In Singapore’s tax system, Goods and Services Tax is among the greatest concerns of anyone who works in the service or retail sector.
Innocuous as it may seem, one needs to at least have a basic understanding of this form of tax in order to ensure regulatory compliance and to avert any number of costly fines and penalties.
Table of Contents
1. The concept of Goods and Services Tax in Singapore
As its name hints, Goods and services tax (GST) refers to a consumption tax that is levied on the purchase of goods and services, as well as the goods that are imported into the city-state.
Better known as Value Added Tax or VAT in some regions, GST is an indirect tax, meaning that it is collected and then is remitted back to the government by a registered trader acting as an intermediary.
In order to grasp the idea of GST, one first needs to know that it is divided into input tax and output tax.
As a trader or an owner of a business who has registered for GST, you have to pay an amount of tax on the purchase of supply that you then use to render your goods and/or services. This amount you are required to pay is known as input tax. Thereon, when your customers buy the goods and/or services that you offer, they have to pay a specified amount of tax. This amount you charge on the customer upon their payment is referred to as output tax.
When you file the GST return, if the output tax is larger than the input, you must make a payment to compensate for the difference; And vice versa: if the input is larger, you may offset it and get refunded.
In light of all that, it is now crystal-clear that you basically act as a medium collecting GST on behalf of the government.
In Singapore, the rate of GST is 7% and has been set to increase to 9% in a few years to come.
2. Benefits and drawbacks of GST Registration
You can voluntarily register GST for your business even if you are not obliged to do so. Here are some pros and cons you should take into account before applying for it.
Some advantages of GST you can enjoy are:
- By and large, only sizable companies are held liable for GST. Therefore, registering for GST, voluntarily or otherwise, is an indicator of a viable business.
- GST helps reduce business expenses as your company is allowed to offset the input tax it paid against the output tax it has collected.
Some disadvantages of GST you need to consider are:
- You would be subject to several filing and administrative requirements, not to mention record keeping.
- Your customers would feel bitter knowing that they are charged additional taxes if they have no idea what GST is and the purpose of it.
- Registering for GST would likely to bring about the need to hire one or a couple of well-versed accountants
3. The requirement for GST Registration in Singapore
Here are some clear signals that it is time to register for GST:
- On a retrospective basis, the taxable turnover of your company at the end of a calendar year on or after 1 Jan 2019 for the past 12 months is assessed at an amount beyond S$1 million.
- On a prospective basis, the taxable turnover of your company at any given point of time is projected with certainty to exceed S$1 million for the next 12 months.
After the incorporation in Singapore, once your company’s taxable turnover reaches more than S$1 million, you are given a time limit of 30 days to file the GST application with IRAS. There is no grace period so, sure enough, any failure to miss this deadline would eventuate in penalties.
As aforementioned, if you are not required to register for GST, you can still voluntarily apply for registration if you wish to claim input tax for purchases of goods and services.
4. How to register for Goods and Services Tax in Singapore
There are many available options to choose from, you can either:
- Apply for GST registration online by using your Corp Pass account to log into myTax Portal
- Reach out to a corporate service provider if you want to take out hassles.
Side note: foreign entities who did not register their businesses in Singapore must appoint a local agent to take care of GST matters on their behalf.
Once your registration is approved, you would be advised of it forthwith by a Notification of GST Registration letter, which details your GST number, the date your company is subject to GST, the frequency with which you must file GST, its deadline, and other relevant instructions.
5. Types of supplies that are exempted from GST in Singapore
You would have to pay GST if you render any goods or services that are labeled as standard-rated supply.
A standard-rated supply is the supply of goods and services that are subject to the standard tax rate of 7%. Most types of supplies in Singapore are of this sort.
Yet there are some categories that are entitled to the exemption from GST, which are:
- A zero-rated supply is any good or service that is charged at the tax rate of 0%. This category of supply comprises exported goods and services supplied to customers located outside of Singapore. It should be well-noted that not all services provided to foreigners are zero-rated, only services that meet the description of international services under Section 21 of the GST Act can qualify.
- An exempt supply is one that is exempt from GST, which could either be the supply of financial services as specified in the Fourth Schedule to the GST Act, of precious metals, or of residential properties (both for lease and sales).
- An out-of-scope supply is any good and service that is not subject to GST, and thus need not be reported in the GST return if it falls under any of following categories:
- Third country sales made outside of Singapore’s territory;
- Sales carried out within Free Trade Zone;
- Sales carried out within Zero GST Warehouse; or
- Private transactions for non-business purposes.
6. Exemption from GST registration in Singapore
If your annual taxable turnover is over S$1mil, you can still go seek exemption from the requirement to register for GST if:
- More than 90% of the products and/or services that you offer are zero-rated supplies – those whose rate of tax is 0%; and
- Your input tax is larger than your output tax.
As soon as you get the seal of approval from IRAS, you are rid of the nuisance of GST registration and of having to file it several times a year.
You can also apply for exemption of GST registration if you qualify for registration under a retrospective basic but you expect to see significant decrease in sales volume that could result in taxable turnover falling below S1 million in the next 12 months.
7. Goods and Services Tax deregistration in Singapore
You must cancel the GST registration under any of the following scenarios:
- You have stopped selling taxable goods or services, and do not intend to revert in the future.
- Your company ceases to operate
- Your company is taken over by a third party
- Your business form has been changed – i.e. sole proprietorship converted to private limited company, etc.
You can also apply for GST deregistration on a voluntary basis if your taxable turnover in the next 12 months is expected to decrease below S$1 million. In such case, you will be asked to provide supporting documents as proofs.
In addition, applying for cancelation of voluntary GST registration would require a business to be remained registered for at least 2 years before deregistration.
Should you wish to file a petition for deregistration, you first need to lodge an application form attached with other relevant documents within 30 days since the date your company halts the collection of GST.
8. The consequences of failing to file GST in Singapore
Both GST return and payment fall due one month following the end of your accounting period.
Whenever you miss the deadline for making tax payment, you would incur a penalty of 5% for the first month of late payment. And for every subsequent month of unpaid taxes, an additional 2% percent would be accumulated until reaching the “cap” of 55%
If IRAS sees that you are neglecting the duty to file the return, they would notify of your violation by sending a “Notice of Assessment” with their estimated tax plus a penalty of 5% percent. Futher penalty of $200 would be imposed immediately for the first month of late filing and any subsequent months with outstanding GST return, which would be accumulated until reaching the $10,000 cap.
9. Some incentives for Goods and Services in Singapore
Under IRAS, an owner of a company regardless of scope is offered a wide range of GST Incentives Scheme, the purpose of which is to help businesses ease the trouble of excessive red tape and drive growth for Singapore’s overall economics.
- Cash Accounting Scheme: A small business whose annual turnover is less than S$1 million can account for output tax upon receipt of the payment.
- Gross margin Scheme: For second-hand businesses with no GST input, GST is assessed on the basis of the gross margin instead of the total value of the goods and/or services you render.
- Major Exporter Scheme: Import – Export businesses handling a vast amount of zero-rated goods are allowed to suspend their GST.
- Hand-Carried Exports Scheme: goods that are hand-carried out of Singapore by overseas customers via Changi International Airport can be exempted from GST.
- Zero-GST Warehouse Scheme: under certain conditions, a business owner can store their imported non-dutiable goods for as long as he/she pleases in a licensed premise while enjoying GST suspension.
- Discounted Sale Price Scheme: Second-hand or used vehicles can be charged at 50% of selling price for GST purpose.
- Import GST Deferment Scheme: For approved businesses, the GST payment levied on the imported goods can be deferred untill the due of filing GST returns instead of paying at the time of importing goods.
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