In a nutshell, the new GST regulation states that starting January 1, 2020, all Singaporean registered companies will have to pay 7% GST on all digital services bought from foreign-owned companies.
Let’s break it down.
Which services come under this new 7% rule?
All digital services purchased from large foreign-owned companies come under the ambit of the 7% GST rule.
Digital services here refers to
- Services that are not provided with the help of a human
- Services that MUST be used with a digital device or an Internet connection
ACRA defines a major foreign-owned company as overseas service providers that
- Have an annual global turnover of more than S$1 million.
- Have annual sales of at least S$100,000 (of digital services) in Singapore.
(A good way to check whether your provider falls under this definition is by reviewing their GST status online. This can be done on the IRAS website. If they must charge GST, then they will be on this list).
Let’s understand with an example – If a company purchases a Microsoft Office licence for its office, then as Microsoft is a large overseas service provider, it will be charged 7% GST on the invoice amount. The same goes for ERP software, mobile applications, cloud storage services, anti-virus licenses, website hosting services, or any online tool for enterprise solutions such as management, marketing, or accounting – if these services are provided by a non-Singaporean firm that has substantial business revenue in the country, then an additional 7% will be tagged on the bill as GST.
What do companies have to do to stay compliant?
Every company has to apprise its service provider regarding this new rule and that the company is registered in Singapore.
The rest depends on whether the company is GST registered or not. For GST registered companies, there is additional paperwork to be carried out from January 1. They will have to pay 7% GST to IRAS called Reverse Charge.
They will also have to notify their service provider that they are GST registered so that the additional 7% GST is not added to their invoice. It is up to the company to pay the correct amount to IRAC.
For companies that are not GST-registered, the whole process is much simpler. They don’t have to do anything at all. The service provider has to add 7% in the invoice and remit it to the IRAS.
Final takeaway
The new GST addition is simple enough. You just have to ensure that your accountant or financial agency has started implementing it. It will soon become a regular part of your monthly ACRA processes/submissions!