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.

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