GST on Imported Services
In Singapore, Goods and Services Tax (GST) is a broad-based consumption tax levied on the importation of goods and majority of the supply of goods and services in Singapore, commonly known as Value Added Tax in other jurisdictions.
With modern technological advancements, there is an increasing involvement of cross-cultural enterprises within international markets. This virtual gateway to overseas markets adds competitiveness to many local vendors.
At present, there is no GST imposed on imported services or imported digital services from overseas vendors. For example, GST will be imposed on cable TV subscriptions provided by local telecommunication service providers that are GST-registered, but on the other hand, if consumers were to subscribe directly with an overseas provider for the same media channels, the cost will be considerably lower. This may result in local consumers and non-GST registered businesses that are not entitled for input tax claims on the GST it has paid to procure the services locally, to seek to source for vendors based overseas for economical pricing.
Following the Budget 2018 announcement, in order to create a balanced playing field for both local and overseas vendors, local consumers and businesses procuring services from overseas vendors without establishment in Singapore will have to pay for GST on imported services and imported digital services with effect from 1 January 2020. The Inland Revenue Authority of Singapore has published guidelines on 4 February 2019 to address the GST registration and compliance regulations in respect of such imported services.
New Rule for GST on Imported Services with Effect from 1 January 2020
The recent update addressed two modes of taxing imported services; by way of reverse charge for business-to-business (B2B) imported services made to GST-registered businesses and by way of an overseas vendor registration regime for business-to-consumers (B2C) imported digital services made to local consumers or non-GST registered businesses.
Reverse Charge Mechanism
Under the operation of the reverse charge mechanism, where an overseas supplier makes a supply of service to a GST registered business, the local recipient of the supply of service will accounts for the output tax in its GST return in place of the overseas supplier. Concurrently, the GST-registered business is entitled for an input GST relief, subjected to the input tax recovery rules.
How does it affect GST Registered Businesses?
GST-registered businesses that procure imported services from overseas suppliers will be subjected to the reverse charge mechanism if they are not entitled to full input tax credit or belong to a GST group that includes at least a member that is not entitled to full input tax credit.
Example of businesses that are not entitled to full input tax credit are companies carrying out non-business activities such as providing free or subsidized services, as well as businesses that fail the De Minimis Rule under regulation 28 of the GST (General) Regulations.
Businesses will be considered as failing the De Minimis Rule and hence, be subject to reverse charge mechanism if the total value of all exempt supplies exceeds an average of S$40,000 a month or exceed 5% of the total value of all taxable and exempt supplies made in that period. There are also certain exemptions where businesses can be relieved from the reverse charge mechanism despite failing the De Minimis Rule. Exempt supplies generally refer to supplies that are not subjected to GST such as provision of financial services.
GST-registered businesses with fluctuating exempt supplies may be required to apply the reverse charge in one accounting period and not in the subsequent accounting period. There is an option for such businesses to apply reverse charge only at the end of the longer period, instead of each accounting period. The election has to be made on a yearly basis and once made, it will apply to the current and subsequent period(s) of the longer period.
Does it Impact the Non-GST Registered Businesses?
Non-GST registered businesses procuring services from overseas vendors may be liable for GST registration if there is a requirement to activate the reverse charge mechanism.
Non-GST registered businesses that are not entitled to full input tax credit if they are GST registered will need to monitor their imported services as there will be a requirement to register for GST should the total value of the imported services exceeds S$1 million for the 12-month period.
Once registered, businesses will need to account for the output taxes on the imported services procured from overseas vendor under the reverse charge mechanism.
Overseas Vendor Registration Regime
When an overseas vendor who belongs outside Singapore supplies digital services to non-GST registered customers in Singapore, GST will be imposed on such transactions with effect from 1 January 2020 if it is required to be GST-registered under the overseas vendor registration regime.
Digital services include 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.
The following is a non-exhaustive list of included and excluded digital services:
| Excluded Digital Services | |
| Service | Remarks/Examples |
| Telecommunication Services | Current zero-rating provisions accorded for cross-border telecommunication services; Unlikely for an overseas entity to provide local telecommunication services without a physical presence in Singapore as formal licensing is required. Cloud-based telephony services, for example Voice over Internet Protocol (“VOIP”), audio conferencing and conference bridging, are also excluded. |
|
Advertising services on intangible media platform circulated wholly outside Singapore |
Zero-rating permitted for advertising services intended for circulation substantially outside of Singapore. |
|
Professional Services Involving Human Intervention if Advice is provided by Electronic Means |
E.g. Legal services where advice from the lawyer is communicated via e-mail |
| Included Digital Services | |
| Service | Remarks/Examples |
| Supply of digital products | E.g. Supply of Mobile Applications and E-Books |
| Supply of software programs | E.g. Downloading of software, Drivers, Website Filters and Firewalls |
| Supply of images, text and information andmaking available of databases | E.g. Subscription to online newspapers and journals, downloading of licensed images |
| Supply of music, films and games | |
| Supply of distance teaching via pre-recorded medium or E-Learning | E.g. Supply of online courses |
| Supply of Electronic Data Management Services | E.g. Website supply, web-hosting, automated and digital maintenance of programmes |
| Services providing or supporting a Business or Personal Presence on an Electronic Network | E.g. Subscription services for the maintenance of an online professional profile page |
| Supply of Search-Engine and Automated Helpdesk Services | E.g. Supply of customised search-engine services |
Listing Services for the right to put Goods or Services for Sale on an Online Market or Auction House |
E.g. Listing fees for merchants to list their items for sale |
Supply of Live Streaming Services where there is no interaction with the Content Provider |
|
Advertising Services on Intangible Media Platform circulated wholly in Singapore |
|
Support services performed, via Electronic means, for arranging and facilitating the completion of transactions, which may not be digital in nature |
E.g. Commission fees to intermediaries, service fees to consumers and merchants for sale of products through the electronic marketplace |
The requirement for overseas vendors to register, charge and account for GST in Singapore will kick in if it supplies digital services to Singapore customers at a value exceeding S$100,000 and it has a global turnover of more than S$1 million.
Once GST-registered, the overseas vendors must apply GST to their supplies of digital services to all customers who are not GST-registered. Customers who are GST-registered will have to provide their GST registration number to the registered overseas vendor to prove their GST-registration status. The GST-registered customers will instead account for the GST on the imported services if they are within the scope of the reverse charge mechanism.
Under certain conditions, operators of a local or overseas electronic marketplace that supplies digital services to customers in Singapore, on behalf of overseas suppliers and merchants, through the electronic market place may be regarded as the supplier of those supplies made by the overseas suppliers and fall within the overseas vendor registration regime to register, charge and account for GST. The operators are required to include the digital services made by the overseas suppliers to their own supplies to determine their GST registration liability. If already GST-registered, the operators will have to charge and account for the GST on the digital services supplied through their marketplace by the overseas suppliers.
To alleviate the compliance burden, overseas vendors or operators required to be GST registered under the overseas vendor registration regime would be registered under a simplified regime where there are reduced registration and reporting requirements.