How to Get Ready for GST Reverse Charge?
With the advent of technology, businesses in Singapore may increasingly procure services from overseas that in the past could only be supplied by local service providers. Under the current GST regime, a supply of services (other than an exempt supply) procured from a local GST-registered supplier is subject to GST, while the same supply of services, if provided from an overseas supplier (i.e. imported), is not subject to GST even if the services are consumed in Singapore.
To level the GST treatment for services consumed in Singapore, the Reserve Charge Regime an Overseas Vendor Registration Regime will be implemented from 1 Jan 2020 to subject imported services to GST.
Accounting for GST reverse charge on imported services
The Minister for Finance announced in Budget 2018 that GST would be applied on imported services in the context of business-to-business (“B2B”) transactions by way of a reverse charge mechanism with effect from 1 Jan 2020.
It applies to:
- GST-registered persons who procure services from overseas suppliers and are either not entitled to a full input tax credit or belong to GST groups that are not entitled to full input tax credit; and
- Non-GST registered persons who procure services from overseas suppliers exceeding S$1 million in a 12 months period and would not be entitled to full input tax credit even if GST-registered.
Under the reverse charge mechanism, when a supplier who belongs outside Singapore makes a B2B supply of services to a GST-registered person who belongs in Singapore, the GST-registered recipient would be required to account for GST on the value of his imported services as if he were the supplier, to the extent the imported services fall within the scope of reverse charge. The GST-registered recipient would be allowed to claim the corresponding GST as his input tax, subject to the normal input tax recovery rules.
A non-GST registered recipient of supplies of imported services may become liable for GST registration by the reverse charge rules. Once registered, he would be required to apply a reverse charge and account for GST on his imported services just like any GST-registered business who is subject to reverse charge.
You will need to account for GST from 1 Jan 2020, if your GST-registered Company is unable to claim input tax in full. It further means that businesses will be asked to register for GST if they are unregistered when procuring overseas services beyond S$1million and is not entitled to claim input tax in full. Such services include investment-holding companies that derive only dividend income, residential or mixed-use property developers, banks, life insurance companies, reinsurance companies, and other financial institutions. As well as free and subsidized service providers like charities and voluntary organizations.
You import services that are within the scope of reverse charge. Services like; purchase of market data, online date information for business operations from oversea suppliers, director’s fee charged by an individual director whose usual place of residence is not in Singapore.
Examples of imported services not within the scope of reserve charge. Architectural services provided by oversea suppliers for development of an oversea property. Staff claims a reimbursement from its company for overseas hotel accommodation, overseas transports cost and meal expenses incurred overseas. Find Out More
Charging GST on imported digital service
The Minister for Finance announced in Budget 2018 that GST will apply to imported digital services in the context of business-to-consumer (“B2C”) transactions by way of an overseas vendor registration regime with effect from 1 Jan 2020. This will achieve parity in GST treatment for all services consumed in Singapore regardless of whether the service is procured from overseas or locally,
You are affected if you are:
- An overseas supplier making sales of digital services to customers in Singapore;
- An operator of a local or overseas electronic marketplace supplying digital services to customers in Singapore, on behalf of suppliers and merchants, through your marketplace; or
- A consumer in Singapore making purchases of digital services from overseas suppliers and electronic marketplaces.
Under the overseas vendor registration regime, any supplier belonging outside Singapore that has a global turnover exceeding S$1 million and makes B2C supplies of digital services to customers in Singapore exceeding S$100,000 is required to register, charge and account for GST.
Under certain conditions, a local or overseas operator of electronic marketplaces may also be regarded as the supplier of the services made by the suppliers through these marketplaces. In such cases, the operators are required to register, charge and account for GST on these supplies, instead of the suppliers.
To determine if their customers belong in Singapore, the overseas suppliers and local or overseas electronic marketplace operators (collectively referred to as ‘Overseas Vendors’) may use certain proxies, such as the customer’s IP address and credit card information.
Unless otherwise approved by the Comptroller, registered Overseas Vendors must duly apply GST to their supplies of digital services, only if their customer is not GST-registered. As such, unless the customer provides his GST registration number, the Overseas Vendor must charge and account for GST on the supplies made.
Overseas Vendors should not charge GST on supplies of digital services made to GST-registered customers that have provided their GST registration numbers. Instead, where applicable, the GST-registered customers will perform reverse charge on these overseas purchases if they fall within the scope of reverse charge.
In the event where GST is wrongly charged by the Overseas Vendors to GST-registered customers, the customers should contact the vendors to obtain a refund instead of making an input tax claim on the purchase. Find Out More
With all these, the next question is likely to be, “how do we get ready to deal with it?”
How to get ready
Knowing all these, and coming to terms with the fact that it has been established and the chances of it being revoked are slim; the next step will be getting ready to pull your business strings in the light of this information. This is especially important if your kind of business requires you to account for GST reverse charge or to charge GST on your supplies of digital services to Singapore.
- Carefully scrutinize the various business systems and areas that will be most affected. This way, you can keep tabs on the process;
- You also need to upgrade the accounting process to enable it to monitor and single out dealings and transactions that are liable to GST. With this, you wouldn’t miss or omit any GST-likely transactions;
- Set a structure for the handling of the reverse charge and digital services transactions;
- Get your staff trained. No one should remain in the dark as the work seem a little fast-paced, so all hands must be on deck to keep track of the process; and
- You also have to diligently update GST return preparation process and templates.
Conclusively, the new GST reverse charge policy may seem a little uneasy at first sight, but what makes it attractive is the level playing ground it has given to both local and overseas business. And as companies and investors make preparations to cue for it, a thorough understanding of how it works and how all parties involved will come to attain the GST registration status makes it worthwhile. Your business needs an expert on GST charges and Policy to help you navigate the industry and make great, timely decisions.