Goods and Services Tax (GST)
Goods and services tax (GST) is a tax on domestic consumption. GST is a broad-based consumption tax levied on the import of goods (collected by Singapore Customs), as well as nearly all supplies of goods and services in Singapore. In other countries, GST is known as the Value-Added Tax or VAT.
It is a multi-stage tax which is collected at every stage of the production and distribution chain. The GST rate was increased to 4% in 2003 and to 5% in 2004. As announced in Budget 2007, the GST rate was raised to 7% on 1 July 2007.
“Output tax” is the GST a registered trader charges on his local supplies of goods and services. The tax is collected by him on behalf of the Comptroller of GST. “Input tax” is the GST that the trader has paid on purchases of goods and services for the purpose of his business. The input tax is deductible from output tax to arrive at the GST payable by the trader, or amount to be refunded to him. So, the difference between output tax and input tax is the net GST payable to or refundable from Inland Revenue Authority of Singapore (IRAS). At the end of each accounting period a GST return (output tax and input tax) must be submitted to IRAS.
The GST standard rate of 7% is levied on:
a) goods and services supplied in Singapore by any taxable person in the course or furtherance of a business; and
b) goods imported into Singapore by any individual.
A supply is either taxable or exempt. A taxable supply is one that is standard-rated or zero-rated. Only a standard-rated supply is liable to GST at 7%. Zero-rating a supply means applying GST at 0% for the transaction. A GST registered trader need not charge GST on his zero-rated supplies, but he is nevertheless allowed a refund of the tax he has paid on his inputs. Only for the Export of Goods and International Services GST is rated zero.
If a supply is exempt from GST, no tax is chargeable on it. A GST registered trader does not charge his customer any GST on his exempt supplies. At the same time, he is not entitled to claim input tax credits for any GST paid on goods and services supplied to him for the purpose of his business. The “sale and lease of residential properties” and “financial services” are exempt from GST in Singapore.
Before registering for GST
- The company/business must already be registered with ACRA
- The company/business already has a Business Bank Account
- Business activities can be clearly defined along with the expected revenue for the next 12 months
- Documents which may be required depending on whether the company has started sales
- For companies with compulsory registration, past sales need to already have exceeded $1 million.
Businesses Required to Register for GST
When it comes to doing business in Singapore, a company will be required to register for GST on a compulsory basis provided the company fulfils these requirements:
- Your taxable turnover exceeds $1 million per year; or
- You are making or intend to make taxable supplies and you can reasonably expect your taxable turnover in the next year to be more than $1 million (e.g signing a business agreement)
- You may choose to register for GST voluntarily if your business does not exceed $1 million in taxable turnover.
Exemptions to GST
- sales and leases of residential properties
- the provision of most financial services
- Sale of goods delivered from overseas to overseas outside the scope of the GST Act
Inland Revenue Authority of Singapore (IRAS) infographic on Output and Input Tax:
Under the law, a person who makes payment(s) of a specified nature e.g. royalty, interest, technical service fee, etc. to a non-resident company or individual is required to withhold a percentage of that payment and pay the amount withheld called ‘Withholding Tax’ to IRAS.
Withholding tax does not apply to Singapore resident individuals and Singapore resident companies. Singapore withholding tax is applicable to the certain types of payments to non-resident individuals and companies. In general, withholding tax is the tax charged to a non-resident company or individual that derives income from a Singapore source for services provided or work done in Singapore.
When a Singapore company or individual pays a non-resident for services, a percentage of that payment must be withheld and handed over to the Inland Revenue Authority of Singapore (IRAS), hence the term withholding tax.
Some of the factors that determine the applicability of Singapore withholding tax:
Applicable only on income sourced in Singapore.
Applicable only if the non-resident works or carries out any services in Singapore.
Applicable to payments made only to non-residents, this includes: individuals, companies, professionals, overseas agents etc.
Only specific payment types (outlined in the Singapore Income Tax Act) are subject to withholding tax.
Withholding Tax for Non-Resident Companies
There are several types of payments that attract withholding tax for non-resident companies, it includes:
Interest, commission, fee in connection with any loan or indebtedness
Withholding tax applies to any interest in connection with any loan, indebtedness or any arrangement or service related to any loan or indebtedness. For example, interest on overdue trade accounts and interest on credit terms paid to a non-resident supplier. Payment of withholding tax is also required for any fees as a result of a commission or loan that is paid to a non-resident. Withholding tax rate for such payments is 15%. This tax applies even if the interest is treated as part of the seller’s trade income.
Royalty or other payments for the use of or the right to use any movable property
Royalties paid to a non-resident company is subject to withholding tax, either a certain percentage or at the prevailing corporate tax rate. Payments for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information. Withholding tax rate for this type of payment is 10%.
Under certain conditions, in view of the availability of Double Taxation Agreements and whether or not a foreign company has a permanent establishment in Singapore, withholding tax may apply for payments due to foreign entities that provide management services. Withholding tax rate for such payment is the prevailing corporate tax rate.
Singapore withholding tax may have to be charged for hiring a non-resident company to provide services such as installing equipment, technical support, training, consultancy and other work that takes place in Singapore. Payment of withholding tax is only applicable for services rendered physically in Singapore. If services are provided remotely, such as via the Internet, then you do not have to withhold payment for tax purposes as it is considered outside Singapore. Where withholding tax is applicable, the tax rate is the prevailing corporate tax rate.
Rent or other payments made to non-resident persons for the use of movable property such as cars, hand phones, laptops and other similar items where such use is incidental to overseas business trips (including overseas trade fairs or exhibitions), are subject to withholding tax under Section 12(7)(d) of the Income Tax Act. As such, withholding tax is not applicable. The rent paid to a non-resident company that leases movable property in Singapore is subject to withholding tax. Withholding tax rate for this type of payment is 15%.
Withholding Tax for Non-Resident Professionals
A non-resident professional is a foreign professional who is present in Singapore for a time of under 183 days in a calendar year. Non-resident professionals are individuals practicing any profession (i.e. people other than employees) of an independent nature under an agreement for service and includes:
- Consultants, Trainers, Coaches, etc.
- Public entertainers e.g. artistes, musicians, sportsmen, etc.
- Foreign speakers or academics conducting seminars or workshops in Singapore
- Foreign professionals, experts and specialists invited by government bodies, statutory boards or private organisations to provide technical expertise in Singapore
- Queen’s Counsels
Non-resident professionals are subject to withholding tax for any type of service, consultancy or other work provided for a fee within Singapore. Income is defined as all wages, expenses and fees that are paid to the individual. The general withholding tax rate for payments to non-resident individuals is a flat 15% of gross income except the following cases:
- Payment to non-resident company directors is subject to withholding tax rate of 22%. It applies to all forms of income, be it salary, bonus, director’s fees, accommodation, gains from stocks and shares and other payments.
- Withholding tax rate is reduced from 15% to 10% if the income for the services performed in Singapore is due and payable to the non-resident public entertainer during the period from 22 Feb 2010 to 31 Mar 2020.
Avoidance of Double Taxation
Singapore has signed avoidance of double taxation agreements (DTA) with many countries in order to prevent companies and individuals being taxed by both jurisdictions. If a company operates out of a country that has a tax treaty with Singapore, the DTA may provide a lower withholding tax rate and relief from double taxation, depending on the particular service provided and the provisions of the DTA. You may refer to the list of Singapore Double Taxation Agreements.
E-File Withholding Tax
With effect from 1 July 2016, the withholding tax form can only be filed electronically via the online tax portal for withholding tax payment to IRAS. Withholding tax must be e-filed and paid to the IRAS by the payer on the 15th of the second month from the date on which payment is made to the non-resident. For example, if the tax amount is withheld by the payer in the month of July, the deadline to pay the tax to IRAS will be the 15th of September. To comply with the deadline, it is essential to understand the notion of “date of payment”.
To determine the exact date of payment, the payer should consider the earliest of the following:
When the payment is due and payable based on the agreement or contract, or the date of the invoice in the absence of any agreement or contract (credit terms should not be taken into consideration).
The date of actual payment
When payment is credited to the account of the Non-Resident or any other account(s) designated by the Non-Resident
Director’s Fees: The date of payment for director’s fees is the earliest of the payment date or the date the payment was voted and approved (Example: at the Company’s Annual General Meeting).