Pre-Registration GST Claims Process Will Be Simplified From 1 July 2015.
Budget 2015 unveiled simplified rules to claim GST incurred on purchases prior to GST registration, commonly referred to as pre-registration claims. This change will benefit businesses that are GST-registered with effect from 1 July 2015. This initiative by the government is appreciated by the business community, though only the newly GST-registered businesses will benefit.
Existing ConditionBusinesses that are GST-registered can claim GST incurred on the purchase of goods and services made prior to the GST registration, provided such goods and services are not disallowed under Regulations 26 and 27 of the GST (General) Regulations.
Also according to Regulation 40, pre-registration GST incurred is claimable only on that portion of the goods and services used or to be used to make taxable supplies after GST registration.
GST incurred on goods and services used to make taxable supplies before the GST registration are not claimable. For recovering GST incurred on services, such service should not have been acquired more than 6 months before the effective date of GST registration.
Apportioning pre-registration GSTIf the goods and services purchased by a newly GST-registered business have been partially consumed before the GST registration, or if such consumption straddles across the date of registration, the newly GST-registered business must apportion the GST and claims can be made only on that portion attributable to the supplies made after GST registration.
From 1 July 2015 newly GST-registered businesses can claim the pre-registration GST in full on the following goods and services that are acquired within 6 months before the GST registration date:
- Goods held by the business at the point of GST registration; and
- Property rental, utilities and services, which are not directly attributable to any supply made by the business before GST registration.
No need to apportion
Irrespective of whether the goods and services were partially used before the GST registration or have been used to make supplies straddling pre and post registration, without any hassle of apportioning GST can be claimed in full. However such goods and services must be used for making taxable supplies and not exempt supplies.
It must be noted that GST incurred on services used to make taxable supplies before GST registration will continue to remain not claimable. For goods and services acquired more than 6 months before your GST registration date the existing pre-registration GST claims rules will prevail.
To claim Pre-registration GST incurred on goods and services, you are required to maintain documentary evidence such as tax invoice, import permit, proof of payment.
You must also maintain a goods stock account with details of quantities purchased, date of purchase, quantities used in making of other goods and date and manner of subsequent disposal of both the quantities purchased and quantities used in the making of other goods.
To claim GST incurred on services you are required to maintain the details of services purchased, its description, date of purchase and date of disposal of service, if any.
Benefits for the businesses
Apportionment of GST incurred, based on the time period of the usage of goods and services in making taxable supplies, was a cumbersome task for businesses, especially the small ones that are grappling with challenges of evolving into a big scale business.
The different apportionment rule to determine the claimable and non-claimable GST expenses was a complicated exercise for many business owners. It led to confusion and included the risk of incorrect computation.
In order to prevent wrongful claims and to save the resources spent on the challenging process of pre-registration claims some businesses even gave up their right to claim. It was a significant loss for businesses.
With the revised simplified rules to make pre-registration claims businesses can file without having to pursue the elaborate apportioning exercise. This is a significant relief for businesses, which have had to spend considerable time and resources for the process.
Businesses who are nearing the GST registration threshold can also plan their purchases in order to claim back the GST expenses. Businesses need not forego their rightful claims merely for a challenging calculation process.
IRAS will release further details on the simplified pre-registration GST claims rule in June 2015.
Commenting on the proposed revision Jacqueline Low, COO of Hawksford Singapore says, “The proposed simplification of the compliance is definitely cost and time saving for new companies as well as for the existing companies that are approaching the registration threshold. It provides a lot of clarity and room for small businesses to plan their purchase operations in such a way that they can effectively tap on the GST relief, which many otherwise simply forsake because of the complicated apportioning requirement. GST expenses, incurred by companies before incorporation are also claimable, subject to certain conditions. Such initiatives taken by the government with the concerns of small businesses in mind makes Singapore an ideal launch pad for startups and entrepreneurs.”
For more details on GST Registration click here.
Who needs to register for GST?
GST registration is compulsory if your business meets any of the following conditions. Registration must be done within 30 days from the date on which your registration liability arises.
- The chargeable income exceeds S$ 1 million in the past 12-month period
- If you are making taxable supplies or intend to make taxable supplies and the taxable turnover is expected to exceed S$ 1 million in the next 12-month period.
If a business that is required to compulsorily register fails to do so, it will be fined up to S$10,000 or may be liable to pay a penalty of 10% of the tax due from the date on which its liability to register commenced. It will be liable to a further penalty of SGD50 for every day during which the offence continues after conviction.
A business not making any taxable supplies or its taxable incomes have not exceeded S$1 million may still choose to voluntarily register for GST, if it intends to make taxable supplies, in the due course of the business or in its furtherance or expects the taxable turnover to exceed S$1 million.
Even businesses making out-of-Scope supplies and exempt supplies can choose to register voluntarily if it has business establishment in Singapore or resident in Singapore.
By voluntarily registering the business may claim back the GST paid for its purchase however there are compliance costs involved in maintaining proper records, timely reporting, tax payment, audits etc. Once a business is voluntarily registered it has to remain registered for at least two years.
Exemption from Registration
A business can apply for exemption from GST registration if it makes wholly or substantially zero-rated supplies (export of goods or services). A business if granted exemption from GST registration cannot make claims on input GST, meaning the GST paid on its purchases. If there are any changes in the nature of supplies or proportion of supplies made by the business then it must be duly reported to the comptroller of GST.
The GST registration requirements are same for local and overseas entities. An overseas company would be required to register for GST if it makes or expects to make taxable supplies in Singapore exceeding the GST registration threshold.
Overseas entities that are not resident in Singapore or do not have establishment in Singapore, but conduct business in Singapore are also liable for GST registration if they meet the conditions. An overseas entity that is registered for GST must appoint a local agent to manage its GST matters.
It must be noted that transactions between head office and its branch are non-supplies as they are regarded as one entity for Singapore GST purposes.
If the overseas entity’s GST liability arises due to importation of taxable supplies into Singapore it may appoint a GST agent pursuant to section 33(2) of the GST Act. Instead of the overseas entity registering for GST the appointed agent, referred to as Section 33(2) agent will act as the principle of the goods imported and the overseas entity’s imported goods will get reflected in the agent’s GST returns.