Reverse Charge – UPDATE!
If you may recall, reverse charge was introduced to apply GST on imported services for B2B transactions which came into effect on 1 January 2020, with an aim to achieve parity in GST treatment for imported services consumed in Singapore, regardless of the supplier being an overseas supplier or a local supplier.
Currently, the scope of services which fall under imported services which is subject to reverse charge is basically ALL kinds of imported services except for a few exclusions.
Come 1 January 2023 (…that’s really soon), the application of reverse charge will be extended. To what you might still be wondering?
Imported Low-Value Goods (“LVG”) – these are currently not subject to import GST if the goods are non-dutiable and does not exceed the threshold of S$400
With effect from 1 January 2023, GST will apply to these imported LVG in the same spirit of achieving parity in GST treatment between LVG consumed in Singapore, regardless of where (which country) the supplier belongs.
Hence, if you are a partial-exempt business for Singapore GST purposes and in the course of business, procures the following type of goods from overseas suppliers, do take note that you may need to perform reverse charge on the goods purchased!
- Non-dutiable goods or dutiable goods but payment of customs/excise duty chargeable on the goods is waived under section 11 of the Customs Act;
- Goods not exempt from GST;
- Goods located outside Singapore and are to be delivered to Singapore via air or post; and
- Goods where each item has a value not exceeding the import relief threshold of S$400.
Why “May” and not “Must”?
This is because you should be happy to note that although reverse charge is to be performed on all supplies of LVG (including LVG supplied by local and overseas suppliers, regardless of whether the suppliers are GST-registered or not), the reverse charge mechanism excludes LVG which are directly attributable to taxable supplies, if your business is not prescribed a fixed input recovery rate or special input tax recovery formula that is applied on all input tax claims.
So, before you start worrying about the impact of this update on the reverse charge mechanism, you should follow the steps below to determine if the reverse charge is actually applicable for your business:
- Are you a partial-exempt business?
- Do you procure services from overseas suppliers?
- Do you procure goods that fall under the definition of LVG from local or overseas suppliers?
- Relating to 2 and 3, are the purchases directly attributable to your taxable supplies?
If you answer “Yes” to one or more of the above but yet still do not know what you should do, feel free to talk to us. We can help 😊
Another important thing to note (if reverse charge is applicable to you), would be that the registration rules under the reverse charge mechanism will include both imported services and supplies of LVG come 1 January 2023.
Therefore, it may be good to start thinking whether your imported services and LVG for the next 12 months (i.e. as at 1 January 2023) is expected to exceed S$1 million and inform the IRAS of your liability to register, if any. This would be a good measure to prevent late registration and suffering from penalties that may be imposed by the IRAS.
More details on the reverse charge mechanism and LVG can be found in the e-Tax guide published by the IRAS at gst-taxing-imported-services-by-way-of-reverse-charge-(2nd-edition).pdf (iras.gov.sg)