GST is a tax levied on all domestic consumption of goods and services made in Singapore, supplied by a taxable person (ie a GST registered supplier). Where such taxable supplies qualify as a zero-rated supplies, full input tax incurred directly attributable to the making of zero-rated supplies are claimable on zero-rate supplies provided they meet the conditions for input tax claim. This is unlike exempt supplies which are not subject to GST and consequently the input tax incurred on the making of exempt supplies may not be claimable (depending on whether the claimant is a partially exempt trader and the type of exempt supplies, s33 or non s33 regulation supplies).
A tax invoice need not be issued for zero-rated supplies , exempt supplies and deemed supplies or to a non-GST registered customer. Where a supply qualifies both as a zero-rated supply and an exempt supply, zero-rating will override the exempt supplies such that input tax may be claimed,
Therefore, for goods and services supplied overseas, zero rating may apply but unless these taxable supplies qualifies for the conditions of zero-rating (GST tax rate of 0%), these will continue to be taxable at standard rate of 7%. It is important to know what are the conditions to determine zero rating, what constitute non-domestic services. For physical goods, it is simpler, as long as the sale of goods is for export to an overseas customer, the goods will automatically be treated as a zero-rating supplies at the customs with a corresponding custom export certificate issued.
For services, it is not so simple. You will need to identify 4 main concepts, belonging, directly in connection with, under a contract with and directly benefit, to determine both the status of the supplier as well as the customers.
You have to determine the the belonging status of your customers, whether it is in Singapore or outside Singapore (which qualifies for zero-rating).
Generally, a customer is treated as belonging to Singapore if it has a business establishment (BE), or a fixed establishment (FE) or a usual place of residence in Singapore. A BE is a place where the main seat of economic activities happen, usually the head office, principal place of business or where the management, board or central administration are carried out.
FE is a narrow establishment vs BE ie BE without decision making and main economic activity function. FE is an establishment with just sufficient human and technical resources to provide or receive services on a permanent basis. There must be both Human Resources operating technical resources eg computers, equipments etc to constitute a BE. A purely automated supply chain hub does not qualify as a BE.
The usual practical way of determine the belonging status of the customer is to seek direct verification with the customer that it has no head office, branch, agency, office, warehouse in Singapore or to do an ACRA business search to determine whether the customer has registered any business with any registered office or principal place in Singapore.
2. Directly in connection with
This relates to whether there is a direct and clear nexus, between the supply and any land of goods situated in Singapore. Any service that is directly in connection with (or directly relate with a clear nexus) to any land or goods in Singapore cannot qualifies for zero-rating. The concept is to geographically bound the land and goods in Singapore and any services that directly relate to these items (land or goods) will be deemed to be domestic services. Services that relates to the following supply will be directly in connection with land or goods if:
- Physical work done to change or affect the land or goods (for example, installation and modification);
- Physical contact or interaction with the land or goods (for example, transportation and security)
- Establishment of physical attributes of the land or goods (for example, testing and certification);
- Services that affect (or meant to affect) ownership, interests or rights over the land or goods (for example, auction).
Services that affect (or meant to affect) or protect the nature or value of the land or goods (for example, fire insurance); or
On the other hand, IRAS does not consider the supply of services to be directly in connection with land or goods where the supply:
- Does not relate to specific land or goods (for example, feasibility study or market research);
- Does not relate to identifiable land or goods (for example, a general advice on the property market not specific to a particular property); or
- Does not directly relate to the identifiable land or goods (for example, credit facilities not for the asset purchased but for the asset used as collateral).
3. Under a contract with
It is important that there exists a written contract that spell out the commercial arrangement between the buyer and the seller or between the parties. Written contracts, service level agreements or written email exchanges will be important documents to determine the nature of the contract.
4. Directly benefit
As following from 3 above, one need to determine who are the direct beneficiaries from the service, the flow of services of benefits has to be examined from the written contract. The point to note that the service must flow from one party to another in an unimpeded manner.
To determine whether a supply qualifies for zero rating, the first step is to test that the supply is not directly in connection with lands or goods in Singapore.
Where the services relate to land or building outside Singapore, the provision relating to services directly in connection with land outside Singapore will apply under s21(3)(e), which relates to construction, alteration, repair, maintenance or demolition of any building or civil engineering work relating to land or goods situated outside Singapore. There is no need to test for belonging or directly benefit condition.
Where services are performed for good (ie Computer server situated outside Singapore) for outside Singapore under s21(3)(f) similarly applies and there is no need to test for belonging or directly benefit condition.
Where services are performed on goods to be exported out of Singapore under s21(3)(g), it is important that export documentation are maintained to prove that the recipient and the customer of the supply belong to outside Singapore at the time the service is performed.
Services which are specifically covered under zero-rating including international transportation/lease, financial services, media and advertising.
International services relating to transportation, lease are covered under s21(3)(A), (B), (C) and (D). As long as the domestic transportation is provided as part of the supply of the international transportation ie a door-to-door transportation from Singapore to London, the whole service including the domestic leg will qualify for zero-rating.
Prescribed financial services are covered under s21(3)(H) which include insurance, factoring and credit collection that are supplied in connection with goods for export outside Singapore.
Specific services relating to cultural, artistic, sporting, educational, entertainment, exhibition or convention services performed wholly outside Singapore also qualifies for zero-rating under s21(3)(I).
Prescribed professional services eg lawyers, accountants, engineers, consultants, exhibition or convention services, training, retraining provided under a contract with and directly benefit a person wholly in his business capacity and who in that capacity belongs to outside Singapore, qualify for zero-rating under s21(3)(k). The supply must be for a customer for business purpose and the customer just needs to be belonging to outside Singapore in his business capacity. The customer can be in Singapore at the time of the supply.
Prescribed services relating to the handling of international going and commercial use ship or aircraft, or the handling or storage of goods carried in any such ship or aircraft, qualify for local rating under s21(3)(l). This applies even if the supply is made to a local customer.
Prescribed services relating to ships or aircraft (excluding services relating to transport of passengers, provision of food and beverages, entertainment, education, accommodation) qualify for zero-rating under s21(3)(M), (N), (O), (P). This applies even if the supply is made to a local customer.
International telecommunications and advertising services are qualify for zero-rating under s21(3)(Q) and (u) respectively. Point to note for telecommunications is that a transmission from SG to UK and back to UK is treated as domestic. The final ending point of the telecommunications must be outside SG.
For advertising, it is considered outside Singapore if it promulgated substantially outside Singapore. For print advertising, its place of circulation would be critical. For online advertising, the intended consumption of the advertising would be the critical point for determining whether it is outside Singapore.
As there is a whole list of 25 international services under the GST Act that allows for zero-rating running from s21(3)(a) to (y), zero-rating can only apply if the supply qualifies for any of the 25 international services listed. Otherwise, this taxable supply has to be treated normally as a taxable standard rated 7% supply. It is the responsibility of the taxable person to ensure correct treatment of the supply and only treat a taxable supply at zero rating if it qualifies for the list of zero-rating under the GST Act.