Tax schemes and policies are probably the most important thing entrepreneurs want to know about when starting a business in a foreign country. While no one can make paying taxes pleasant, the Singapore government has managed to develop one of the world’s most startup-friendly environments to aid growing businesses and lure more foreign investments to the Lion City.
This guide provides a quick overview of the key concepts of the Singapore GST - its definition, registration schemes and requirements, the duties of GST-registered companies, filing GST returns, as well as the schemes to aid companies.
What is the Goods and Services Tax (GST)?
The Goods and Services Tax, commonly known as GST in Singapore, is similar to the Value Added Tax in most other countries. It is a broad-based consumption tax levied on most supplies of goods and services, as well as imported items.
To this end, GST is either collected by the GST-registered supplier and paid to the GST Comptroller or collected by the Singapore Customs at the point of importation. The current GST rate is 7%.
Historical GST Rates in Singapore
What is taxed under GST?
In Singapore, most local sales of goods will incur a GST of 7%, except for goods which are being exported or which are being delivered from overseas to another place overseas. In terms of services, most local provision of services is taxed at the GST rate of 7%, except for services which are deemed as international or financial services.
Which companies should register for GST?
Companies have to register for GST in Singapore if;
- They have had a taxable turnover of more than S$1 million in the past 12 months,
- They can reasonably expect that their taxable turnover will exceed S$1 million for the next 12 months.
Once the business has been registered for GST, the company’s supplies will be GST-chargeable. The GST that is being charged and collected is called the output tax, which is paid to the Inland Revenue Authority of Singapore (IRAS). The GST incurred on the company’s purchases and expenses is called the input tax.
A company, which has a taxable turnover of more than S$1 million, can apply for GST exemption from registration, if it makes or plans to make wholly or mainly zero-rated supplies.
How to make input tax claims after GST registration?
The GST incurred on business purchases and expenses is called the input tax. Companies, which have registered for GST can claim the input tax on their business purchases and expenses.
To do so, the business owner should deduct the total input tax paid from business purchases from the total output tax collected from customers. The difference, which is referred to as the net GST payable or net GST refundable, is the amount payable by the business owner and which can be possibly refunded by the GST Comptroller.
It is to be highlighted that the input tax claim must satisfy the following conditions;
- The company is GST-registered,
- The goods or services are either supplied to the company or imported by the company,
- The goods or services are used for the company.
In addition, there must be tax invoices addressed to the company for local purchases and there must be import permits to show that the company is the importer of the goods for imports.
What are the items which are not allowed as input tax claims?
According to the Regulations 26 and 27 of the GST General Regulations, the items which are not allowed to be considered for input tax claims include club subscription and membership fees from sporting and recreational clubs. Medical expenses, including medical and accident insurance premiums of the company’s employees cannot be considered for input tax claims as well, except if these are compulsory, as per the Work Injury Compensation Act or the Industrial Relations Act.
The other items which do not satisfy the criteria, as input tax claims, are any benefits provided to family members or relatives of the company’s staff, and the costs and expenses on motor cars which are registered under the name of the company or the individual.
What are the duties as a GST-registered business?
GST returns and account for GST are regularly submitted to the GST Comptroller within a month after each accounting period. The GST returns should be filed online on the IRAS website. Even when there are no transactions during the given accounting period, companies are still required to submit a “NIL” GST return. The payment can be made either by GIRO, cheque, electronic funds transfer or cash.
If the company fails to e-file the return on time, a 5% late payment penalty will be imposed on the tax that has not been paid by the due date. An additional 2% penalty is imposed, if the tax is still not paid after 60 days from the demand note. This penalty can keep increasing to a maximum of 55% of the unpaid tax.
What are the schemes available to a GST-registered business?
In Singapore, there are a number of schemes for GST-registered businesses. These include the Major Exporter Scheme, which aims to relieve the cash flow of businesses which rely heavily on the import and export of goods; and the Tourist Refund Scheme which allows tourists to obtain a refund on GST paid on goods bought from participating retailers. There are also schemes for specific industries such as importers and exporters, aerospace, marine, local manufacturing, and precious metals industries.
What kind of businesses should de-register for GST?
You should annul your GST registration within 30 days, if you no longer make or plan to make taxable supplies, you are sure that your taxable turnover for the next 12 months will be S$1 million or less, you have stopped being in business, your business has passed to another person, or that your business entity has changed.
In order to file GST returns the right way and fully benefit from the schemes available for GST-registered businesses, it is advisable to seek the expertise of a professional services firm, like AM Corporate Services, which can guide you in GST-related matters.