Goods and Services Tax
GST for Imported Goods and Services
In the recent Budget 2021, it was announced that with effect from 1 January 2023, the scope of GST will be widened to cover the importation of low-value goods via air or post and the importation of Business-to-Consumer (“B2C”) non-digital services.
This follows the recent imposition of GST on imported B2C digital services and implementation of the reverse charge (“RC”) mechanism on all Business-to-Business (“B2B”) supplies of imported services.
Introduction of GST on Imported Services
To recap, GST on imported services was introduced in the Budget 2018, to take effect from 1 January 2020. The policy rationale is to eliminate any unfair tax advantage enjoyed by overseas suppliers of services with respect to supplies of services consumed in Singapore.
Before the change, the importation of such services is not subject to GST in Singapore, notwithstanding that the same services would be subject to GST at the standard rate of 7% if supplied by a GST-registered person.
GST on imported services is administered under the following regimes:
- Reverse charge for B2B supplies of imported services; and
- Overseas vendor registration (“OVR”) for B2C supplies of imported digital services.
B2C or Business-to-Consumer supplies refer to supplies made to non-GST registered persons, which include individuals and businesses that are not registered for GST.
On the other hand, B2B or Business-to-Business supplies refer to supplies made to GST-registered persons, including companies, partnerships and sole-proprietors.
What is Reverse Charge and How Does it Work?
The RC regime would apply to the following businesses (collectively known as “RC Businesses”) if:
- It is a GST registered and is not entitled to full input tax credit;
- belongs to a GST group that is not entitled to full input tax credit;
- is GST registered in Singapore and elect to apply RC; or
- is not GST-registered but will not be entitled to full input tax credit even if it had registered for GST.
Under the RC mechanism, an RC Business must account for GST on the value of imported services as if it is the supplier with effect from 1 January 2020. The RC business can claim the GST accounted for on its imported services as its input tax.
RC businesses would be liable for GST registration by virtue of the reverse charge rules if the following conditions are satisfied:
- Its imported services which are within the scope of reverse charge exceed S$1 million in a 12-month period; and
- It would not be entitled to full input tax credit if it was GST registered.
Scope of Imported Services that Fall within Reverse Charge
RC businesses must account for GST on all imported services except:
- exempt supplies; such as financial services
- services that qualify for zero-rating (GST at 0%) had the services been made to them by a taxable person belonging in Singapore;
- non-taxable government services provided by the government of a jurisdiction outside Singapore; and
- services that are directly attributable to taxable supplies (this exclusion is only applicable to RC Businesses that are not prescribed a fixed input tax recovery rate or on special input tax recovery formula to be applied on all input tax claims).
How About Overseas Vendor Registration?
Under the OVR, overseas suppliers of digital services and electronic marketplace operators which make significant sales of digital services to local consumers are required to register for GST. OVR applies to overseas vendors belonging outside Singapore who:
- have an annual global turnover exceeding $1 million; and
- make B2C supplies of digital services to customers in Singapore exceeding $100,000.
Once registered for GST, the overseas vendor has to charge and account for GST on B2C supplies of digital services made to customers in Singapore.
Examples of digital services include video and music streaming services, apps, software, online subscription fees.
Expansion of Scope of GST in the Budget 2021
In this year’s budget, the GST scope has been further widened to keep a fair and resilient tax system in a growing e-commerce environment.
Under current rules, the 7% standard GST rate applies where the value of goods imported into Singapore exceeds S$400. GST payable is computed based on the CIF value (cost, insurance and freight) of the goods plus all duties payable. There is a relief on low value imports where no import GST is payable to the Singapore Customs for non-dutiable goods with CIF valued not more than S$400 (referred to as “importation of low-value goods”).
With effect from 1 January 2023, the importation of low-value goods via air or post will be subject to GST via the OVR and RC regimes.
Meanwhile, the importation of B2C non-digital services (i.e. services supplied remotely, over the internet or other electronic means that require human intervention such us educational learning, fitness training, counselling, telemedicine, etc.) will also be subject to GST via the OVR regime with effect from 1 January 2023.
With the changes, the following table summarizes the GST treatment on imported goods and services:
With the above changes, all purchases of goods and services from an overseas vendor will be subject to GST.
From a fiscal standpoint, this is a revenue generator for the country.
From a business standpoint, these are welcome changes to local suppliers of goods and services as these address the competitive distortion brought about by overseas suppliers of goods and services.
On the other hand, from the perspective of the consumer, these changes mean increase in cost by at least 7% when the new policy takes effect.
As the new changes take into effect only from 1 January 2023, these gives affected businesses (and consumers) time to plan their purchases and review their procurement processes and controls.
It is worth noting that RC businesses will have a liability to register for GST if their imported purchases exceed S$1,000,000. With the scope of RC widened to include importation of low value goods, RC businesses should monitor if their RC purchases breach the threshold. Non-GST registered businesses may also consider registering for GST to recover the input tax passed to them by the overseas vendors. And likewise, businesses should consider the additional costs that comes with GST registration and on-going compliance.
We welcome any discussion on how we can assist the Company to adopt to the changes in GST policy. We will also be pleased to review the Company’s processes and controls to ensure that the Company’s compliance readiness with the new rules.
If you need further assistance or advisory on specific accounting related issues, please reach out to our Tax Advisory professionals at CCS here for a further discussion.