Reverse Charge and Overseas Vendor Registration Regimes – new Goods and Services Tax rules in 2020 that companies need to be aware of
Goods and Services Tax (“GST”) on imported services
With effect from 1 January 2020, GST will be applied to tax imported services via the following regimes:
- Reverse Charge regime for Business-to-Business (“B2B”) supplies of imported services; and
- Overseas Vendor Registration regime for Business-to-Consumer (“B2C”) supplies of imported digital services.
Reverse Charge (“RC”) regime
RC and affected businesses
The RC regime would affect you if:
- You are GST-registered and are not entitled to full input tax credit;
- You belong to a GST group that is not entitled to full input tax credit;
- You are GST-registered in Singapore and elect to apply RC; or
- You are not GST-registered but will not be entitled to full input tax credit even if you were GST-registered.
Businesses that make exempt supplies (e.g. developers of residential properties) or carry out non-business activities (e.g. charities) will not be entitled to full input tax credit (if they are GST-registered in Singapore). Such businesses (GST-registered or not) will be affected by the RC regime (referred to as “RC Businesses”).
Examples of common RC Businesses include:
- Taxable businesses that make substantial exempt supplies such as interest from inter-company loans;
- Partially exempt businesses such as developers of mixed-use properties, banks and other financial institutions;
- Fully taxable businesses that do not make any exempt supplies but are GST group registered with partially exempt members;
- Charities and voluntary welfare organisations that receive outright grants, donations and sponsorships and provide free / subsidised services; or
- Investment-holding companies that derive dividend income.
RC – Accounting for GST on imported services for GST-registered businesses
With effect from 1 January 2020, GST-registered RC Businesses will be required to:
- Account for GST on all services procured from overseas suppliers (i.e. imported services) as if it is the supplier, except for certain services which are excluded from RC; and
- Claim the corresponding GST as input tax at the same time, subject to the normal input tax recovery rules. As RC Businesses makes exempt supplies or carries on non-business activities, a part of the GST would be irrecoverable (i.e. input tax will not be fully claimable).
In 2020, GST-registered ABC Pte Ltd (an RC business) procures professional services amounting to S$1,000 from an overseas supplier without any Singapore GST charged. Under the RC regime, ABC Pte Ltd is required to account for GST on the professional services at the prevailing Singapore GST rate as if it is the supplier. Concurrently, ABC Pte Ltd will be entitled to recover the GST accounted for if it satisfies the general input tax conditions.
In the GST F5 return:
|Standard rated supplies:
|Accounted output tax:
|S$70 [S$1,000 X 7% (i.e. the prevailing Singapore GST rate)]
|Input tax claimable:
|S$56 [S$70 X 80% (assuming ABC Pte Ltd has an input tax recovery rate of 80%)]
Before 1 January 2020, GST-registered RC Businesses were not required to track their imported services for GST purposes. With effect from 1 January 2020, GST-registered RC Businesses will need to make changes to their accounting systems and / or business processes to identify, capture and report imported services in their GST returns. The failure to comply may result in the imposition of penalties.
RC – GST registration requirements for non-GST registered RC businesses
With effect from 1 January 2020, if the total value of your imported services exceeds S$1 million in a 12-month period (under either the retrospective or prospective basis), you will become liable for GST-registration in Singapore.
Once registered for GST, you will be required to account for GST on both your taxable supplies and your imported services which are subject to RC.
Scope of imported services that fall within the scope of RC
RC Businesses must account for GST on all imported services other than:
- Services that fall within the description of exempt supplies under the Fourth Schedule to the GST Act;
- Services that qualify for zero-rating under section 21(3) of the GST Act had the services been made to them by a taxable person belonging in Singapore;
- Services provided by the government of a jurisdiction outside Singapore, if the services are of a nature that fall within the description of non-taxable government supplies under the Schedule to the GST (Non-Taxable Government Supplies) Order of the GST Act; 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).
- Legal and professional service fees incurred to comply with foreign regulations and / or to conduct due diligence pertaining to transferred or new loans;
- Purchase of market data, online data information, access to website, industry reports (e.g. bond pricing, credit rating) for bank’s operations; or
- Expenses incurred by an overseas representative office of a Singapore entity.
With effect from 1 January 2020, under the OVR regime, overseas digital services suppliers must register for GST in Singapore (if certain criteria are met) and charge GST to non-GST-registered customers in Singapore.
Overseas digital service suppliers must register for GST in Singapore and charge GST from 1 January 2020 if both the following criteria are met:
- The value of its annual global turnover exceeds S$1 million; and
- The value of its digital services supplied to non-GST registered customers in Singapore exceeds or is expected to exceed S$100,000 for a 12-month period (under either the retrospective or prospective basis).
Definition of digital services
Digital services are defined as services that are supplied over the internet or an electronic network that require minimal or no human intervention and are impossible without the use of information technology.
- Downloadable digital content such as mobile apps, e-books and movies;
- Subscription-based media such as news, magazines, streaming of TV shows and music and online gaming;
- Software programs such as photoshop tools, anti-virus software and office suites; or
- Electronic data management such as website hosting and cloud storage services.
Impact of OVR regime on GST-registered businesses in Singapore
GST-registered businesses who procure digital services from overseas suppliers whom are GST-registered in Singapore under the OVR regime are responsible for providing their GST registration numbers to overseas suppliers so that the overseas suppliers do not charge GST to such GST-registered businesses.
By default, overseas suppliers will treat their services as being supplied to non-GST registered customers.
For GST incorrectly charged on supplies to GST-registered customers, the GST-registered customers should seek a refund from the overseas suppliers instead of claiming the GST charged as input tax in the GST F5 returns.
Impact of OVR regime on GST-registered RC businesses in Singapore
The GST-registered RC business needs to take note of the following:
- Ensure that no GST is charged by the overseas suppliers on the imported digital services;
- If the imported digital services fall within the scope of imported services, the RC business must account for GST on the value of the imported digital services and will be entitled to recover the GST accounted for if it satisfies the general input tax conditions.
Assessment of whether the RC or OVR regime is applicable to your business
The rules surrounding the RC and OVR regimes are not straightforward. If you need further assistance to assess whether the RC or OVR regime is applicable to your business, please reach out to us for a discussion.
For further information on Singapore’s OVR regime that is relevant for overseas digital services suppliers, please refer to the following publication via this link.
This article is contributed by our taxation team. To understand more about how we can support your business and help you achieve your business objectives, contact us today.