One aspect of the recent changes to the goods and services tax (GST) system in Singapore is to achieve a certain level of parity in the treatment of the GST for goods and services consumed in Singapore, regardless of where goods and services are purchased.
It’s about creating a level playing field between foreign suppliers and local GST-registered businesses amid the boom in e-commerce and the growing trend for businesses to digitize to provide services remotely. It is also in line with the OECD recommendations in BEPS Action 1 which identified the collection of VAT / GST on business-to-consumer (B2C) online sales as a way to address the fiscal challenges of the economy. digital.
As of January 1, 2020, the scope of the GST in Singapore has been broadened to apply to business-to-business (B2B) supplies of services imported through a reverse charge mechanism and to B2C supplies of digital services imported to Canada. means of a foreign supplier registration. (OVR).
Under the OVR regime, digital service providers that are owned outside of Singapore must be registered with GST in Singapore and account for GST on the supply of digital services to non-GST registered customers in Singapore if the following conditions are met:
- The worldwide turnover and value of digital services provided to non-GST-registered customers in Singapore during a calendar year exceeds S $ 1 million (approximately US $ 754,197) and S $ 100,000, respectively; or
- If at any time there are reasonable grounds to believe that worldwide sales and supplies made to non-GST registered customers in Singapore will exceed S $ 1 million and S $ 100,000, respectively.
Digital services are defined as any service provided over the Internet or other electronic network and the nature of which makes its provision essentially automated with minimal or no human intervention, and impossible without the use of information technology. Examples of digital services include:
- Provision of digital downloadable content (eg mobile applications, e-books and movies);
- Subscription media (eg news, magazines, streaming of TV shows and music);
- Software programs (eg, software, drivers and website filters), electronic data management services (eg, website hosting and cloud storage); and
- Support services provided by electronic means to organize or facilitate transactions, which may not be of a digital nature (for example, service or reservation fees charged to suppliers or customers).
Effective January 1, 2023, the OVR regime will be expanded to include remote non-digital services in addition to digital services (collectively referred to as “remote services”) under the current OVR regime.
Remote services are services for which, at the time of performance of the service, there is no necessary connection between the physical location of the recipient and the physical place of performance.
With the expanded scope, a provider of remote non-digital services such as professional services (e.g. legal and advisory services, brokerage services), educational, professional and examination services (e.g. distance learning courses, professional association membership) and personal services (e.g. online counseling, matchmaking), must also account for GST on services provided to clients in Singapore, if it is to be registered with the TPS in Singapore under OVR.
Reverse charge mechanism
As of January 1, 2020, a GST registered business that is subject to reverse charge (CR business) is required to account for GST on all services (except for certain services that are specifically excluded from the scope of application). reverse charge) that it purchases abroad. Suppliers.
A VC business is either a partially GST exempt business that is not eligible for the full input tax credit, or a GST registered charity or volunteer welfare organization that receives non-commercial receipts. .
Low value goods
Currently, low value imported goods are exempt from GST. Low value goods are goods that:
- Are not dutiable goods, or are dutiable goods that have received GST relief on importation by Singapore Customs under section 32 of the Schedule to the Order on the GST (import exemption);
- Are not exempt from GST;
- Are located outside Singapore at the point of sale and must be delivered to Singapore by air or post (goods imported by sea or land are excluded from the exemption and GST applies at the point of importation of these merchandise); and
- Have a value not exceeding the S $ 400 GST import relief threshold.
The scope of the GST on supplies will be broadened to include low value goods imported into Singapore through the reverse charge mechanism and OVR regime as described below.
Effective January 1, 2023, a foreign supplier of low value goods by air or courier to customers in Singapore will be required to charge GST on low value goods sold to customers in Singapore if they are to be registered at the GST in Singapore. under the OVR regime.
Reverse charge mechanism
As of January 1, 2023, a VC company is required to account for GST on all low value goods purchased from local and foreign suppliers, electronic market operators and redistributors, whether registered or not. to the GST.
Pointers for foreign suppliers
Foreign suppliers of goods and services to Singapore customers may be required to register and charge GST under the OVR regime. Below are some tips that overseas suppliers should consider.
It is understood that the same GST registration threshold under the current OVR regime will remain for the expanded OVR regime from January 1, 2023. This means that a foreign supplier will have to take into account the total value of all low-value goods and services it provides to customers in Singapore to determine whether or not it is required to be GST registered in Singapore.
GST Compliance for Electronic Marketplace Operators and Other Intermediaries
It is common for suppliers to use digital platforms, such as electronic marketplaces offered by intermediaries, to market and sell their products. Under the OVR regime, local and foreign operators of electronic marketplaces can be considered as suppliers of low value goods and distance services provided in the marketplace, on behalf of foreign suppliers, when certain conditions are met.
Delivery people who help customers buy low value goods from overseas and ship them to Singapore or help customers ship low value goods to Singapore can also be considered as suppliers of low value goods supplied. by local and foreign suppliers and electronic market operations, when certain conditions are met.
When viewed as suppliers of low value goods or remote imported services, e-market operators and other intermediaries will be required to account for GST on behalf of foreign suppliers.
Determination of membership status
As previously stated, the OVR regime is only applicable for supplies of low value goods and remote services to non-GST registrants in Singapore. To determine whether their customers are from Singapore, foreign suppliers and local or foreign intermediaries can use certain proxies, such as the customer’s Internet Protocol (IP) address and credit card information.
Once a customer is determined to belong to Singapore, GST is charged by default on supplies made, unless the customer provides their GST registration number. Foreign suppliers and local or overseas intermediaries should ensure that the platform used to sell products to customers in Singapore can capture the information necessary to determine the membership status and GST registration status of customers.
The proposed changes to the GST regime that are due to take effect on January 1, 2023 were announced in Singapore’s budget for 2021, with public consultation on the details of the implementation ending on March 19, 2021.
Details of the implementation are still being finalized (at the time of writing) by Singapore’s Inland Revenue Authority, and overseas suppliers of goods and services to Singapore customers are expected to closely monitor the details of the Implementation.
Senior Partner, Crowe
Liew Kin Meng
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