When does your company fall under the 0% GST rate?

8 minute read

The Goods and Services Tax (GST) was introduced in 1994 in Singapore and it was modeled off the UK VAT legislation and New Zealand GST legislation.

The agent of the Singapore government that administers, assesses, collects, and enforces payment of GST is the Inland Revenue Authority of Singapore (IRAS).

GST is charged on taxable supplies, which are supplies of goods or services made in Singapore. A taxable supply can either be a standard-rated (7%) or zero-rated supply.

The government introduced various changes in January 2020 to modify the act, one of the changes relating to 0% GST.

 

Overview:

 

Which goods and services are not subjected to GST?

The following goods and services are not subjected to the requirement to charge GST at the prevailing rate of 7%:

  • GST is charged at 0% for the provision of international services.
  • For the export of goods, GST is also charged at 0% (zero-rate). Zero-rated supplies are considered taxable supplies, but GST is charged at 0% instead of 7%.
  • Exempt supplies are not subject to this tax. GST does not apply to exempt supplies broadly categorized into:
  1. Provision of financial services
  2. Sale and lease of residential properties
  3. Supply of digital payment tokens (with effect from 1 Jan 2020)
  4. Local supply and import of investment precious metals (IPM)

Bear in mind that all services that are considered international services are zero-rated. However, they need to fall within the provisions under Section 21(3) of the GST Act.

Also, you might be required to determine your customer’s belonging status (if the customer is a local or a foreign overseas entity).

For the most accurate information, please consult the official GST Guide on Exports.

 

International services

If a company offers services that fall within the provisions under Section 21(3) of the GST Act, these services are considered international services. Therefore, they are zero-rated (GST charged at 0%).

However, do know that not all services provided to overseas customers can be zero-rated.

There are numerous types of international services:

  • Advertising services
  • Co-location services
  • International transport
  • Lease or hire of transport
  • Services performed completely overseas
  • Services associated with export goods and goods moving outside Singapore
  • Services related to land/ buildings/ goods located overseas
  • Services supplied to an overseas person
  • Supplies related to ships or aircraft
  • Services related to electronic systems
  • Services performed on goods stored in a warehouse under the specialized warehouse scheme
  • Supplies related to air and sea containers
  • Telecommunication services
  • Trust services

 

Customer’s belonging status

According to various law provisions, it is necessary to determine the belonging status of your customer. In other words, it is required to determine if a customer belongs to a country outside Singapore before you can zero-rate your services.

It should be noted that a customer can be either an individual or a business entity.

With effect from 1 Jan 2020, the zero-rating of services under these provisions is extended to services that directly benefit a GST-registered person in Singapore. This is valid if all other conditions specified in the provisions are satisfied.

 

Customer as an individual person

A customer shall be deemed as a person (belonging) in Singapore if its usual place of residence is in Singapore during the period of service. An individual needs to have only one usual place of residence at any point in time for GST purposes.

The place of residence is a place where:

  • The person stays voluntarily and for a settled purpose
  • The person’s stay has some degree of continuity aside from temporary or occasional absence and is part of their regular life

 

Exporting of goods

It is possible to charge GST at 0% for the supply of goods when it is guaranteed that at the point of supply (based on the time of supply for exports):

  1. The goods that are supplied shall be exported or have already been exported
  2. The business already has the required documents to support zero-rating

The time of supply for exports for the purpose of zero-rating should occur before an invoice is issued and prior to the payment.

 

Direct and indirect exports

When it comes to direct exports, the business has custody of the goods to be exported and it also controls the export arrangement.

Direct exports can be zero-rated if the required documents to the zero-rating are maintained within 60 days.

On the other hand, indirect exports happen when a business has no custody of the goods to be exported and when there is no control over the export arrangement. In this case, the sale shall be treated as a local supply and GST shall be charged accordingly.

However, there are exceptions for indirect exports. It is possible to zero-rate the supply of goods if the business is certain at the time of supply that all the goods shall be exported and the required documents to support zero-rating can be maintained within 60 days.

 

60-day rule for exported goods

A business has up to 60 days from the time of supply to export the goods and collate the required export documents when exporting goods.

If a business is unable to export the goods or obtain all documents within the 60-day period, it will have to standard-rate the supply of goods and charge GST.

For exceptions to the 60-day rule, refer to the GST Guide on Exports.

 

Zero-rating support documents

In order for a business to zero-rate its exports, it is necessary to maintain the relevant export evidence.

It is mandatory to maintain all transaction and transport documents:

  1. Transaction documents
  • Delivery note or packing list which is endorsed by the freight forwarder or handling agent
  • Payment evidence
  • Insurance documents
  • Purchase order
  • Sales invoice to the customer
  • Written instructions from the customer to deliver the goods
  1. Transport documents
  • For exports via sea or air, you need to submit the bill of lading/ airway bill/ cargo manifest/ mate’s receipt or subsidiary export certificate/note of shipment issued by freight forwarder/ handling agent.
  • For exports via land, you should submit the export permit or subsidiary export note of shipment issued by freight forwarder/ handling agent.

 

Exempt supplies

Supplies that are exempt from GST are:

  • Provision of financial services
  • Digital payment tokens supply  (with effect from 1 Jan 2020)
  • Sale and lease of residential properties
  • Local supply and import of investment precious metals (IPM)

 

Financial services

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

  • Bank charges for the operation of bank accounts
  • Currency exchange
  • Issue/ sale of shares or bonds
  • Provision of derivative that does not lead to any delivery of goods or services
  • Provision of loans
  • Provision of life policy by an insurance company

 

Financial services provisions by non-financial institutions

A deposit of money in a bank is considered a loan provided to the bank (by the user). The interest income received from the bank should be reported as the exempt supplies in Box 3 of the GST Return.

It is also necessary to report exchange gains or losses that can happen when a customer makes payment in foreign currency and the business exchanges it for Singapore Dollars.

 

Fees from arranging or advising on financial transactions

Every type of advising on arranging, broking, or underwriting of financial activities is not exempt from GST. GST applies to such fees when the services are provided to local customers.

However, when these services are provided to overseas customers, they can be zero-rated.

 

Digital payment tokens

A digital payment token is any cryptographically-secured digital representation of value that meets certain criteria.

Thanks to the increasing popularity of digital payment tokens, there has been a need to update the GST treatment of such tokens.

Hence, from 1 Jan 2020, the following supplies of digital payment tokens are exempt from GST:

  • Exchange of digital payment tokens for fiat currency or other digital payment tokens
  • Provision of loans of digital payment tokens

 

Sale and lease of residential properties

GST does not apply in the case of sale and lease of residential properties. Residential properties refer to vacant residential land and residential buildings, flats, or tenements.

In this case, residential land refers to vacant land that is zoned residential and vacant land or land with a building on it which is supplied by the Government or the public authority and exclusively approved for condominium or residential development.

 

Sale of furnished residential properties

It is necessary to charge GST on the supply of movable furniture and fittings. However, fixtures like wardrobes and built-in cabinets, kitchen and sanitary wares, as well as wall-mounted air conditioners permanently attached to the residential property are exempt from GST together with the property.

 

Fees from services related to sale/ lease of residential properties transactions

Exemption from GST is not extended to arranging, broking, or advisory services related to the sale/ lease of residential properties. Such fees are subject to GST.

 

IPM – investment precious metals

GST is not applied when a business imports and supplies IPM such as gold, silver, and platinum. The aim of this is to facilitate the development of the gold refining and trading cluster in Singapore.

 

Wrap up

If you are still not familiar enough with the key concepts of Singapore’s Goods and Services Tax (GST) system, reread this guide. If you plan on starting a business, you need to know all the important bits regarding taxes. GST is, no doubt, a significant part of that.

Know that the Singapore tax department has GST guides for each industry. Therefore, do not allow yourself to miss out on any information about this issue. If you need assistance or further help regarding Singapore GST, feel free to contact Sleek.

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