Goods and Services Tax on imported services
To achieve parity in GST treatment for the consumption of services in Singapore, beginning 1 January 2020 business-to-business (B2B) imported services will be subject to GST by way of a reverse charge (RC) mechanism.
Reverse charge mechanism
Under the RC mechanism, when an overseas supplier makes a B2B supply of services to a local GST-registered person, the GST-registered recipient is required to account for GST on the value of the imported services (with the exception of certain imported services as discussed below) as if the recipient were the supplier. The GST-registered recipient would be allowed to claim the corresponding GST as input tax, subject to the normal input tax recovery rules.
Who will be affected by RC
The implementation of the RC mechanism will impact certain groups of businesses, primarily financial institutions, mixed and residential property developers, investment holding companies deriving dividend and interest income from loans, as well as organisations that provide free or subsidised activities such as charities, Voluntary Welfare Organisations (VWOs), Non-Profit Organisations (NPOs), hospitals and educational institutions.
Specifically, two groups of taxpayers that are required to apply the RC are:
- GST-registered persons obtaining services from an overseas supplier where they are either not eligible to claim full input tax or they belong to GST groups that are not entitled to a full input tax credit.
- Non-GST registered persons procuring from overseas suppliers imported services exceeding S$1 million over a 12-month period where they would not be entitled to claim a full input tax even if GST-registered.
Scope of imported services
- Services that fall within the description of exempt supplies under the Fourth Schedule to the GST Act;
- Services that would qualify for zero-rating under Section 21(3) of the GST Act, had the services been made to them by a taxable person belonging in Singapore;
- Services provided by the government of a jurisdiction outside Singapore, if the services are of a nature that falls within the description of non-taxable government supplies under the Schedule to the GST (Non-Taxable Government Supplies) Order of the GST Act; and
- Services directly attributable to taxable supplies (only applicable to businesses that are not granted a fixed input tax recovery rate or a special input tax recovery formula for all input tax claims).
The impact of the RC mechanism
Unless there are competitive advantages, such as better pricing or service levels that overseas suppliers can offer, given the added responsibility of having to account for GST on behalf of overseas suppliers, businesses that have been procuring services from abroad may now want to consider sourcing the same type of services locally.
Chin Sien Eu
Shy Zing Ng