GST is a consumption-based indirect tax implemented in Singapore to reduce direct taxes like corporate and individual income tax. While companies with over $1 million in taxable turnover yearly should be Singapore GST Registered Company, there is the option for voluntary GST registration for smaller companies.
In this guide, we’ll discuss the advantages of registering for GST in Singapore and help you establish if this is the right route for your business.
Simply Put, What is the GST?
In Singapore, residents must pay a tax on most purchases called the Goods and Services Tax (GST). The amount is added to your total bill when you make a purchase.
Companies process monthly or quarterly payments to IRAS for the GST tax it collects from customers.
At present, the Goods and Services Tax rate stands at 7%. However, the latest Singapore Budget 2022 announced a gradual increase in the GST from 7% to 9%.
- On January 1, 2023, the first raise will be from 7% to 8%.
- As of January 1, 2024, a second raise will be from 8% to 9%.
How Does Singapore’s GST Work?
Apart from charging GST, companies must also pay for it. The goods and services tax (GST) is already built into the prices of many of the inputs your business needs to function. Hence they will be charged GST on all business-related purchases and services you contract for your company.
There are two ways in which the system benefits Singaporean businesses that are GST registered company Singapore:
- You pay GST (i.e., Input tax).
- You charge GST (i.e., Output tax).
The best part is that you can get that tax back as a legitimate business expense if you’re GST registered.
Is Voluntary GST Registration Necessary for Your Business?
5 Advantages of a Singapore GST Registered Company:
If your company makes over S$1 million a year, then GST registration is compulsory. But, as we mentioned earlier, companies with a lower turnover can register voluntarily. Some considerations associated with voluntary registration include:
1. Net GST
A business registered for GST can claim a credit for taxes paid on purchases against those collected on sales (or what we refer to as net GST).
Consider registering for GST if your company expects to incur higher input tax costs than output tax revenues.
2. Documentation and Filing Obligations
Any organization that has paid the GST registration fee is legally bound to maintain the required accounting and filing systems.
This may mean an additional workload for your existing team or the need to outsource the accountancy and filing requirements.
3. GST Is Passed On to Customers
Businesses registered for Goods and Services Tax (GST) must charge GST on taxable products and services. Your customers will have to pay more in addition to the current price.
4. Customer Perception
Whether or not to register for GST can also be influenced by how potential customers perceive it. Customers may form a negative impression of your company if they discover that you are not GST-registered, even though this may not be a requirement.
5. Various GST Incentive Programs
The government of Singapore provides a variety of schemes and incentives to business owners to simplify the GST process.
There are both broad and sector-specific incentives for businesses to take advantage of. They include:
Major Exporter Scheme (MES)
Dutiable items are not eligible for the Major Exporter Scheme (MES). However, when inventory is moved out of tax-free storage areas, GST may be waived upon entry.
This plan was devised to lessen the financial burden on companies with significant international trade.
When importing goods, businesses typically pay GST up front and then claim a refund from IRAS. This is because the initial monetary outlay associated with imports cannot be recouped through the collection of GST from zero-rated supplies.
Gross Margin Scheme
Re-sellers who invest in previously owned inventory are exempt from GST. The Gross Margin Scheme allows businesses to report GST based on profit margin rather than the total sales price.
A negative gross margin means a loss between price and cost. In that case, the gross profit is considered zero, and no GST is due. However, The company must report the final sales price in the GST report.
Zero GST Warehouse Scheme (ZG)
Approved businesses can use the Zero GST Warehouse (ZG) Scheme to store their non-dutiable imports from overseas duty-free.
Taxes on Goods and Services (GST) are only due when authorized businesses import warehouse goods for local consumption. Singapore Customs manage this program.
Tourist Refund Scheme
The GST scheme is popular with tourists because they can get their money back if they buy something in Singapore and take it home. To participate, Singaporean merchants must first register for GST.
Cash Accounting Scheme
The scheme is open to companies with annual sales of less than S$1 million. It was created to aid smaller companies in managing their cash flow.
Delaying output tax recording until after customer payment improves liquidity. When supplier invoices are paid, input tax credits can be claimed.
Hand Carried Export Scheme
Business owners who intend to ship items to customers abroad at zero duty can take advantage of this program by exiting Singapore.
Whether leaving Singapore by air or sea (via land or seaport), the owner’s goods taken out of the country are exempt from the HCES.
Discounted Sale Price Scheme
You can recoup half of the GST you pay if you sell a used car for a discount through the Discounted Sale Price Scheme.
Import GST Deferment Scheme (IGDS)
The GST is not paid at the time of importation by businesses approved for GST registration. Instead, GST is produced when the importer’s monthly GST returns are due. This reduces the time GST-registered companies have to wait between making an import and receiving a GST refund.
Both foreign and local business owners need to be familiar with Singapore’s Goods and Services Tax (GST) before setting up a shop in the country. You can save money in the long run by learning about GST rules and taking advantage of the many government incentive programs that have been put in place.