What is the Goods and Services Tax (GST)?
The Goods and Services Tax (GST) is a consumption tax that must be paid on nearly all kinds of goods and services in Singapore. GST is payable on consumer goods, industrial goods, personal and business services, imported goods, and more.
GST is alternately known as VAT (Value-Added Tax) in places like the EU, or Sales Tax in places like the US.
How much is GST?
The current GST rate is 7%. GST is set to rise to 9% by 2025.
When does a business need to register for GST?
There are two situations where you have to register for GST.
Situation 1: Annual sales > $1 million in last 12 months
You have to register your business for GST if your annual turnover was more than SGD $1 million in the last 12 months.
Situation 2: Annual sales expected > $1 million in next 12 months
You will also have to register for GST if you are certain that your annual turnover will exceed SGD $1 million dollars in the next 12 months.
This expectation of annual sales exceeding $1 million should be supported by the following documents/financials:
- Signed contracts/invoices/quotations with customers
- Financial statements that show annual sales of close to $1 million, and annual sales likely to exceed $1 million in next 12 months
If you’re only forecasting annual sales of more than $1 million without the above documents (e.g. forecast based solely off a business plan), then you don’t have to register for GST.
When can I be exempted from GST registration?
You can apply to the Comptroller of GST to be exempted from GST registration if you provide international services or export goods that do not carry GST, and these services or export of goods form over 90% of your total annual revenue. The practical effect of this is that businesses which are based in Singapore, but who primarily serve clients overseas, will not need to charge GST to their clients.
Also, you don’t need to register for GST if you made over $1 million annual revenue in the last 12 months (Situation 1), but you expect to make less than $1 million in sales in the next 12 months (Situation 2). Such situations are common if, for instance, you are downsizing your business, or if your business is generally not doing well. You will need to keep detailed forecasts and documentation to prove that you expect to make less than $1 million in revenue. For instance, you should be able to show a significant drop in signed contracts, invoices, etc.
Voluntary GST registration
You can voluntarily register for GST.
To do so, you have to pass two eLearning courses.
You do not have to pass these two courses if:
- You have previously managed other businesses which were GST-registered, OR
- The individual preparing your GST returns has completed the e-learning courses, and this person is an accredited tax advisor
What is the deadline for GST registration?
You must register for GST within 30 days from the date when you become liable to register. For instance, if you have strong evidence that your sales will exceed $1 million, you must register within 30 days from the date you make that forecast.
What happens if I’m late in registering for GST?
Your total GST liability starts from the date you become legally required to register for GST. For instance, if your sales crossed $1 million in January of last year, but you only registered for GST 12 months later, you have to pay back the 12 months of GST that you didn’t pay.
You will need to pay GST on all sales starting from the date of liability, even if you had not started collecting GST from your customers then. Depending on the amount of sales that you generated this can make out to be quite a significant amount. It’s therefore important to keep on top of when you need to register for GST!
Businesses who register late for GST may be fined up to $10,000. Also, they may face a penalty of up to 10% of the GST amount that was due.
What happens if I’m late in paying GST?
You have to pay GST within 1 month from the end of your accounting period. Businesses that don’t pay GST by the due date will have a 5% penalty levied on the amount of unpaid GST.
If you go past 60 days from the due date, you’ll incur an extra 2% penalty charge for every month your GST remains outstanding. The maximum penalty is 50%.
Example: A successful restaurant chain has $1,000,000 in GST liabilities. The restaurant chain fails to pay their GST liability for 6 months after their GST payment due date. The total penalty they will incur is 5%, plus 8% (2%/month times 4 months). This is a total penalty is 13%, or $130,000. The final GST owed will be $1,130,000. Lesson of the day – pay your GST on time.
What are the responsibilities of a GST registered business?
File your GST returns
GST registered businesses must file returns on the GST that they’ve charged for the goods and services. These annual GST returns must be submitted online on IRAs’ myTax portal, within one month from the end of the business’ accounting period.
You will need to submit both your output GST (this is the GST collected from your clients, end the input GST (this is the GST pay to suppliers). If your output GST is higher than your input GST, you must pay the difference between the two amounts to IRAS. On the other hand, if your input go see is higher than your output you see, IRAS will refund the difference between the two amounts to you.
Pay GST in a timely fashion
You have to pay GST within 1 month from the end of your accounting period. For instance, if your accounting period ends on 31st December of each year, you have to pay your GST to IRAS by 30th January.
Clearly display GST charges to customers
Any prices, product brochures, invoices, etc. that are shared with the public or with customers must display GST. You cannot hide GST charges. Businesses that do not display their GST charges can be fined up to $5,000.
The only exception to this rule are for F&B companies, or hotel businesses. F&B and hotel businesses can display prices that are exclusive of GST. However, they must clearly state that all listed prices are subject to GST and service charge. This explains why you’ll see such statements frequently when dining out at restaurants, cafes, and the like.
When must I cancel my GST registration?
You must cancel your GST registration if you:
- Stop producing goods or services which are subject to GST, OR
- Shut down your business, OR
- Transfer your business to another person, OR
- Change the type of business you run (e.g. converting your business from a Pte Ltd into some other entity)
You have to cancel your GST registration within 30 days of any of the above happening. You can cancel your GST registration online, by going to IRAS’ myTax Portal.
If you convert a sole proprietorship into a partnership (or vice versa), IRAS will automatically cancel your GST registration. upon learning from ACRA that. You will not need to apply for cancellation in these circumstances. However, the new entity will need to decide whether or not to apply for GST registration.
Cancelling GST registration if you volunteered to be GST-registered
If you voluntarily registered for GST, and you do not meet the criteria for compulsory GST registration (i.e. annual sales < $1 million), then you must remain GST-registered for 2 years before you can cancel your GST registration.
You can cancel your GST registration IRAS’ myTax Portal.
Example: ABC Company voluntarily registers for GST on 1 Jan 2022. ABC Company can only cancel their GST registration from 1 Jan 2024 onwards.
No charging of GST after cancelling GST registration
When you cancel your GST registration, IRAS will inform you of the effective date of cancellation.
After you have cancelled your GST registration, you must adhere to the following:
- You cannot charge your customers GST. Doing so is a criminal offence.
- You cannot issue tax invoices.
- You must continue to pay GST to the Singapore Customs for importing goods.
What are the benefits of being GST registered?
The main benefit is that you can claim back GST on your business purchases. For instance, whenever your business procures services or products from vendors (e.g. IT services, consulting services, etc.) that charge GST, you can claim back the GST on these expenses. Also, if you purchase commercial properties through your business, you can claim back the GST on the property purchase. That can result in some really significant savings. Being able to claim back GST basically saves you 7% on your expenses, whenever you buy from GST-registered vendors.
The second benefit is that your customers who are GST-registered themselves can also claim back GST on their purchases made from you. Some businesses may therefore raise their own prices when selling to GST-registered customers, since clients can claim back the GST you are charging.
Remember to protect your business:
While you’re going through the process of registering for GST, don’t forget to protect your business! It’s crucial that you protect your business from the many risks that could cost you serious sums of money. A business lawsuit could cost you hundreds of thousands to millions of dollars. A fire at your business premises could wipe out hundreds of thousands of dollars in investment. A slip and fall by a customer while in your business premises could result in expensive personal injury claims. You should also protect your company directors and officers – any lawsuit targeting them would immediately expose their personal assets (a real nightmare scenario!)
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