Zero percent GST rate? A Company know-how

Zero Percent GST Rate? A Company Know-How

Goods and Services Tax (GST) was introduced in Singapore in 1994 and is modelled after the UK VAT law and the New Zealand GST law.

The Singapore government representative that administers, assesses, collects, and enforces the payment of GST is the Inland Revenue Authority of Singapore (IRAS).  GST is charged on taxable supplies that are supplies of goods or services manufactured in Singapore.

Taxable shipping is either standard shipping (7%) or tax-exempt shipping. The government introduced various changes to amend the law in January 2020. This is one of the changes related to 0% GST.

What goods and services are not subject to GST? 

The following goods and services are not subject to the obligation to charge GST at the rate of 7%.

  • GST is charged at 0% for the provision of international services. 
  • GST is also calculated at 0% (zero rates) on the export of goods. Shipments with no tax rate are considered taxable shipments, but GST is charged at 0% instead of 7%.
  • Exempt supplies are not subject to this tax. GST does not apply to exempt supplies categorized in broad into:

  1.  Provision of financial services
  2.  Sales and rental of residential real estate
  3.  DIGITAL PAYMENT TOKEN DELIVERY (Beginning January 1, 2020)
  4.  Local procurement and import of precious metals for investment (IPM)

Please note that all services that are considered international services are rated zero. However, you must comply with the provisions of Section 21(3) of the GST Act. We may also need to verify the customer’s affiliation status (if the customer is an overseas local or foreign company).

For the most accurate information, please refer to the official GST guide on exports.

International services

If a company provides services that fall within the provisions of Section 21(3) of the GST Act, those services are considered international services. They are therefore tax-free (GST is charged at 0%).

However, not all services provided to foreign customers are tax exempt.

 There are many types of international services:

  • Advertising services
  • Colocation service
  • International transportation
  • Leasing or renting transportation;
  • Services provided entirely offshore
  • Services related to exporting goods and moving them out of Singapore
  • Services related to overseas land, buildings, and goods 
  • Services for foreigners
  • Shipping related to ships or aircraft
  • Electronic system-related services
  • Servicing goods stored in dedicated warehouses
  • Shipping related to air and sea containers
  • Telecommunications services
  • Trust services

Customer affiliation status

  Various laws and regulations require us to determine your customer’s affiliation status. In other words, you should determine if your customer belongs to a country other than Singapore before rating your service as zero.

Please note that a customer can be either an individual or a business entity.

From 1st of January, 2020, zero taxation of services under these provisions will be extended to services that directly benefit her GST registrants in Singapore. This applies provided all other conditions specified in the rule are met.

Customer as an individual

A customer shall be deemed as a person (belonging) in Singapore its usual place of residence is in Singapore during the period of service. For GST purposes, an individual need only have one regular place of residence at a time. A place of residence is:

  • The person is self-motivated and purposeful
  • The person’s stay has some degree of continuity and is a normal part of life, except for temporary or occasional absences.

Exporting of goods

0% GST can be charged on the supply of guaranteed goods that at the point of supply (based on the time of supply of the export goods):

  1. The goods offered must be exported or have been exported
  2. Does the company have the necessary documents to support the rating?

Delivery of exports for the purposes of zero-rating must occur prior to invoice and payment.

Direct and indirect exports

For direct exports, the business the exported goods and also controls the export regulations. Direct exports may be tax exempt if the required tax exemption documents are kept within 60 days.

Indirect exports, on the other hand, occur when a company does not have the right to store the exported goods and does not control the export contract. In this case, the sale will be treated as local delivery and he will be charged GST accordingly.

However, there are exceptions for indirect exports. The supply of goods may be exempted if, at the time of delivery, the company is confident that all goods will be exported and the necessary documentation proving the exemption is available within 60 days.

Exported goods’ 60 days rule

Direct exports can be rated zero if the documents required for a zero rating are kept within 60 days. 

On the other hand, indirect exports occur when a company does not have a lien on the exported goods and when there is no control over the export agreements. In this case, the sale will be considered a local supply and GST will be calculated accordingly.

However, there are exceptions to indirect exports. A supply of zero goods can be assessed if the business is certain, at the time of supply, that all goods will be exported and the documents necessary to support a zero rating can be kept within 60 days.

Zero-rate support documents

In order for a company to have a zero-rate on its exports, it is necessary to keep relevant export proof.

Required to keep all transaction and shipping documents:

Transaction documents

  • Delivery note or packing list confirmed by the freight forwarder or handling agent
  • Payment vouchers
  • Insurance documents
  • Purchase order
  • Sales invoices for customers
  • Customer’s written instructions for delivery of the goods

Transport documents

  • For goods exported by sea or by air, you must submit a bill of lading / air waybill / cargo declaration / companion’s receipt or an additional export certificate / shipping note issued by the freight forwarder / handling agent.
  • For goods exported by road, you must present an export license or an additional export shipping document issued by the freight forwarder / loading agent.

Exempt supplies

GST exempt supplies are:

  • Providing financial services
  • Digital Payment Token Offering (effective January 1, 2020)
  • Sale and rental of residential real estate
  • Domestic supply and import of investment precious metals (IPM)

Financial services

Here are some examples of financial services that are exempt from GST: 

  • The bank charges a fee for the operation of the bank account
  • Currency exchange
  • Issuance/sale of stocks or bonds
  • Providing a derivative product that does not result in the supply of goods or services
  • Loans
  • Offered life insurance policy by an insurance company

Providing financial services to non-financial institutions

A deposit in a bank is considered a loan granted by the bank (by the user). Interest income received from a bank must be reported as an exempt supply in box 3 of the GST return.

It is also necessary to report any foreign exchange gain or loss that may arise when a customer pays in a foreign currency and the business converts it to Singapore dollars.

Fees from arranging or advising on financial transactions

Any type of advice on arranging, brokering or underwriting financial activities is not exempt from GST. GST applies to these fees when services are provided to local customers.

However, when these services are provided to foreign customers, they may be subject to a zero rating.

Digital payment token

A digital payment token is any digital representation of cryptographically secured value that meets certain criteria. With the growing popularity of digital payment tokens, it becomes necessary to update the GST processing for these tokens.

Therefore, as of January 1, 2020, the following digital payment token supplies are exempt from GST:

  • Exchange digital payment tokens for fiat currency or other digital payment tokens
  • Offer digital payment token loans

Sale and rental of residential properties

GST does not apply in the case of sale and rental of residential real estate. Residential real estate is vacant residential land and residential buildings, apartments or tall buildings. In this case, residential land means vacant land planned for residential use and vacant land or built-up land issued by a government or public authority and approved exclusively for condominium or residential development.

Furnished residential properties sale

It is necessary to calculate GST on the supply of furniture and interior accessories. However, appliances such as built-in cabinets and cabinets, kitchen and sanitary ware, and wall-mounted air conditioners attached to residential property are exempt from GST on that property

Service fee for sale/lease transaction of residential real estate

The GST exemption does not extend to placement, brokerage or consulting services relating to the sale/lease of residential real estate. These fees are subject to GST.

IPM – investment precious metals

GST does not apply when a company imports and supplies IPMs such as gold, silver and platinum. The objective is to facilitate the development of the gold refining and trading cluster in Singapore.

Conclusion

If you are still not clear on the key concepts of Singapore’s Goods and Services Tax (GST), read this guide again. If you are considering starting a business, you need to know all the important things about taxes. GST is, without a doubt, a big part of that.

Note that the Singapore Internal Revenue Service has industry-specific GST guidelines. Therefore, do not allow yourself to omit information on this matter. If you need any assistance or other help regarding GST Singapore, please contact us.

How to Become a Singapore Company Director

Singapore Company Director

This article describes what it means to be a company director in Singapore. Who are you eligible for, your responsibilities and duties, how are you appointed and how can you leave the company?

What does the director of the company do? 

 

The director is responsible for running the company’s affairs and directing the company’s management on important matters. Directors can be employees of the company, but not necessarily. The director has several key obligations to the company – we’ll present them below. If you are a director, you act for the company, and the corporation is bound by your actions.

How many directors do you need?

Singapore requires at least one local director. This may be a Singapore citizen or permanent resident, or after company registration the, individual may be sponsored to work as a local director with an employment pass. Many foreign companies that wish to establish a presence in Singapore but do not have a resident choose a nominee director who acts as a local director but will not intervene or act as a local director.

Singapore Company Director Qualifications

To become a director in Singapore, you must:

  •  Over 18 years of age 
  •  A natural person (i.e. a legal person or business company that cannot be a director)
  •  A person with right mind
  •  if  the constitution requires a specific share qualification and the person is not  qualified, must obtain his qualification within 2 months of his appointment or within a shorter time fixed by the constitution

 You cannot be a director if you are:

  •  An incapacitated director of another company
  •  An unresolved bankruptcy case
  •  Involves offenses such as dishonesty or fraud in Singapore / elsewhere, where a prison term of at least 3 months is possible.
  • The director of a company dissolved for profit or for national security.
  • Any person convicted under Section XII of the Securities and Futures Act (Cap. 289) if the conviction occurred on or after July 1, 2015;
  • A person has been subject to a civil penalty under Section 232 of the Securities and Futures Act on or after July 1, 2015; •
  • A person has been disqualified in addition to any other applicable sanction;

Foreign/Non-local Director

As long as you have at least one resident director locally, you can have a foreigner/foreigner as another company director. Currently, dependent pass holders are allowed to register as directors of a company from the time of incorporation. However, work will not proceed until the Letter of Consent (LOC) has been approved by the MOM.

Your duties and responsibilities as a Singapore Company Director

To avoid conflicts of interest

Directors must separate their interests from those of the company. This means that he or she must declare whether he or she is involved in the company`s proposed transaction. This includes statements such as whether the subcontractor is a family member of the director, whether the company is in partnership with another company in which the director has a minor interest, etc.

To act in good faith on behalf of the Company

Directors are expected to be honest in their dealings, and no other person’s or personal interests should be involved in their decision-making process regarding this company.

 You must also ensure compliance with the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) and its Tripartite Guidelines on Fair Employment Practices. It will take effect soon. This policy encourages employers to hire and select employees based on ability, regardless of race, age, gender, religion, marital status, family responsibilities, or disability.

Act with due diligence, skill and conscience

Directors must exercise reasonable care, skill, and diligence in the management of the company in performing their duties. Often the real skills and experience that her director has are used as a yardstick to determine the standards expected of him/her.

To use my powers for the right purpose

Directors must not abuse their authority or information about the company. The powers of directors must be directed to the interests of the company. A common example of abuse of power is the issuance of stocks, usual to raising funds. Directors abuse their powers when issuing shares to dilute members’ interests or maintain control of the board.

 Companies Act Compliance 

 As the director of the company, all directors are also responsible for complying with the legal requirements of Companies Act. These include:

  • Hold general meetings and submit annual reports
  • Maintains registers required by law, such as directors’ registers, membership registers, and price lists, and notifies ACRA of any changes, and
  • Maintaining a locally registered business address

 Company directors typically work with the company secretary to ensure that the director understands and complies with all filing requirements. Directors who do not meet these requirements will also be fined.

How do you become a director?

You typically become a director when the company is incorporated or after the company is incorporated. The company secretary prepares a director approval letter, which you sign (and other directors in the company sign a board resolution approving your appointment). It is then submitted to ACRA. The company secretary will then update the company register with your details.

Resignation of a director

To resign as a director, you must first ensure that you have another resident director to fulfil your obligations under the Companies Act.

 If all is well, the next step is to notify the company secretary. The company secretary prepares a letter of resignation and a resolution for all other directors to sign and submit changes to her ACRA. After this change is submitted, the company secretary will update the required registration.

Next steps

If you need help meeting the legal requirements to become a resident director, we offer our Singapore Nominee Director Service. Are you also planning to hire a corporate secretary? We would be happy to assist you. Feel free to Contact Us for more information.