The Finance Minister has announced in his 2018 Budget that goods and services tax (GST) on imported services will be introduced from 1 January 2020.

When this is effective, reverse charge supplies would also count when considering whether the taxable turnover of the person carrying on the business exceeds the GST turnover registration limits.

Current Goods and services tax (GST) rules

Up to 31 December 2019

Goods and services tax is a tax on local consumption and is levied on all services consumed in Singapore whether they are procured from local or overseas suppliers.

Based on the current GST rules, services (other than an exempt supply) supplied by a supplier who belongs in Singapore is subject to GST while the same services supplied by a supplier who belongs outside Singapore is not.

Section 14 operates on a self-supply basis.

The recipient of the supply calculates GST, where applicable, on the charge for the imported services, and accounts for this as output tax in the GST return for the period in question.

At the same time, the recipient of the supply gets corresponding input GST relief, subject always to:

  • any restriction under the partial exemption rules, and
  • the regulations for blocked input tax.

This system is known as the “reverse charge”.

What is a reverse charge?

A reverse charge is a mechanism provided for in section 14 of the Goods and Services Tax Act (the GST Act) which imposes GST on supplies of “prescribed services” by a person who belongs outside Singapore and received by a GST-registered person in Singapore for the purpose of his/her business.

The manner in which section 14  operates is by treating a supply received from abroad as if it had been made by the customer rather than by the person who really made the supply.

The effect is that the customer (if registrable for GST) must account for the GST on the imported services as its output tax:

– in the accounting period he/she paid for the services, or

– on the last day of the accounting period in which the services were performed,

whichever event occurred earlier.

At the same time, the GST charge is also available as an input tax credit in the recipient’s GST return, such input tax may, or may not, be deductible in full as it is subject to the normal input tax recovery rules.

A reverse charge system would seem unnecessary for a fully taxable business that would be able to claim full input tax credit for the GST charge, which in effect eliminate the GST charge on the imported services.

However, the reverse charge may have an impact on businesses making exempt supplies in Singapore, such as financial institutions, which would not be able to fully recover the GST charge as input tax under the normal rules.

There are legislative provisions for “reverse charges” on suppliers of prescribed services that are received from abroad, subject to the stipulation of such prescribed services by the Minister. However, to date, as there are no “prescribed services”, therefore the said provisions are effectively “suspended”

Approved Contract Manufacturer and Trader scheme

Under the Approved Contract Manufacturer and Trader (ACMT) scheme, a Singapore company receiving goods owned by a non-resident supplier can be deemed to have supplied the goods to itself. It would then be required to account for the GST on the supply as both output tax and input tax by way of “customer accounting”. The “customer accounting” system conceptually works in the same way as the reverse charge system.

The Reverse charge supplies

The effect when the reverse charge scheme is activated

Applying the normal place of supply rules for services in s 13(4) of the Goods and Services Tax Act (GST Act), it would mean that a service will be within the scope of Singapore GST only if the supplier belongs in Singapore.

However, section 14 changes the normal place of supply rules for certain specified services from the place where the supplier is established to the location of the recipient.

The proposed reverse charge would likely to impact on businesses making non-incidental exempt supplies or non-business supplies, businesses such as those in  mixed or residential property developers, financial institutions and charities.

Operation of the reverse charge system

From 1 January 2020

From 1 January 2020, Business-to-Business (B2B) imported services will be taxed via a reverse charge mechanism, and Business-to-Consumer (B2C) imported services will be taxed through an Overseas Vendor Registration (OVR) Regime

Such change will affect only businesses that make the following types of supplies:

  • non-incidental exempt supplies (e.g. provision of certain financial services, sale and lease of residential accommodation, etc), or
  • non-business supplies (e.g. certain grants, donations, sponsorships received by charities, etc).

The majority of businesses in Singapore that make wholly taxable supplies will not likely to be affected by the reverse charge. However, businesses that are on partially exempt businesses or non-taxable businesses will be potentially be affected significantly.

The IRAS has published its draft GST guide on reverse charge and is currently consulting with the public/businesses on the proposed rules and administration of the reverse charge mechanism.

 How the reverse charge mechanism work?

The Government plans to introduce GST on imported services on or after 1 January 2020.

(1)   Taxing Business-to-business (B2B) imported services by way of a reverse charge mechanism

A B2B supplies refer to supplies made to GST-registered persons, including companies, partnerships and sole-proprietors.

A reverse charge mechanism requires the local business customer to account for GST to the IRAS on the services it imports.

For a GST-registered business

(a)   Businesses that make taxable supplies will not be affected.

(b)   Businesses that make either

(i)      partially exempt business and is not entitled to full input tax credit; or

(ii)     do not make any taxable suppliers, like a GST-registered charity or voluntary welfare organization who receives non-business receipts,

will need to apply reverse charge and account for GST on all imported services procure from overseas suppliers as though they are the supplier, other than certain services which are specifically excluded from the scope of reverse charge.

The local business customer can in turn claim the GST accounted for as its input tax, subject to the normal GST input tax recovery rules.

For a non-GST registered business

If the total value of your imported services for a 12-month period exceeds S$1 million, it may become liable for GST-registration under the new GST registration rules.

Upon registration, it will be required to account for GST on both the taxable supplies and on imported services which are subject to reverse charge.

(2)     Taxing Business-to-consumer (B2C) imported services through an Overseas Vendor Registration (OVR) Regime

A B2C supplies refer to supplies made to non-GST registered persons, which include individuals and companies that are not registered for GST.

An OVR regime is where overseas suppliers and electronic marketplace operators that make significant supplies of digital services to local consumers are required to register with the IRAS for GST.

For an oversea vendor belonging outside Singapore, it is required to register for GST in Singapore if:

(a)   have an annual global turnover exceeding $1 million; and

(b)   make B2C supplies of digital services to customers in Singapore exceeding $100,000.

Upon registration, it will required to charge and account for GST on B2C supplies of digital services made to customers in Singapore.

An electronic marketplace operator

Under certain conditions, whether you are a local or an overseas operator of an electronic marketplace, they may be regarded as the supplier of the digital services made by the overseas suppliers through your marketplace.

In such cases, , the electronic marketplace operator is required to include the value of these services to determine the GST registration liability.

If liable for GST registration or are already GST-registered, the electronic marketplace operator is required to charge and account for GST on B2C supplies of digital services made through the marketplace to customers in Singapore on behalf of the overseas suppliers, in addition to digital services made directly to customers in Singapore.

To ease extra-territorial compliance burden, if an overseas operator will be registered under a simplified regime, with reduced registration and reporting requirements.

Last reviewed: 9 March 2018