November 11, 2021
Singapore: Update on Goods and Services Tax
This Alert summarizes recent developments with respect to Singapore’s Goods and Services Tax (GST). These changes may impact businesses worldwide and will be effective as noted below.
In Budget 2021, the Singapore Minister for Finance announced that the basis for determining whether zero-rating applies to a supply of media sales will be changed as of 1 January 2022 from the place of circulation of the advertisement to the place where the customer and direct beneficiary of the service reside. The change is made in recognition of the growth in online advertising and the compliance difficulties faced by businesses in determining the place of circulation of advertisements, especially for online media sales.
In light of the above, the Inland Revenue Authority of Singapore (IRAS) updated the e-Tax Guide GST: Guide for Advertising Industry on 11 June 2021 to provide guidance on these upcoming changes.
Definition of media sales
Impacted entities and individuals
Entities or individuals may be affected if they are a media owner, an intermediary supplier (such as a media agency, creative advertising agency or full range advertising agency), a Goods and Services Tax (GST)-registered supplier making an onward supply of media sales (such as a holding company buying and supplying to its related companies), or a customer who purchases media sales from any of the suppliers discussed above.
Summary of proposed changes
1 Identifying the “direct beneficiary”
For the supply of media sales, the Comptroller will generally regard the contractual client as the sole direct beneficiary of the services if the following conditions are met:
If the above conditions are satisfied, the supplier of media sales would not need to look beyond its contractual client in deciding whether to zero-rate the supply of media sales.
Incidental exempt supply
The IRAS updated the e-Tax Guide GST: Partial Exemption and Input Tax Recovery on 22 June 2021 to provide clarification on when a supply is considered as “occurring infrequently” for the purposes of determining whether it can be treated as an incidental exempt supply under the GST Act.
Definition of incidental exempt supply
For the purposes of residual input tax claim under the input tax apportionment formula, an exempt supply can be treated as an incidental exempt supply if certain conditions are satisfied, one of which is that the “exempt supply occurs infrequently.”
The consequence of treating an exempt supply as an incidental exempt supply is an improved residual input tax apportionment rate, which may result in higher input tax credits claimable by the business.
Clarification of the condition “the exempt supply occurs infrequently”
Generally, a supply is considered as occurring infrequently if there are not more than four occurrences of the same nature of supply over a longer period.
In the updated e-Tax Guide, the IRAS has clarified that the same nature of supply refers to all supplies arising from the same exempt business activity carried on by the taxpayer, including exempt supplies that qualify for zero-rating. For example, in the case of interest income from intercompany loans, this refers to the total number of new and outstanding interest-bearing loans provided to both local and overseas persons over a longer period.
Following the above, it may now be harder for businesses to satisfy the conditions to treat an exempt supply as an incidental exempt supply.
Going forward, it is important for businesses to consider the changes while evaluating whether an exempt supply satisfies the conditions to be treated as an incidental exempt supply.
Effective date of the changes
The revisions made in the e-Tax Guide, as highlighted above, apply with effect from 22 June 2021.
Prior to 22 June 2021, if a taxpayer did not count exempt supplies that qualify for zero-rating towards the number of occurrences (i.e., not more than four ) when assessing whether a supply is “occurring infrequently” for the purposes of evaluating whether the supply is an incidental exempt supply, the taxpayer need not make any adjustments for the past prescribed accounting periods.
Instead, the taxpayer will be required to count such supplies towards the number of occurrences starting from its next tax year (i.e., its next longer period) as follows:
GST treatment of cancellation fees
The IRAS revised the e-Tax Guide GST: Travel Industry on 1 July 2021 to update the GST treatment of fees imposed for the cancellation of bookings of inbound and outbound tours.
Updates to GST treatment
In the previous edition of the e-Tax Guide, the IRAS stated that any charges imposed by a travel agency belonging in Singapore for the cancellation of bookings of both inbound and outbound tours are subject to GST.
In the revised e-Tax Guide, the IRAS has clarified the following:
Effective date of the changes
The revisions made in the e-Tax Guide as highlighted above apply with effect from 1 July 2021.
Transfer pricing (TP) adjustments
The IRAS has updated the e-Tax Guide GST: Transfer Pricing Adjustments on 1 June 2021 to make amendments to the administrative concession for TP adjustments under certain circumstances, and the time of supply for TP adjustments if an invoice is not issued or payment is not received.
Updates to administrative concession
Generally, businesses with TP adjustments resulting in an increase or decrease in price would be required to make corresponding GST adjustments. However, to reduce compliance costs on businesses, the IRAS has provided an administrative concession in certain circumstances where GST adjustments need not be made, despite the TP adjustments.
With effect from 1 June 2021, the IRAS has extended the administrative concession to all goods imported under an import GST suspension scheme (e.g., the Major Exporter Scheme), except for the Import GST Deferment Scheme (IGDS). Accordingly, businesses that qualify for this administrative concession would not need to pay the additional import GST to the Singapore Customs or make adjustments in their GST returns on TP adjustments.
A business under the IGDS may still avail itself of the administrative concession if it is entitled to full input tax credit on the imported goods. In the case where the business is under the IGDS and does not qualify for the administrative concession as it is not entitled to full input tax credit, additional import GST need not be paid to the Singapore Customs but adjustments to its GST return will be required.
Time of supply for TP adjustments if an invoice is not issued/payment is not received
Previously, for adjustments relating to the accounting of additional output tax where no invoices are issued or no payment is received from the related party customer, the GST adjustment must be made within 12 months from the date that the goods were removed or made available, or the date that the services were performed.
In the updated e-Tax Guide, the IRAS has clarified that for adjustments relating to the accounting of additional output tax on supplies and RC supplies, if no invoice is issued and no payment is received from or made to the related party for the TP adjustments, the business must make the GST adjustment in its GST return in the prescribed accounting period when the TP adjustment is made. An example would be the prescribed accounting period when the business makes the TP adjustment in its financial statements for the services provided to its related party customer. This represents the point in time where it has been recognized that the value of the supply does not reflect its open market value.
Effective date of the changes
The revisions made in the e-Tax Guide, as highlighted above, apply with effect from 1 June 2021.
Removal of administrative concession for the recovery of overseas brokerage on shares traded on overseas exchanges
An administrative concession was granted to banks, fund managers and brokers in Singapore (collectively referred to as the Local Brokers) in 1996 to place them on an equal footing with overseas brokers that do not charge GST on overseas brokerages to local clients.
Under the administrative concession, subject to certain conditions, the GST-registered Local Brokers may treat the recovery of overseas brokerages from local clients as disbursements (i.e., not subject to GST).
With the implementation of taxing imported services by way of RC to ensure parity in the GST treatment regardless of whether the brokerage services are procured locally or overseas, the above administrative concession will be removed.
This will also align the GST treatment with the contractual form and the current treatment of the recovery of overseas brokerage in respect of other financial instruments traded on overseas exchanges.
Effective date of the changes
To allow businesses more time to update their system and processes, the removal of this administrative concession will take effect from 1 April 2022.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Solutions LLP, Indirect Tax Services, Singapore
EY Corporate Advisors Pte. Ltd., Indirect Tax Services, Singapore