GST reverse charge to take effect on 1 January 2020
With effect from 1 January 2020, all purchased services will be subjected to the Goods and Services Tax (GST) in Singapore, regardless of whether they are supplied by local or overseas suppliers.
GST is a tax on local consumption applied on services (other than an exempt supply) supplied by a local supplier, that is not applicable to the same services supplied by an overseas supplier.
From a commercial point of view, this approach might have given an unfair advantage to overseas suppliers over local suppliers - who have to charge GST (if registered) - since Singapore businesses will end up having to pay more for the same service if they decide to engage the local supplier.
In order to level the GST treatment for all services consumed in Singapore, the Minister for Finance announced in Budget 2018 that from 1 Jan 2020, imported services from suppliers based overseas which have no establishments in Singapore will also be liable for goods and services tax (GST).
In particular, the following regimes will be implemented to tax imported services:
- Reverse charge regime for Business-to-Business (“B2B”) supplies1 of imported services (e.g. marketing services, accounting services and IT services); and
- Overseas vendor registration regime for Business-to-Consumer (“B2C”) supplies2 of imported digital services (e.g. video and music streaming services, apps and online subscription fees).
GST does not affect e-commerce for goods such as online shopping.
B2B imported services by way of reverse charge
Under the B2B reverse charge mechanism, local GST-registered business is required to account to IRAS, GST on services procured from overseas suppliers (‘imported services’), as if it were the supplier, with the exception of certain services which are specifically excluded from the scope of reverse charge3.
The GST-registered recipient would also be entitled to claim the GST as his input tax subject to the normal input tax recovery rules.
However, businesses that use imported services to make non-taxable supplies of goods and services can make only partial GST refund claims for those services.
It is important to note that, once reverse charge is implemented on 1 Jan 2020, it will apply to all businesses who will be subject to reverse charge. Considering that the change was announced in Budget 2018 and businesses were given approximately 22 months to prepare for the implementation of reverse charge, IRAS will not grant an extension of time to any business or sector.
Countries already adopting similar regimes include Australia, Japan, South Korea and New Zealand.
B2C imported services by way of an overseas vendor registration regime
Overseas vendors who:
- have an annual global turnover exceeding $1 million; and
- make B2C supplies of digital services to customers in Singapore exceeding $100,000;
are required to register for GST in Singapore and, once registered, to charge and account for GST on B2C supplies of digital services made to customers in Singapore.
Electronic market-place operator
A local or an overseas operator of an electronic marketplace, may be regarded as the supplier of digital services made by the overseas suppliers through your marketplace.
In such cases, the value of these services must be included to determine the GST registration liability of the business.
In particular, If the business is liable for GST registration or is already GST-registered, GST must be applied and accounted on B2C supplies of digital services made through the marketplace to customers in Singapore on behalf of the overseas suppliers, in addition to digital services made by the local company directly to customers in Singapore.
To ease extra-territorial compliance burden, an overseas operator will be registered under a simplified regime, with reduced registration and reporting requirements.
For example, a GST-registered overseas music streaming service without an office in Singapore will have to charge GST on its sale to a Singapore consumer who buys an online music subscription. The company will then account on the amount of GST collected to IRAS.
How it will impact the businesses’ daily operations
In order to ensure that businesses remain compliant once the new GST rule takes effect, businesses should also review key areas below:
- Adapt their internal processes and accounting systems to incorporate GST reporting requirements on imported services;
- Train relevant process owners (e.g. accounting team) to help them recognise what falls under the coverage of imported services and to ensure timely GST reporting;
- Track and check the account payable (AP) ageing report for payments due to overseas suppliers for more than 12 months and reverse the GST entries previously reported on the supply and purchase transactions.
1. Business-to-business (“B2B”) supplies refer to supplies made to GST-registered persons, including companies, partnerships and sole-proprietors.
2. Business-to-Consumer (“B2C”) supplies refer to supplies made to non-GST registered persons, which include individuals and businesses that are not registered for GST.
3. Services excluded from the scope of reverse charge:
- Services that fall within the description of exempt supplies under the Fourth Schedule to the GST Act;
- Services that would qualify for zero-rating under section 21(3) of the GST Act had the services been made by a taxable person belonging in Singapore;
- Services that are directly attributable to taxable supplies (note: this does not apply to partially exempt persons who are granted a fixed input tax recovery rate or a special input tax recovery formula); and
- Services provided by the government of a jurisdiction outside Singapore, if the services fall within the description of non-taxable government supplies under the Schedule to the GST (Non-Taxable Government Supplies) Order of the GST Act.