Global e-commerce sales are expected to grow at a Cumulative Annual Growth Rate of 6.29% from 2021 to 2025 according to Statista, with retail e-commerce sales worldwide amounting to US$4.28 trillion in 2020. With the pandemic forcing the closure of traditional physical retailers, e-commerce has really come into its own as a viable alternative to such shops, offering more flexibility and reach to business owners, and a greater range of options and lower prices for customers. It is no wonder then, that as the retail sales in Singapore declined with the onset of the lockdown, e-commerce platforms witnessed two digit growth rates of up to 23% in site visits. Singapore’s most popular e-commerce platform Shoppee saw over 10 million site visits in the second quarter of 2020, an 82% increase from their first quarter figure of 5 million. Other popular platforms include Lazada, Qoo10, Amazon.sg and EZBuy. Although selling through such 3rd party platforms does not require sellers to register as their own independent company, it is not the recommended option for most e-commerce businesses. Registering a company to conduct your e-commerce operations will allow you greater branding and allow you to stand out from other sellers on the platform. More importantly, favourable corporate tax benefits on your profits that would otherwise be subject to personal income tax. A new set of regulations on e-commerce were released in November 2019, the “GST: Guide for E-Commerce”. This is the fifth and most updated set of regulations. With this new GST regulation for e-commerce in Singapore, let us look at the things you should know about this and how it will affect your business and tax obligations.
Expansion of coverage of the Act
E-commerce has also now been redefined as business transactions that are conduct electronically, thus including the provision of digital services as opposed to just products. These digital services are defined as “services which are supplied over the Internet or an electronic network and the nature of which renders their supply essentially automated with minimal or no human intervention and impossible without the use of information technology”, and represent an expansion of the earlier term being used, which was digitised goods. In brief, as compared to digitised goods which were taken to be digital content and media, digital services also include software programs, electronic data management, and support services. Electronic marketplaces will also now be covered under the act, which are electronic means of providing supplies to customers. The expansion of coverage of the act is expected to increase the legal certainty and protections for customers and suppliers alike, but does come at the cost of making such services liable for GST, which should be taken into account for your business as it might make GST registration compulsory for your business.
When is GST registration required?
E-commerce businesses are subject to the same requirements as ordinary, physical businesses would be. Hence, your e-commerce business will need to be GST registered if your yearly profit exceeds S$1 million. The services and products covered under the Act were mentioned above.
After registration, goods sold by you will be subject to the prevailing GST rate of 7%. Prices displayed on your website will also need to be inclusive of GST. Since the medium of the transaction will not affect its taxability, these GST rules will continue to apply for supplies of goods and services made in Singapore even if they are made through the internet or electronic networks.
Overseas vendor registration regime
Taking effect from 1 Jan 2020, overseas suppliers will also be subject to GST when providing digital services to customers located in Singapore. This regime would also have an implication for local suppliers that offer their services through either a local or overseas electronic marketplace. Therefore, you might be allowed to zero-rate your services and goods if they are being supplied to an overseas marketplace operator.
GST on transactions with local businesses and customers
You will be required to charge GST when providing services to customers residing in Singapore, or when delivery of goods is into Singapore. As mentioned earlier, you will only be allowed to zero-rate your services and goods when they are being supplied through an overseas marketplace operator.
GST on transactions with overseas businesses and customers
In general, transacting with overseas businesses or customers will continue to be a GST exempted activity. However, you should keep the relevant records to prove this. These records include:
- Export permit, certificate or bill for goods exported by you. For goods exported by a postal or courier company, you will need to keep the parcel despatch or courier consignment note instead.
- Sales invoice
- Purchase order
- Packing list or delivery note stating that goods are for export
- Insurance documents
- Evidence of receipt of payment
This exemption will also only apply for small purchases. Purchases above S$400 will be subject to the prevailing GST rate of 7%.
GST exempted transactions
However, as per Section 21(3) of the Goods and Services Tax Act, certain products and services will be considered as tax exempt regardless of where your customer is located. Some examples include international air travel, provision of financial services, sale and lease of residential properties.
How to structure your e-commerce business for maximum tax efficiency
Since Singapore operates on a territorial taxation policy, you will only be subject to tax on your Singaporean e-commerce company if you conduct business operations domestically. Hence, if would want to enjoy full tax exemption, we would recommend that you either operate in Singapore through a foreign registered entity, and not remit your profits back to Singapore, or operate in foreign territories with a Singaporean e-commerce company.
Of course, you can continue to operate your business with your locally registered e-commerce company and still qualify for the attractive tax exemptions that Singapore offers for small and new firms. In particular, new start-ups can expect to enjoy around 50% exemption on corporate tax.