Goods and Services Tax (GST) is a broad tax levied on the consumption of most goods and services that are sold in Singapore. Many countries have a similar, or even identical, tax as Singapore’s GST, although it may be known as a Value-Added Tax (VAT) in some countries. The Inland Revenue Authority of Singapore (IRAS) governs the application of GST and requires all GST registered businesses to file GST returns with them.
GST is only levied on goods and services that are sold within Singapore. This includes imported goods. However, exported supplies and services provided overseas do not attract GST.
The Rate of GST
The current GST rate (in 2023) is 8%. This is being increased to 9% from January 2024.
In simple terms this means if the cost of a product is $100 then the consumer would actually pay $108 including GST.
What Goods and Services GST Applies to
GST applies to most goods and services sold in Singapore, however there are some exemptions.
The exemptions include most financial services, the sale and lease of residential property, and the importation and local supply of investment-orientated precious metals.
How GST is Charged and Remitted
The business selling goods or services is responsible for both the collection of GST from customers and remittance of the GST to IRAS.
GST registered businesses are required to track their sales and the amount of GST they collect through their regular record keeping. This information is then reported to IRAS through the lodgement of a GST return. GST returns are lodged with IRAS on either a monthly or quarterly basis.
The GST that a business collects is known as output tax.
Conversely, the GST that a business pays in the course of making business purchases is known as input tax.
Lodgement of a GST Return
When a GST return is lodged, the business reports the total output tax collected and claims a credit for all the input tax that they have paid. The net amount of GST that the business pays is the total amount of GST that the business must remit to IRAS.
In the event that the business pays more input tax than they collect in output taxes, IRAS will owe the business a refund.
Businesses who fail to lodge their GST return on time are subject to a 5% late lodgement penalty. IRAS will also issue a demand notice for the outstanding payment. If the company fails to pay after 60 days from the date of their demand notice, future penalties of 2% each month may be applied. The maximum penalty for late GST payments is capped at 55%.
Evasion of tax payments can result in fines and imprisonment.
Who Needs to Register for GST
All businesses with an annual turnover in excess of SG$1million are required to register for GST. Any business with a lower turnover can voluntarily register.
This turnover threshold only applies to businesses who are not GST exempt. Exempt businesses are businesses that deal with goods or services that are exempt from GST. This includes businesses that provide financial services, sell or lease residential property, or import and supply investment-orientated precious metals. To be given a registration exemption from IRAS, at least 90% of the company’s total revenue must be GST exempt and the net balance of GST collected must be negative (otherwise resulting in a refund).
Once a business is registered for GST they are required to remain registered for a minimum of two years.
If a company decides to voluntarily register for GST the company director(s) must complete e-Learning courses in “Registering for GST” and “Overview of GST”. They are exempt from needing to complete these courses if they have already completed these courses within the past two years, or they have experience managing another GST registered business, or have their GST returns prepared by an individual who is an Accredited Tax Adviser (ATA) or Accredited Tax Practitioner (ATP).
IRAS can also impose additional conditions for GST registration and compliance. When a company fails to meet these requirements, IRAS may cancel the company’s GST registration.
How to Register for GST
A company can register for GST online through their myTax Portal or they can post a paper application to IRAS. Alternatively, they can engage a designated filing agent to submit the application on their behalf.
The company cannot charge GST until they have received approval from IRAS.
Once registration is approved, IRAS will send a letter that includes the company’s GST registration number and the effective date of GST registration.
The effective date of GST registration is the date that the business must commence charging and collecting GST from.
What Happens When You Fail to Register for GST on Time
To understand what happens if you fail to register for GST on time we present this real life case study. Names and specific identification have been hidden or changed for anonymity.
The case:
An Australian company incorporated a company in Singapore to act as the local contracting party for services to be provided in Singapore.
As an Australian company, they were familiar with the Australian approach to GST registration. This differs from the Singapore requirements in that, in Australia, GST registration can be backdated and it can be made on a voluntary basis without additional requirements.
The threshold for GST registration in Australia is AU$75,000 and only applies to GST taxable goods and services. In both countries GST registration is considered voluntary registration when the annual turnover is below the relevant threshold.
Unlike Australian registration, voluntary registration in Singapore needs to be approved. In some cases, approval for voluntary registration needs to be accompanied by a bank guarantee for future payments of GST to IRAS.
The Singapore company, in our case, proceeded to provide services with GST included in the price. However, they did this without formally registering for GST in Singapore.
In Singapore this is regarded as a severe contravention of the GST laws. This is because GST registration must be approved and the commencement date confirmed, prior to the business charging GST.
The company attempted to backdate the registration, which is not permitted in Singapore.
IRAS consequently imposed fines and potential action against the directors.
Summary of GST Registration Requirements in Singapore
In summary, it is important to be aware of the requirement to register for GST.
If you intend to register on a voluntary basis, understand that this is not automatic, and you need to meet the required conditions and be approved for registration. Otherwise, you must keep an eye on your quarterly turnover and register as soon as your projected turnover will hit the required turnover threshold.
GST applies to most goods and services sold in Singapore, with exemptions for financial services, residential property and importing of investment-oriented precious metals.
Once you receive your registration letter from IRAS, you can commence charging GST from the date indicated as your registration date.
Failure to follow the requirements for GST registration can result in fines and other penalties for all Directors of the Singapore company.