Receiving Advance Payment from New Customer and the 60-Day Rule for Export of Goods

In international trade, compliance with tax regulations is critical for businesses to maintain smooth operations and avoid financial penalties. For businesses dealing with overseas customers, the Goods and Services Tax (GST) rules on exports in Singapore require the supplier to export goods and obtain the necessary export documentation within 60 days from the time of supply to qualify for zero-rating. This rule is commonly referred to as the “60-day rule.”

However, challenges can arise when businesses receive advance payments from overseas customers, particularly for large or bespoke orders where shipping timelines extend beyond the 60-day period. In such cases, the Inland Revenue Authority of Singapore (IRAS) requires the supplier to account for output tax at the prevailing rate if the export conditions are not met within the stipulated timeframe. This can result in additional costs to the overseas customer, or reduced revenue for the business if the business cannot collect the 9% GST from the overseas customers. 

Recently, our team successfully secured an extension of the 60-day rule for a client, with IRAS granting an extension of up to one year. Here’s why this extension is crucial for businesses and how we managed to help our client navigate this complex regulatory landscape.

Why the 60-Day Rule Matters

Under the GST framework, the export of goods qualifies for zero-rating, provided the supplier fulfils the export requirements within 60 days from the time of supply. The time of supply is determined by the earlier of the following events:

1. The issuance of an invoice; or
2. The receipt of payment.

For businesses receiving advance payments, especially for high-value orders, the 60-day countdown begins as soon as payment is received. Without meeting the conditions, the supplier must account for GST as output tax, resulting in either reduction in revenue (if the company absorbs the output GST) or additional cost to the overseas customers.

The Challenge for Our Client

Our client faced two key challenges related to the timing of their transactions. First, the lead time for their supplier to deliver goods to Singapore was unpredictable. Second, the timing for the export of these goods depended heavily on the construction schedule of a new vessel, which introduced further uncertainty about when the goods would be required.

These uncertainties often resulted in the period between receiving advance payments and the final export of goods exceeding the 60-day rule.  Without an extension, IRAS would have required the client to account for output tax on the export, increasing the client’s tax liability.

How We Helped Secure the Extension

Our approach focused on demonstrating the genuine need for an extension and the practical challenges faced by our client. We worked closely with the client to prepare a comprehensive application to IRAS, which included:

1. Detailed Timeline Analysis: Providing a clear breakdown of timelines to illustrate why the 60-day rule was insufficient for their operations.
2. Supporting Documentation: Submitting contracts, purchase orders, and correspondences with overseas customers to show the legitimate nature of the transactions and the extended delivery periods.
3. Export Evidence Management: Highlighting the client’s robust processes for maintaining export evidence, ensuring compliance with zero-rating conditions upon eventual export.
4. Impact Analysis: Presenting the potential cash flow and administrative challenges if the extension were not granted.

Based on the strength of the submission, IRAS recognized the business’s legitimate operational constraints and granted an extension of up to one year for the client to meet the export conditions.

Benefits for the Client

The extension provided the client with significant advantages:

1. The business remains competitive to overseas customer: The client avoided having to charge output GST to the overseas clients, who would not be able to recover the GST charged if they are not registered for GST in Singapore. Thereby creating price competitiveness.
2. Regulatory Compliance: By extending the timeline, the client ensured compliance with GST regulations without unnecessary penalties or adjustments.
3. Operational Flexibility: The additional time allowed the client to focus on fulfilling their orders without the pressure of an arbitrary deadline.

Conclusion

The 60-day rule is a cornerstone of Singapore’s GST framework, ensuring that zero-rating relief for exports is applied only when proper export evidence is maintained. However, for businesses who needs longer lead time, especially when advance payment is received, the rule can pose significant challenges.

Our successful effort in securing an extension demonstrates the importance of tailored tax advisory services to address such challenges. By understanding our client’s operations and presenting a strong case to IRAS, we ensured a favorable outcome that protected their cash flow, compliance, and operational efficiency.

If your business faces similar challenges with GST compliance, particularly in export scenarios, reach out to our team for expert guidance. Together, we can help navigate the complexities of GST regulations and secure solutions that support your business growth.