Singapore is a favourable place to register an offshore company because of its low tax rates, credible banking sector, ease of company incorporation, skilled labour, and provision of monetary incentives for new start-ups. Singapore also has trade agreements with many other jurisdictions, thus allowing for a greater outreach to different geographical markets. Before you choose to incorporate your company in Singapore, it is important to understand the various form of taxes that your business is subjected to, such as the Goods and Service Tax (GST). This article will explain everything you need to know about GST in Singapore for you to set up your business.
What is GST?
GST is the equivalent of a Value-Added Tax (VAT) in other jurisdictions and is a consumption tax levied on all supplies of goods and services in Singapore, including imports. Although the consumer pays the GST when purchasing a good or service, the business is the one in charge of collecting and remitting the tax revenue to the government. Generally, the GST is included in the final price of a good or service. The Inland Revenue Authority of Singapore (IRAS) is the tax authority in Singapore that is in charge of enforcing the collection of GST from businesses and consolidating the total tax revenue accrued.
How much is the GST in Singapore?
The standard rate of GST in Singapore is 7% for all goods and services, including those imported. Although most goods and services are subjected to GST, there are some that are exempted from GST. Export of goods such as the sale of a product to an overseas customer and international services such as the sale of airplane tickets are not subjected to GST. GST is also not levied on most financial services, the supply of digital payment tokens, the sale and rental of residential properties, and the importation and local supply of investment precious metals.
In addition, out-of-scope supplies, such as third country sales, sales of overseas goods made within a Free Trade Zone or Zero GST Warehouse in Singapore and private transactions, are exempted from GST. Third country sales occur when goods are delivered from a country outside of Singapore to another place outside of Singapore while private transactions are non-commercial transactions that do not involve any monetary payment.
When is my business required to register for GST?
All businesses with an actual or expected taxable turnover that is greater than SGD 1 million at the end of a calendar year are required to register for GST by the end of January. However, if the taxable turnover of your business is derived mainly from zero-rated supplies, you may choose to apply for exemption from GST registration.
Businesses that have a taxable turnover less than SGD 1 million can choose whether or not to register for GST. Typically, businesses that have an annual taxable turnover close to SGD 1 million will choose to register for GST so that they do not have to constantly monitor the amount of revenue earned. Businesses may also choose to register for GST voluntarily so that they can claim GST incurred on their purchases from suppliers through input tax.
What do I need to do after my business has registered for GST?
Firstly, a business that has registered for GST must charge and account for the 7% GST in the prices of their goods and services. This means that all prices displayed must be inclusive of the GST, unless the good or service provided is exempted from GST. If the company wishes to display both GST-inclusive and GST-exclusive price, the GST-inclusive price must be displayed more noticeably. In the case that a business sells supplies to other GST-registered businesses, the business selling the supplies will not be required charge GST to its client. Instead, the GST-registered client will account for the GST in his or her output tax.
Next, a GST-registered business is required to file a GST return annually and submit it within one month after the end of its accounting period. Even if the company does not conduct any transaction that is subjected to GST, it is still required to file a “NIL” return. In the case that the company fails to submit the GST return by the stipulated deadline, the company will be required to pay a 5% penalty based on the unpaid tax amount on the due date. An additional 2% penalty will be levied on the remaining unpaid tax each month.
Lastly, a GST-registered business is required to issue tax invoices for goods and services that are subjected to GST. The GST Registration Number must be reflected on all tax invoices and receipts. GST-registered businesses are also required to keep and maintain the relevant business and accounting records for at least 5 years.
When is my business required to start charging GST?
Every business will be required to charge GST starting from the effective date of its GST registration with IRAS. The effective date of registration will be stated in the approval letter containing the company’s GST registration number.
Businesses that cancel their GST registration will still be required to account for GST on the business assets held on the last day of registration if GST had previously been claimed on these assets and the total market value of the assets is greater than SGD 10,000.
When can my business claim GST?
GST-registered businesses that import goods into Singapore or purchase from other GST-registered suppliers in Singapore can claim input tax based on the GST incurred by these purchases. For the good or service to be eligible for the claim of input tax, it must be used solely for business activities and there must be valid tax invoices supporting these purchases.
When can my business cancel its GST registration?
All business owners must cancel their GST registration if their business has ceased, or they do not produce taxable supplies and are not planning to produce taxable supplies in the future. Other conditions for cancellation of GST registration include transfer of business to another entity and change in constitution of business. The latter conditions require the new business entity to re-register for GST.
Additionally, businesses can choose to apply to cancel their GST registration if their GST registration was on a voluntary basis and they expect their taxable turnover for the upcoming year to be less than SGD 1 million. However, businesses that registered for GST voluntarily must remain registered for at least 2 years before it can cancel the GST registration.