which GST does not need to be collected. Exemptions commonly apply to:
- Most financial services, including the issue of a debt security
- Sale of residential properties
- Lease of residential properties
- Important and local supply of investment precious metals
- Overseas goods are delivered to another country overseas
- Private transactions
Additionally, some goods and services are zero-rated, including the following:
- Exported goods
- International services
GST on Imported Services
GST is not currently charged on imported services, but it is expected to be introduced to these services on or after January 1, 2020. If you have this type of business, you will be required to account for GST on all services that are provided by overseas suppliers except for those that are excluded. If your business is outside Singapore and you provide digital services, you must register for GST in Singapore if you have annual revenue in excess of $1 million and you make business to consumer supplies of digital services to Singapore customers in excess of $100,000.
Is My Company Required to Register for Singapore GST?
Businesses must self-assess whether they should register for GST. GST registration is compulsory in some situations and voluntary in others.
Registration for GST is mandatory when your taxable revenue is more than $1 million. You must register for GST when one of the following situations applies:
- Your taxable revenue is in excess of $1 million in the last year (retrospective basis)
- You reasonably expect your taxable revenue to be more than $1 million in the next year due to expected revenue and agreements you have in place (prospective basis)
Within one month of when your revenue crosses this threshold, you are required to complete an application to become GST registered to the Inland Revenue Authority of Singapore. Failing to register with the tax authority within the applicable timeframe can result in significant penalties.
If your business does not have taxable revenue in excess of $1 million, you do not have to register for GST. However, you might choose to voluntarily register for GST. Your choice of whether to register for GST or not is an important one and is worthy of careful consideration.
There are several benefits of registering for GST. Having a GST registered business is an indication that your business is a healthy one and is well-established in Singapore. The GST can help you reduce your own tax liability and help you maintain lower prices for your products and services. Your business will not have to directly pay this tax as it is passed onto the consumer.
However, there are also disadvantages to registering for GST. There are indirect costs involved with GST, such as administrative costs in carrying out the duties to collect and remit tax payments to the tax authority. The GST system can be difficult to understand, especially for investors in other countries, so there is a real possibility of making a critical mistake when applying this system. Additionally, non GST-registered customers will have to pay 7% more to purchase your goods and services due to this added tax, so you run the risk of losing customers in this way. Even though your own costs are reduced because you are able to recover GST, this does not translate to savings for your customers.
In order to voluntarily register for GST, your business must be selling taxable supplies or plan to sell taxable supplies in Singapore. The IRAS Comptroller decides whether or not to approve your business for voluntary registration. Once you receive approval for voluntary GST registration, you must stay registered for a minimum of two years. During this time, you must comply with the regulations related to GST, file your GST return in a timely manner and maintain tax records for a minimum of five years, even if your business has been dissolved and you deregistered for GST. The tax authority may impose additional requirements that you must meet as a condition of being voluntarily registered for GST.
GST Registration Exemption
If your business makes only zero-rated supplies, you can apply for a registration exemption even if your taxable revenue is in excess of $1 million. If you are exempted from the requirement to register, you do not have to provide quarterly filing of GST or comply with other GST-related regulations. Generally, the Inland Revenue Authority of Singapore exempts businesses from registration for GST if 90% of their total taxable supplies are zero-rated and their input tax is more than their output tax.
Some companies are able to deregister for GST when their business stops operating, is sold or when their revenue drops below SGD $1 million. To deregister, submit an application and supporting documentation to IRAS within one month from the date your business stopped operating.
Procedure to Register for GST
Now that you know whether you have to register or whether it is in your business’ best interest to register for GST voluntarily, you can begin the process of registering for GST. This process typically involves the following procedures:
- Complete a registration form for Singapore Goods and Services
- Submit supporting documentation to IRAS
- Provide information about the owners or partners
- Appoint a local agent who can receive legal service and provide written documentation that gives the agent to act on behalf of the business
This process is typically completed within three weeks. If you are approved for registration, you will receive a notification letter that contains the following information:
- Your unique GST number
- The effective date of when your business was registered for GST
- Filing frequency
- Filing due dates
- Any applicable special instructions
Charging and Collecting Goods and Services Tax
After your registration is approved, you must begin charging GST on your supplies at the applicable rate. This is known as output tax. You must then remit these amounts to IRAS.
You have two options when charging GST: you can include it in addition to the selling price of your good or service or you can make your price GST-inclusive. If you are registered for GST, you are responsible for following specific rules about displaying and quoting prices to include GST so that the customers are aware of the total cost of the good or service. Failing to display the GST-inclusive price is an offense that can result in penalties.
When you bill customers, you must provide GST-registered entities with a tax invoice so that they can use this as supporting evidence to claim their input tax. You must retain these invoices for at least along with your business records. The invoice should be issued within one month of the supply date. Tax invoices are not necessary for zero-rated supplies, exempt supplies or to companies that are not GST registered.
The GST you incur on purchases for your business and its expenses such as imported goods is input tax. You can offset the GST your suppliers charge you. You pay the difference between the output and input tax.
You can claim input tax on these purchases and expenses if your business satisfies all of these requirements:
- You are registered for GST
- The goods and services were supplied or imported to you
- The goods and services will be used for the purpose of your business
- You have valid tax invoices for local purchases or you have simplified tax invoices when you claim the input tax
- Any imported goods are documented through import permits that show you as the importer
- The input tax is directly due to taxable supplies that would be considered taxable supplies in Singapore
- The input tax claim is not prohibited by tax regulations
By claiming the input tax, this ensures that only the actual value that was added is taxed at each stage of a supply chain.
Remitting Payments for GST and GST Returns
Once you collect GST, you are responsible for getting it to IRAS. Using a GIRO payment arrangement through a Singapore bank account is the customary way to pay GST. You are responsible for submitting your GST return to IRAS 30 days after the end of each accounting period, typically quarterly. You report your output and input tax on your GST return. Keep records of all business transactions that influence the amount of GST you pay or receive as the law requires. The difference between your output and input tax is what you must pay to IRAS. If you paid more in input tax than output tax, IRAS will refund you the difference.
You are responsible for submitting a GST return to tax authorities. You do not need to provide your tax invoices when you submit your GST return. However, your return should include the following information:
- The total value of your local sales, exports and purchases from GST registered businesses
- The GST you collected for the accounting period
- The GST claimed for the accounting period
These returns are filed electronically. Even if you do not owe any tax, you are still required to submit the return. Penalties can be imposed if your return is late, even if you are due a refund.
Contact New Horizons
The GST system in Singapore is complex. Our local experts can provide you with additional information about our services and how we can help with this process. Contact us today to schedule a no-obligation GST consultation.