The advancement of technology has changed the way businesses conduct activities. From traditional physical interaction to indirect interaction over the internet, technology has fuelled the growth of e-commerce to reach out to customers across the globe with just a click of the button.
The Singapore government has taken a series of steps in recent years to impose goods and services tax (GST) on imported services (both B2B and B2C) to level the playing field between GST-registered local businesses which were subject to GST on their supplies and foreign-based businesses. (B2C supplies are between GST-registered businesses and non-GST-registered customers and B2B supplies are between two GST-registered businesses.)
Changes in Singapore
The introduction of GST on imported digital services was first announced by Singapore’s Finance Minister in the 2018 Budget to apply as from 1 January 2020. Many overseas businesses making B2C supplies of digital services subsequently applied for Singapore GST registration under the overseas vendor registration regime (OVR). The OVR requires any supplier belonging outside Singapore that has global turnover exceeding SGD 1 million and that makes B2C supplies of digital services to customers in Singapore exceeding SGD 100,000 to register, charge and account for GST (for an overview of the OVR, see our article in the October 2019 issue of Indirect Tax News).
In the 2021 Budget, the Finance Minister announced that the OVR regime would be extended to apply from just digital services to B2C imported non-digital services transactions, as from 1 January 2023. Under the extended regime, overseas businesses supplying “remote services” (regardless of whether they are digital or non-digital) to non-GST-registered Singapore customers could be liable for Singapore GST.
The Inland Revenue Authority of Singapore (IRAS) released an e-tax guide, “GST: Taxing imported remote services by way of the overseas vendor registration regime (First Edition)”, on 30 July 2021, which defines remote services as any services where, at the time the services are performed, there is no necessary connection between the physical location of the recipient and the place of physical performance.
To further explain and distinguish remote services that can be supplied and received remotely, IRAS provided examples of “on-the-spot services” that require the service recipient to be physically present at the same location and at the same time that the service provider is physically performing the service. On-the-spot services (e.g., physical entry to entertainment or sporting events, physiotherapy services) are excluded from the scope of the extended OVR.
While the OVR continues to apply a two-tier registration threshold approach (see above), the SGD 100,000 of B2C supplies will include the value of remote services (i.e., digital and non-digital) and imported low-value goods following the changes.
To ease compliance, an overseas vendor that must be registered for GST in Singapore will be registered under a simplified pay-only regime. However, the overseas vendor may apply for GST registration under a full regime to claim input tax if the business incurs significant GST from GST-registered suppliers in Singapore.
Action steps for vendors affected by the changes
Overseas vendors supplying services to customers in Singapore may wish to consider conducting an analysis to determine whether the impending changes will give rise to a GST registration liability in Singapore under the extended OVR regime. Overseas vendors that previously concluded that their service offerings are non-digital services and, hence, not liable for GST registration also should carry out such an assessment.
While there is still over a year before the new rules take effect, overseas vendors affected by the changes should begin now to ascertain whether they need any system enhancements and to put in place processes and controls for the collection and reporting of the GST upon the effective GST registration in Singapore.
Chin Sien Eu