With the advent of technology and digital economy, it has become increasingly common for services consumed in Singapore to be obtained from overseas suppliers. Currently, Goods and Services Tax (GST) does not apply if an overseas supplier does not have establishment in Singapore. To level the GST treatment for services procured from overseas and those procured locally so as to achieve parity in GST treatment for all services consumed in Singapore, the reverse charge mechanism will be implemented from 1 Jan 2020 with the intent of taxing imported services through the following measures:
- Reverse charge mechanism for Business-to-business (B2B) imported services
- Overseas Vendor Registration for Business-to-Consumer (B2C) imported digital services
Reverse Charge Mechanism
The reverse charge mechanism requires the GST-registered recipients of the imported services to account for GST on the services as if they were the suppliers. At the same time, the GST-registered recipients would be entitled to claim the GST as their input tax subject to the normal input tax recovery rules. By virtue of the reverse charge rules, a non-GST registered recipients of supplies of imported services may be liable for GST registration.
Who is affected?
If you are a non-GST registered person who procures imported services within the scope of reverse charge and is not entitled to full input tax credit if you were GST-registered, you would be liable for GST registration under either of the following scenarios:
|Retrospective Basis||Prospective Basis|
Total value of your imported services for the calendar year (i.e. 1 Jan to 31 Dec) exceeds S$1 million regardless of your financial year
Total value of your imported services for the next 12 months is expected to exceed S$1 million
If you are already a GST-registered person and are not entitled to claim input tax in full or belong to a GST Group that is not entitled to claim input tax in full, and you procures services from overseas suppliers, you are liable under the reverse charge mechanism to account for GST on the value of your imported services as if you were the supplier.
Full Input Tax Credit
You would not be entitled to full input tax credit if you fall under either of the following circumstances:
- You carry out non-business activities such as providing free or subsidised services; or
- You fail the De Minimis Rule under regulation 28 of the GST (General) Regulations at the end of any prescribed accounting period, unless you meet any of the following conditions:
- You make only exempt supplies listed in regulation 33 of the GST (General) Regulations and the nature of your business is not one of those listed in regulation 34 of the GST (General) Regulations.
- You are entitled to apply for a provision in the GST legislation that grants you the right to claim your input tax in full.
- Your non-regulation 33 exempt supplies do not exceed 5% of the total value of your taxable and exempt supplies, you do not incur expenses that are directly attributable to the making of non-regulation 33 exempt supplies, and your recoverable residual input tax ratio is 100%.
Businesses that are not entitled to claim full input tax include developers of residential or mixed-use properties, business that derives interest income from loans, investment holding companies that derive dividend income, banks, insurance companies and non-profit organisations.
The Scope for Reverse Charge Mechanism
All imported services will be subject to reverse charge, except for:
- Services that fall within the description of exempt supplies under the Fourth Schedule to the GST Act;
- Services that qualify for zero-rating under section 21(3) of the GST Act had the services been made to them by a taxable person belonging in Singapore;
- Services provided by the government of a jurisdiction outside Singapore, if the services are of a nature that falls within the description of non-taxable government supplies under the Schedule to the GST (Non-Taxable Government Supplies) Order of the GST Act; and
- Services that are directly attributable to taxable supplies and you are not accorded a fixed input tax recovery rate or granted the use of special input tax recovery formula to be applied on all input tax claims.
Qualifying funds, Singapore-listed Real Estate Investment Trusts (S-REITs), qualifying Singapore-listed Registered Business Trusts (S-RBTs) and their local Special Purpose Vehicles (SPVs) are not excluded from reverse charge.
The GST remission which allows qualifying funds to claim GST incurred on their expenses at an annual fixed recovery rate and the enhanced concession which allows S-REITs and qualifying S-RBTs to claim GST incurred on their expenses (including that of their SPVs) are effective till the extended date of 31 December 2024 and 31 December 2025 respectively. These entities are required to notify Inland Revenue Authority of Singapore (IRAS) when they become liable for GST registration by virtue of their imported services.
Overseas Vendor Registration (OVR) Regime
Under the OVR regime, GST will apply to supplies of digital services made by overseas suppliers to non-GST registered customers in Singapore, including individuals. Under certain conditions, a local or overseas operator of electronic marketplaces may also be regarded as the supplier of the services made by its overseas suppliers through these marketplaces.
Who is affected?
Overseas suppliers and electronic marketplace operators would be liable for GST registration on meeting the two-tier registration threshold, based on the value of annual global turnover as well as the value of digital services made to customers in Singapore:
You will be liable to register for GST at the end of any calendar year when you cross both of the following thresholds in that year (1 Jan to 31 Dec):
a. Value of global turnover > S$1 million; and
b. Value of supplies made to non-GST registered Singapore customers > S$100,000
You reasonably expect the value of your global turnover and supplies of digital services to non-GST registered customers in Singapore to exceed S$1 million and S$100,000 respectively for the next 12 months
An overseas supplier may disregard supplies of digital services made through local and overseas electronic marketplaces where the marketplaces are regarded as the supplier of the digital services on its behalf for the purposes of assessing whether it must register for GST.
The Scope of OVR Regime
Digital services are services delivered over the internet or an electronic network, where the supply is automated and involves minimal or no human intervention. These services include providing downloadable digital content, subscription-based media, software programs, and electronic data management. It also includes support services performed via electronic means to arrange or facilitate a transaction. Please refer here for the list of included and excluded digital services and relevant examples
An electronic marketplace is a website, internet portal, gateway or distribution platform that allows suppliers to make supplies available to customers and is operated by electronic means. Payment processors and internet service providers are excluded from the definition of electronic marketplaces. An electronic marketplace may be regarded as the supplier of digital services on behalf of its underlying overseas suppliers if it meets certain conditions such as authorising the charge and delivery of the services to the customer.
What are the risks of non-compliance?
It is imperative for you to be compliant following the implementation of GST on imported services.
Overseas vendors registered under the overseas vendor registration regime are subject to the same penalty and compliance regime as domestic GST-registered persons on non-compliance. Penalties may apply in the following scenarios:
- Failure or late notification for GST registration;
- Late or non-filing of GST returns;
- Submission of incorrect GST returns;
- Late or non-payment of GST due;
- Failure to maintain proper record keeping; and
- Failure to comply with the responsibilities of a GST-registered person in Singapore.
It is important that businesses take immediate actions to determine how the new reverse charge mechanism and OVR regime affect their current operations and compliance requirements. We recommend the following steps:
1. Review financial records to determine the impact and actions required
If you are importing services, determine whether you are liable to register for GST under the reverse charge mechanism and how it would impact your business.
If you are an overseas supplier or marketplace operator of digital services, determine whether you are liable to register for GST under the Singapore OVR regime and how the new regime would impact your business.
2. Register within the required notification period
Where required by the law or beneficial to be GST registered, apply for GST registration by the stipulated deadline:
Retrospective basis - within 30 days of the end of that relevant calendar year, i.e. by 30 Jan of the following year.
Prospective basis - within 30 days from the date of forecast, except:
- If forecast date is on / before 22 Oct 2019, register between 1 Oct 2019 and 1 Nov 2019
- If forecast date is between 23 Oct 2019 and 31 Dec 2019, register by 31 Jan 2020
3. Prepare for your GST compliance requirement
For those subject to reverse charge, modify the accounting system to keep track of the imported services. Imported services which are within the scope of reverse charge should be assigned a different tax code from the imported services which are outside the scope of reverse charge. Where possible, automate the accounting of output tax and corresponding input tax.
For overseas suppliers and marketplace operator, start allocating resources to change your IT system that will allow your business to identify your customer belonging in Singapore, customer who is Singapore GST-registered and incorporate the GST in your billings.
Ensure that financial figures are readily available for timely filing of GST return on a quarterly basis. Payment of GST is due within 1 month from the end of each accounting period.
A simplified regime will be introduced by IRAS for overseas suppliers and overseas electronic marketplace operators for ease of reporting compliance.
Vistra can assist your business to comply with the new GST requirements from review, registration, system implementation and reporting. For more information, please contact our specialist team at GSTimportedservices.email@example.com.
You can also refer to the e-Tax Guides from the Inland Revenue Authority of Singapore below.
GST: Taxing imported services by way of reserve change:
GST: Taxing imported services by way of an overseas vendor registration regime:
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