How to lower Australia tax by incorporating a Singapore Company

We will show a couple of company structures an Australian can use that includes a Singapore company and that will save taxes.

Companies, jurisdictions, and tax – where is a company tax resident?

As a general rule, a company will be deemed to be resident in the country or territory where it is incorporated. In the old days, this was always the case. However, today most jurisdictions demand a certain presence to consider it a tax resident in that jurisdiction. This applies both ways, but it is especially high tax jurisdictions – typically the jurisdictions where the company owner resides – that refuses to accept structures where a company is set up in another jurisdiction whereas most or all activity does not take place in that said jurisdiction.

What type of substance or presence that is required is not always that easy to determine, but the thought behind this is to protect the tax base of the high taxed countries.

In practical terms, this is how you should think about it:

  • The default position is still that a Singapore company will be considered a tax resident in Singapore. So, if the Singapore company is owned by an Australian or an Australian company, the Australian tax authorities will have to actively make a decision for this company to be considered an Australian company for tax purposes.
  • It matters a lot where the owners and the customers are. The typical situation is where you have Australian owners and Australian customers. If the owners then set up a Singapore company to serve those Australian customers, they need to have a very good reason to do so, except for paying fewer taxes. If, on the other hand, an Australian owner sets up a Singapore company to serve customers in Asia, it is much harder for the Australian tax authorities to deem that company tax resident in Australia.
  • The type of presence that is required will depend on the type of company. A holding company will need a lot less than a trading company.

Australian CFC-rules (Controlled Foreign Company)

In addition to the resident test, most OECD countries – Australian included – has what is called CFC-rules. In general, these rules state that under certain conditions the tax authorities can disregard a foreign entity completely for tax purposes. The effect of this is that the owner – a person or a company – is taxed directly. The terms vary a lot between countries, but Australia has one of the strictest CFC-rules in the world.

In Australia, the CFC-rules is designed to hit three types of company setups.

  • The offshore holding or investment company. A company that typically are designed to receive passive income from other companies or other sources – especially where this is not tied to ownership (dividends).
  • The “sales to Australia Company”. This is a type of company that sell goods or services to Australian residents or another company that has a presence in Australia.
  • The “service company”. This is the type of company that deliver services to a tangible company. This often raises the question of transfer pricing but under Australian law, this is part of the CFC rules.

Keep in mind that the rules apply to Australian taxpayers only. The rules are fairly complicated, with a lot of exceptions and adjustments. But, the above layout is the essence of these rules.

Basic Company Structures

These are some basic company structures that you will encounter:

The Singapore trading company

In this scenario, an Australian company or individual opens a company in Singapore. The simple setup is:

Australian company/individual 100% ⇨ Singapore company

As long as the Singapore company is an operative company, meaning that you sell goods or services from this company to customers, and the customers are not in Australia, there will not be any CFC problems.

In addition, the Singapore company would need to have some presence in Singapore. In Singapore, you need to have a local director and that will normally be sufficient together with an operative address. If this is the case the company will be deemed tax resident in Singapore.

The Singapore investment company

Opening a Singapore investment company as an Australian company/individual can trigger a CFC situation. Again, we are looking at a simple setup:

Australian company/individual 100% ⇨ Singapore company

Whether there will be a CFC situation depends on two factors.
i) How the income of the company is classified. If it is classified as a passive income, you will have a CFC situation.
ii) How many owners the company has. As long as the UBOs (Ultimate Beneficiary Owners) consists of more than five people, CFC rules do not apply.

The Singapore holding company

The same simple setup:

Australian company/individual 100% ⇨ Singapore company

A Singapore holding company will nearly always create a CFC situation. The reason here is that the company’s income will nearly always be deemed as passive.

In reality, the only way to get away from a CFC situation with a holding company is for the holding company to have more than five UBOs.

But, since Singapore is a section 404 country the CFC situation is not that bad. When a company in a 404 country pays or receives dividends this is not counted as an attributional income. This Basically means that the dividends as such will not be attributed to the Australian company/resident for tax purposes.

So, the effect here is that as long as the company only receives dividends, and not royalties, interests and other types of passive income this is a type of company that will not have any CFC problems.

As can be seen from the above, although the Australian CFC rules are pretty tight, the most common company structures for Australians doing business abroad will not really be affected. This is intentional. The target for the CFC rules is the type of income that is easy to move out of the Australian tax base, not stopping Australians to do business abroad.

As noted earlier a CFC situation will not occur if:

  • If the Australian tax resident owns less than 10% of the foreign entity
  • If the Australian tax resident owns less than 40% of the foreign entity provided that five or fewer Australian tax residents control 50% or more of the company.

Tax in Singapore and Australia

The corporate tax in Australia is 26% to 30% (full rate). In Singapore, the corporate tax rate is 17%, but there are some incentives that will bring the effective tax rate substantially lower (from 4,5%) especially for small and mid-sized companies.

Based on this alone it is obvious that Australian companies/residents will save a lot of tax by moving their offshore operations to a Singapore company instead of operating from Australia.

Company structures for Australians including Singapore companies

Scenario 1:

Scenario 2:

This is a typical structure where an Australian company uses a Singapore company to hold shares in other foreign companies. When receiving dividends that are foreign-sourced, both jurisdictions tax this, but Singapore has some exceptions.

The tax implications here will depend on a number of factors, but in general, it is favourable to use a Singapore holding company. You will need to make a specific assessment for each case.

Since Australia uses “franking” credits on dividends from local companies, it might in some cases be more favourable to use an Australian company if you want all dividends paid out to the UBO.

Conclusion

As we have seen it can be a very good idea for an Australian company/resident to make use of a Singapore company.

However, this only applies to business conducted outside of Australia.

For operational businesses, tax savings can be huge as taxes in Singapore is way lower than taxes in Australia. For holding companies it will in many cases be more favourable to use a Singapore holding company than to use an Australian one.

Possible Tax Structures between Singapore and UK

Disclaimer
This is purely regarded as academic information sharing. We hold absolutely no liability over any of the notes below, what you choose to do with this information, or any actions individuals or companies choose to make arising from these notes.

The analysis below represents our views as to the interpretation of existing legislation as at the date of this paper and, accordingly, no assurance can be given that the relevant tax authorities or the Courts will agree with this analysis. It should be noted that further tax legislation could be introduced, or the Courts could come to decisions, which may affect the body of case law and, in turn, affect the expected tax treatment of the current and future state, as described in this memo. We are not responsible for advising of any changes in guidance or interpretation subsequent to the date of this paper.

Your specific facts and circumstances and relevant intercompany relationships and corporate structures should be considered on an individual basis against the contemporary UK/Singapore tax rules prevailing at that time.

Introduction

Principally, Singapore has a lower corporation tax rate than the UK (17% vs 19%), with additional discounts for start-up companies, which makes the disparity for corporation tax even more significant. Singapore also has, on the whole, a more favourable business environment for where companies can do business. UK businesses and individuals can therefore leverage a Singapore entity to:

  • Protect the long term interests of their business; and
  • Potentially save tax.

The most straightforward way to utilise a Singapore entity within a Group is to transfer as much profit as possible to the Singapore entity. This will maximise profit in a lower tax jurisdiction.

Additionally, any decisions that maximise the underlying value of the Singapore entity may also be tax efficient, as Singapore has no capital gains tax, so if the business was to eventually be sold, the tax charge in Singapore would be lower than in the UK.

There are many ways to transfer profits from the UK entity to Singapore, with each method with its own benefits and drawbacks. I have listed a few of these out here:

Option 1 – Management fees from Singapore to UK

If there is any kind of employee or personnel substance, this is the most straightforward way of moving profits from the UK to Singapore. A management fee, sales fee, business support fee, administrative support fee or finance fee charge can be levied on the UK from Singapore, via an intercompany business agreement.
As a result of this charge, the Singapore entity could provide a fixed mark up on costs, profit share or target operating margin which is then set out within the intercompany service agreement. The Singapore entity would then be able to retain profits with the eventual outcome of profits being shifted from the UK entity to the Singapore entity, reducing the overall tax bill for the Group.

The benefit of this arrangement is that it is incredibly straightforward and simple to understand – in most cases the transaction will be VAT free (a similar transaction could take place with the ownership of actual goods being passed along, but if there are VAT charges this would make this scheme unviable).

Additionally, depending on the size of the business, it is quite difficult from HMRC to challenge the amount payable provided that it is in exchange for an actual service, which makes it a comparatively robust structure. As a general rule, the larger the size of the UK business, the larger the chance of an HMRC enquiry, so if the overall quantum of this transaction is generally small, it is unlikely that HMRC will take interest. Additionally, the transfer pricing rules do not generally apply to companies that are small or medium-sized enterprises in the relevant accounting period (but HMRC could still challenge these transactions on other grounds)

Where HMRC can challenge this transaction in on the basis of substance – if there are not underlying personnel carrying out the relevant services, then HMRC might challenge the legitimacy of this transaction. Therefore, as much substance as possible should be created in Singapore if possible. This could include:

  • Assets being owned in Singapore (cash / tangible and intangible assets);
  • Employees being hired in Singapore; and
  • Fixed place of business (such as an office – even if just a virtual office) being rented.

The use of this substance can then be leveraged to charge the UK entity as much as possible, with other options included as per Option 2 and 3 below.

Option 2 – Royalty fees from Singapore to UK

If there is any kind of intellectual property (IP) or other intangible asset that a UK company possesses, the company could then sell/transfer that IP to the Singapore entity. This gives the Singapore entity sufficient substance (i.e. if it holds the asset in Singapore) and a valuable asset which can be sub-licenced for use back to the UK entity. However, given that there is 8% withholding tax usually applied to royalties between the UK and Singapore, this may not be a viable option to save tax in the short term, but could be beneficial if the business is a group with a larger global presence beyond just the UK (as the royalty could be charged from Singapore to these countries instead).

There are rules around the transferring of intangible assets between companies, so it is important businesses consult with their advisors if they are unsure of the value of the asset the company is transferring.

The additional value of this option is that it inflates the value of the Singapore entity while deflating the value of the UK entity. As Singapore has a lower capital gains tax than the UK, ultimately any gains eventually crystallised if and when the company is sold, or when the underlying asset is sold, will incur a lower overall tax charge.

Provided that the asset can be transferred out of the UK relatively easily and with a low tax charge, this probably the most difficult item for HMRC to challenge, as the value of intangible assets and licence fees are highly difficult to value.

Option 3 – Loans from Singapore to UK

If the company has large amounts of capital to move around, it may be possible to set up a intercompany loan, with the Singapore entity lending capital to the UK entity, charging interest in the process. Any interest charged will move profits from the UK entity to the Singapore entity.

Unfortunately there is a 5% withholding tax on interest charged between the UK and Singapore, so the only viable way to save money on loans is via a third country, explained in the paragraph immediately below:

If an entity is set up in Singapore, then the Group has an option to operate cross-border transactions either from the UK or Singapore. It may be the case that the UK’s double tax treaty has an non-preferential withholding tax applied to interest, royalties, income, or other cross-border transactions. However, if the Group holds an entity in Singapore, then the relevant transaction could be carried through the Singapore entity instead. For example, where the UK and another country (country A) has a 10% withholding tax applied to interest earned from cross-border loans, but Singapore and country A has a 0% withholding tax applied to interest earned from cross-border loans, then the Group could set up a loan from Singapore to Country A and therefore avoid paying the withholding tax.

HMRC could challenge such an arrangement under ‘treaty shopping’ rules, so it is important to check your specific arrangements with your tax advisor.

Remarks on how to set up the Group company structure

From a UK perspective, there are a number of variables to consider when deciding on how to set up the Group structure. Options include:

  • Having one individual own both the UK and Singapore company
  • Have the UK company own the Singapore company, or vice versa
  • Set up a UK or Singapore holding company, which owns both the Singapore company and the UK company

It may depend on the long term plan of the business owner how best to structure the Group. If the company is to eventually sell the business, it might make more sense to set up a holding company in the UK or Singapore, which then owns the new Singapore entity. This allows parts of the business to be sold relatively easily and provides flexibility for then how to proceed.

Alternatively, the business owner could own the Singapore entity directly. This is where the business owner might want to keep the UK entity and Singapore entity separate.

If the company in the UK is a real estate investment company, a dividend withholding tax of 15%, so it would make sense for an individual to own the Singapore company (i.e. it can operate independently as a management / financial company, such that dividends back to the UK do not levy a 15% withholding tax charge)

Viability to save on personal taxes

Having an entity in Singapore provides flexibility and support for an individual’s tax residency. The individual could reside in Singapore, particularly if they anticipated a sudden increase in capital gains or income (i.e. a business was due to be sold) and they wanted to take advantage of significant short-term income and capital gain increases.
This would be subject to the ‘temporary non-resident’ rules in the UK so the business owner should act carefully and plan accordingly if planning to live temporarily abroad to utilise a lower tax rate.

Withdrawing funds from a Singapore entity to an individual in the UK

In short, it is preferable for a UK individual who is UK tax resident to withdraw income via dividends, rather than via salary. Principally, UK individuals are taxed at a lower rate on dividends than salary.

Moreover, dividends in the UK have an additional £2,000 minimum allowance that salary does not have, so UK individuals only start paying tax on dividends at £14,500. Therefore, the individual will suffer less UK tax on dividends than they do on income.

Additionally, there is a challenge of employing overseas individuals that causes challenges to the overall structure of the business. If a Singapore entity employees an individual in the UK (or most likely, any international country – the specific agreement will be explained in the relevant double tax treaty for Singapore and that entity) and that individual:

“is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise”

it will create what is known as a Permanent Establishment (PE) in the country where the individual resides. The outcome of this process is that any profit attributed to that individual is liable to corporation tax in the country where the PE exists. Given that clients who are potentially interested in setting up a Singapore entity will be entrepreneurs / high-value employees, there is an increased risk of their activities falling under the “authority to conclude contracts” as per the legislation above.

In summary – this means that the overall benefit of utilising Singapore in the structure is negated, because there is no corporation tax saving. Therefore any individual should generally only withdraw dividends from the company and not seek to be employed by that company.

Other remarks

It is important to clarify that UK individuals pay tax at the same rate for both foreign income and UK income. In effect, where a UK tax resident has UK income and Singapore income arising, both this income is generally taxed at the same rate. Therefore all tax savings from utilising the Singapore entity will arise at the corporate, rather than personal level. (i.e. all savings arise from the Singapore entity paying a lower rate of tax than a UK entity, where both entities would incur the same income).

Overview of Singapore Corporate Tax and GST

Singapore is famous for its food, being a garden city, and its attractive low corporate tax rates as well. Low crime rates, the avid culture, and cleanliness attract many expats. Singapore polices are pro-business which means that there’s little bureaucracy, and its easy to get a Company set up with little restrictions on hiring.

Tax is one of the main concerns for entrepreneurs and foreigners who are looking to start their business in Singapore and in this article, we will give a brief introduction to Singapore tax. We will be covering the
following topics:

  • Do all Singapore companies need to pay?
  • What’s the rate of Singapore Corporate tax rate
  • When do company need to file their tax return
  • Are there any income exempted from corporate tax
  • What is GST
  • Do my company need to pay GST
  • When do the company need to file GST returns

This article will give you an understanding of different aspects of the country’s taxation system, so read on to get an overview of Singapore corporate tax.

Do All Companies Need To Pay Corporate Tax?

The answer is not surprising, according to the Income Tax Act, all businesses are required to pay corporate tax on any chargeable income.
However, there are benefits for Singapore tax resident companies over non-tax resident ones.

What Is The Rate Of The Singapore Tax Rate?

For Singapore tax resident companies, the corporate tax rate is 17% however, there’s numerous schemes that reduce the effective tax rates to as low as 4% such as the tax exemption scheme for new start-up companies. You may be wondering how about companies that are no longer start-ups, for those companies, the partial tax exemption scheme still applies which reduce the effective tax rates to as low as 8%.

There’s sales tax in Singapore which is called Goods and Services Tax (GST) which is at 7%. It was introduced to increase the resilience of taxes. However, not all companies are required to charge GST.

When Do Companies Need To File Their Tax Return?

The general timeline for filing the corporate tax returns is independent from the company’s own financial year. The deadline for filing tax in hard copy form is 30th November. But, for e-filing, the due date is 15th December. The corporate income taxes are paid and assessed on the preceding year basis which means that in current year, the Company is filing taxes for their financial period that ends in the prior year.

While filing the tax return, a company has to provide a complete set of return documents, including Form C, audited/unaudited accounts, and tax computation records. Most companies may qualify to file a simplified tax return called Form CS as well.

Is There Any Income Exempted From Corporate Tax?

As mentioned earlier, Singapore resident companies enjoy fair benefits and tax exemptions are one of them. The exemptions are broadly available except for companies that have only corporate shareholders or more than 20 shareholders.

Start-Up Tax Exemption (SUTE) – for a newly incorporated company:

This exemption provides tax relief to new companies. For the initial 3 years of operation, the tax rates which will be effective are as follows:
• Rate for first S$100,000- 4.25% of normal chargeable income
• Rate for subsequent S$100,000- 8.5%

Partial Tax Exemptions (PTE) – for three years old and above company

A business that is more than three years old qualifies for tax relief rate. It is applicable only after the first three years of operation. The effective tax rates are as follows:

• The rate for first S$10,000 – 4.25% of normal chargeable income
• Rate for subsequent S$190,000- 8.5%

What Is GST?

GST stands for Goods and Services Tax. This broad-based consumption tax was introduced on 1st April, 1994, at a rate of 3%. Currently, the rate is at 7%. It is applicable in Singapore and is levied on the import of goods and also on supplies of goods and services within Singapore.

There are certain types of revenue that are exempted from charging GST, for example, leasing of residential properties or services provided to overseas customers are exempted from GST.

Do My Company Need To Charge and Pay GST?

Companies that have annual turnover more than $1 million is required to be GST-registered and collect GST. Companies that are GST registered are able to claim back GST incurred on the production of related GST supplies.

When Does The Company Need To File GST Returns?

After your company has become liable to collect and pay GST as per the previously mentioned protocol, you will then be required to file GST return every quarter. This applies to all companies and cannot be customized.

Therefore, the due date for GST returns is one month after each quarter ends.

Are there tax on dividends to shareholders by Singapore Resident Companies?

No, Singapore operates on a single tier tax system. As the profits of the Company has been taxed once at the Company’s level, when dividends are declared to shareholders. The dividends are not subjected to additional tax to avoid taxing the same source of income twice.

You might be wondering if a foreigner might be subjected to withholding tax on dividends from a Singapore company. The answer is that there’s no withholding tax imposed on dividends as well. Although some double tax agreements between Singapore and other countries have allowance for Singapore to impose withholding tax, the tax authority does not impose any.

Conclusion

We have provided a brief overview of the Singapore tax system and please feel free to contact us if you have any questions that we can assist you with.

Common Mistakes for GST Registered Companies

With the endless regulatory changes in GST filing and requirements, there’s always a need to update one’s knowledge. If you are filing your GST yourself instead of using a professional, it is important to watch out for these common mistakes made while you are filing GST.

Here, in this article, you are going to know about the most common mistakes when filing GST. Also, you are going to learn what is the right way by which you should treat various transactions. It will ensure that you do not face any problem.

What Are The Common Mistakes that GST registered Companies make?

Invalid Tax Invoices

Many people take tax invoices for granted. Once a Company becomes GST registered, they have to issue tax invoices with the appropriate information to their customers if their customer is GST registered. Many times, the Company might not know or be certain if their customers is GST registered, hence, you should always issue tax invoices when you are GST registered.

The invoice must always have the above pieces of information such as the words “TAX INVOICE”, the total amount excluding GST, the total amount payable including GST and the total GST collected. Also, if the Company is invoicing in a foreign currency, the Company have reflect the 3 amounts converted into Singapore dollars, total amount payable excluding GST, total amount payable including GST and total GST payable. Its also allowed to issue a simplified tax invoice for amounts below $1,000.

You may be wondering what if you are operating a B2C business for individuals like an F&B outlet. In that case, you may issue a receipt instead of a tax invoice. A receipt must have a sequential number and have the following information:

  • Date of issue of the receipt
  • Business Name and GST number
  • Total Amount charged
  • The words “Price payable includes GST”

It is common to miss out some of the details for changes in the invoices required when your company becomes GST registered.

Zero-Rated GST Charging

International services and exporting of goods are allowed to be zero rated. But what is considered international services? Is it services that is provided to an overseas customers or services that are performed overseas for a local customer? Exporting of goods may appear straightforward but what if you do not know if the goods will be exported? let’s look at what to take note for exporting of goods first.

Exporting of goods

If a Singapore Company sells to an overseas customer and the overseas customer requests for the goods to be delivered to their locally appointed freight forwarder. The Singapore Company is not allowed to charge zero rated GST on the supply. The reason is that the Singapore Company cannot be sure that the goods will be exported out of Singapore. It could be the case that the overseas customer re-sells to a local party and the goods is never exported. In order to zero rate this sale, the Singapore Company have to maintain the following export evidence:

A delivery note/ packing list endorsed by the local freight forwarder with the following details:

  • Statement stating “Goods delivered are for export”;
  • Name, address and GST registration number (if applicable) of overseas customer; and
  • Date of collection of goods.

The Company must also maintain the following transport evidence:

  • (a) For exports via sea/ air: – Bill of lading/air waybill
  • (b) For exports via land: – Export permit and the vehicle number.

International Services

It is important to know that not all services provided to overseas customers can be zero-rated. There’s an extensive list of services that can be zero-rated at the tax authority website but we want to highlight the most common mistake. Most services provided to overseas customers can be zero-rated when its performed totally overseas, so if the employee fly overseas to perform a equipment maintenance overseas, the sale can be zero rated.

However, there may be many services that are performed locally for overseas persons. For such services, it is important that they fulfill the two main criteria:

  • The services must be supplied under a contract with an overseas person; and
  • Which directly benefit an overseas person

So, if an overseas company contract you to provide equipment maintenance for its local subsidiary. The service cannot be zero rated as they will not fit the criteria of directly benefiting the overseas person. To qualify, it is also important that the overseas person must not be in Singapore at the time the services are performed. So, if an overseas customer decides to drop by your office and engages you for market research services, you are not allowed to zero rate the sales.

GST Treatment for Gifts and Sale of Business Assets

It is vital to ensure that you are following proper GST treatment for gifts and the sale of business assets while filing GST.

There are times when you give away some gifts to your customers or to your employees. You will need to account for the GST based on the usual sales price of the gifts if

  • The cost of the gift is more than $200 (exclusive of the GST amount); and
  • You had claimed input tax on the purchase or import of the gifts.

This means that you have to pay the GST which would have been collected on the free gifts to the tax authorities. A common practice is for business to send hampers for their customers during festive days. If the hampers costs more than $200, you will need to account for the output tax on the $200, unless you did not claim input GST on the hampers.

It is important to note that samples are not considered as gifts as long as the samples are given to an actual or potential customer and they come in a form not for public sale (for example, marked with words such as “Not for sale” or “Samples”).

The Disposal and Sale of Business Assets

There are scenarios at times where you dispose of or sell away the furniture, old equipment or computers that you do not want in your business anymore. It can be any business assets or even the office that your Company owns.

When a GST registered Company sells its assets, it is required to charge GST on the amount it receives on it. Even when the Company gives it away for free or donate it, the Company is required to account for the GST on the assets based on the market price of it.

Unless it’s a low value item that cost you less than $200 and you did not claim input tax on the asset before.

Summary

Filing GST properly may seem straightforward, just add up the GST on your purchases and net off against those on your sales, but as we can see, there are many situations when the Company is not allowed to charge GST and there are times when you have to account for GST even when the Company did not make any sales or receive any payment. Therefore, many companies still choose to entrust the filing to professionals like us.

Do talk to us if you have any questions about GST in Singapore. You can drop us a note at the Contact us form or if you want to leave the hassle of filing your GST to us by engaging us, do let us know.

Do My Company Need To Register For GST?

Are you establishing a new business in Singapore? Well, good luck! But, first things first, have you registered for GST? Yes, if the expected turnover of your company is more than S$1 million, you need to register for GST. As long as the Company is reasonably certain that its revenue is going to exceed $1 million, its compulsory for the Company to register for GST.

If the Company’s revenue exceeds $1 million and the Company did not register for GST, you can get into some real trouble. But, before this, you need to learn everything about GST and various things you need to keep in mind while registering for GST.

So, if you are a startup and still struggling to learn Singapore tax and regulations, this article might help you out. This article will let you understand all about GST, how you can register for it, and file it. Continue reading to find out.

What Is GST?

GST stands for Goods and Services Tax. It is a broad-based use tax levied on the import of goods along with all supplies of goods and services.

GST is also known as VAT (Value-Added Tax) in other countries.

Simply put, GST is a consumption tax on the end consumer and businesses are the collecting agents that help to pay the government each time they provide a service or product to an individual or enterprise within Singapore. The below diagram will explain why your company is only collecting the GST on behalf of the government.

If we take a look at the example, the Company collects $14 of GST from its customer and pays $7 of GST to its Supplier. For this transaction, the Company will need to pay the excess $7 GST collected to the tax authority, IRAS.

Nearly all the goods and services are GST-taxable. The few supplies or transactions that are exempted from GST are sale or lease of residential properties, almost all financial services, and investment of platinum, gold, or silver in Singapore.

What is the current GST rate for Goods and Services supplied in Singapore?

The current GST rate in Singapore is 7%. Unlike other countries, there’s no tiered or different GST rates for goods and services sold in Singapore.

Should You Register For GST?

As a business owner or manager, you can decide whether your business needs to be registered for GST even if your annual revenue is below SGD$1,000,000. The two types of GST registration are compulsory registration and voluntary registration.

Compulsory registration: You must register your company for GST if its taxable turnover for the past year is greater than SGD$1,000,000 or if it is expected to have a taxable turnover greater than SGD$1,000,000 for the upcoming year.

Voluntary registration: If your business has a taxable turnover of less than SGD$1,000,000, you can opt for voluntary GST registration. Businesses that choose to register their business with the GST voluntarily will be eligible for claiming input tax or GST incurred on business purchases and expenses.

Criteria for Registering GST

You can complete the GST registration process via the following steps:

1. Complete And Submit An Application For GST Registration With IRAS

Firstly, you need to fill a paper or online form on http://mytax.iras.gov.sg. If you are filling an offline application, you need to send it to the following address:

55 Newton Road, Revenue House, Singapore 307987

2. Receive The Notification Of The Effective Date Of Registration From IRAS

Once your application has been approved, you will receive a confirmation letter from IRAS confirming that your organization is not registered for GST. Also, the letter you will receive will have the following information:

  • The effective date of GST registration of the company
  • The GST registration of the company

How To File GST Returns?

Every GST-registered business needs to file GST tax returns and account for GST to the IRAS. Keep the following things in mind while filing GST returns:

  • You must file GST electronically on a quarterly basis.
  • The payment of the GST or its tax return is due one month from the end of the GST accounting period.
  • Even if your business has not undergone any GST transactions, you must still file a nil return.
  • Also, you need to report both input and output tax.

Output tax: It is the GST that businesses collect from their customers.

Input tax: This is a tax that businesses pay on imported goods or purchases from suppliers.

If your input tax is less than the output tax, your company must pay the net GST to IRAS. On the contrary, if the input tax is greater, then IRAS will give you a refund.

Generally, IRAS will give you the GST refund within 1 month of filling the F5 return. However, to receive the GST refund, you must meet the following criteria:

  • Your company must have filed all of its GST returns in a timely manner.
  • Your company should not have any pending taxes or other payments to pay to IRAS.
  • Your company should not be under an audit by IRAS.

If you submit the GST returns late, IRAS will impose a penalty of 5% for late payment. Also, you will also receive a demand note to make the pending payment. If your company still fails to pay within 60 days of receiving the demand note, you will have to face a penalty of 2% each month from IRAS. This 2% fine will be added for every completed month that your tax remains unpaid.

However, the total penalty cannot be more than 50%, which sums up to a total penalty of 55% for late payments of GST.

What Happens If My Revenue Exceeds One Million, And I Did Not Register?

If you register late or don’t register for GST, you may need to pay a fine up to $10,000, along with a penalty of 10% of the tax due.

What Do I Need To Do After Becoming GST Registered?

After becoming registered for GST, you will be bounded by several responsibilities and obligations. You will have to file returns, pay for GST on time, and keep proper accounting and business records.

Can I Claim GST Paid Prior To GST Registration?

Yes, if certain conditions are met. The general rule is that if the GST has been paid on purchasing materials or supplies that will be used to produce supplies that are subsequently sold after GST registration or if the GST paid is for assets that are put into use for the subsequent production of GST taxable products and services, then it is possible to claim the GST paid prior to registration.

Conclusion

While setting up your business in Singapore, it is necessary that you understand every aspect of the business industry, including GST (Goods and Services Tax). Also, you should keep track of GST rates, types of supplies etc. since these schemes and taxes are different for different businesses.

Do talk to us if you have any questions about GST in Singapore. You can drop us a note at the Contact us form or if you want to leave the hassle of filing your GST to us by engaging us, do let us know.

That is why we partner with Xero – The World’s Easiest Cloud  Accounting Software, so that you can always enjoy doing business anytime, anywhere.

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