As it was announced in Budget 2018 by the Singapore Minister of Finance, starting from 1 January 2020 Good and Service Tax (GST) shall be levied in Singapore to imported digital service rendered in Business-to-Consumer (B2C) transactions.
The new regime, also known as Overseas Vendor Registration Regime, aims to level the GST treatment of all digital services consumed in Singapore, regardless if they are rendered from overseas or locally. As consequence, under certain condition, the overseas digital service providers will be required to comply with Singapore GST registration and reporting rules.
For the purpose of the Overseas Vendor Registration Regime, Digital Services are defined as “services supplied over the Internet or other electronic network and the nature of which renders their supply essentially automated with minimal or no human intervention, and impossible without the use of information technology”. Accordingly, Digital Services include, among others, the supplying of the following:
- digital content, such as mobile application and e-books,
- software programs, downloading of software, driver and firewalls,
- subscription-based media, including online newspaper, music, films, gaming, live streaming of TV shows and music,
- online courses via e-learning,
- electronic data management, i.e. website hosting, online data warehousing, file-sharing and cloud storage services,
- services providing or supporting a business or personal presence on an electronic network, including subscription for the maintenance of an online professional profile page,
- support services performed via electronic means, to arrange or facilitate a transaction (i.e. booking fees).
Conversely, services such as advertising on intangible media platform circulated outside Singapore and professional services involving human intervention (for instance, legal services from lawyers), are not included in the definition of digital services and do not fall under the new regime.
New regulation on application of GST for overseas supplier
Under the current GST rules, in force until 31 December 2019, a B2C supply of digital services may be subject or not to GST depending from the status of the supplier: indeed, GST applies if the service is rendered by a Singapore supplier, while it is not applied if the supplier is based overseas, even though consumed in Singapore, being deemed a service falling outside the scope of GST.
Starting from 1 January 2020, the application of GST on digital services will be subject to a two-tier registration threshold based on (i) value of annual global turnover; and (ii) value of digital services made to customers in Singapore, regardless of the country of establishment of the provider.
In particular, GST shall be levied by any overseas supplier when it satisfies both the following conditions:
- global taxable turnover exceeding S$ 1 million in a calendar year, either calculated on a retrospective or prospective view; and
- yearly supplies of digital services to customers residing in Singapore exceeding S$100,000 for a calendar year, either calculated on a retrospective or prospective view.
Overseas suppliers meeting both the above criteria shall be required:
- To apply to Singapore Inland Revenue Authority (IRAS) for the GST registration.
- To charge GST on services provided on B2C basis, where B2C refers to transaction made to non-GST registered customers, either private individuals or entities, which are not GST registered in Singapore. It must be noted that the responsibility to provide GST registration number lies with the GST-registered customer and therefore overseas suppliers are allowed to treat services as being supplied to a non-GST registered customer, charging and accounting for GST, unless the customer provides its own GST registration number.
- submit quarterly GST report to IRAS and pay GST.
For ease of compliance, the Overseas Vendor Registration Regime provides overseas suppliers of digital services to register with ACRA according to a simplified pay-only regime, and that input tax claims incurred on taxable purchases made in Singapore are not allowed. The GST report submitted by overseas suppliers on quarterly basis must therefore state only the value of supplies and the GST collected in the relevant accounting period.
To reach a wider network of customers, suppliers may choose to market and sell their products through intermediaries such as Electronic Marketplaces.
An electronic marketplace is defined as a medium that allows the suppliers to make supplies available to customers by electronic means. This includes marketplaces operated via any types of electronic interface such as website, internet portal, gateway, distribution platform, so excluding payment processors or internet service providers.
Given the electronic marketplace’s involvement in the digital supply chain and its interaction with both the suppliers and consumers, under certain conditions both local and overseas operators of electronic marketplaces may be regarded as suppliers of digital services made through the marketplace, on behalf of overseas suppliers.
Specifically, the operator of electronic marketplaces is regarded as the suppliers if any of the following conditions is met:
- The electronic marketplace authorises the charge to the customer;
- The electronic marketplace authorises the delivery of supply to the customer
- The electronic marketplace sets the terms and conditions under which the supply is made;
- The documentation provided to the customer identifies the supply as made by the marketplace, and not the merchant; or
- The electronic marketplace and the merchant contractually agree that the marketplace is liable for GST.
If any of the above-mentioned requirements is met, the electronic marketplace operator will be deemed a supplier pursuant to the Overseas Vendor Registration Regime. In this scenario, it may be required to charge GST on B2C supplies of digital services made in Singapore on behalf of the overseas suppliers listed on its platform. This includes all supplies of digital services made through the platform by the overseas suppliers, regardless of whether they are registered or liable to register for GST.
It must be noted that the above-mentioned threshold condition set forth for overseas suppliers of digital services shall also apply to overseas electronic marketplace operators: they must GST register if the yearly global taxable turnover and the yearly value of digital services provided to customers in Singapore are above the two-tier threshold of S$ 1 million and S$ 100,000, respectively.
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Overseas Vendor Registration Regime will apply on invoices issues and payment received from the 1 January 2020 onwards. With GST chargeable across the border, businesses in Singapore will no longer suffer a competitive disadvantage due to extra tax liability on digital services provided to non-GST registered consumers.
Daniela Radrizzani, Head of Finance of Fidinam Singapore