What is reverse charge?
The reverse charge (“RC”) is one of the mechanisms frequently used to “level the playing field” in the GST treatment of services supplied by domestic and overseas suppliers. The Inland Revenue Authority of Singapore (“IRAS”) recently released their revised guidance in advance of the regime go-live date of 1 January 2020.
Without the RC, when a supplier that belongs outside Singapore makes a supply of services to a GST-registered business in Singapore (“B2B”), the supply would not be subject to GST, while the same supply of services provided by a domestic supplier would be subject to GST, thus creating an unlevel playing field in favour of oversea suppliers.
From 1 January 2020, the GST-registered recipient would be liable to account for GST (“output tax”) on the value of the imported services (with some exceptions) from overseas suppliers. At the same time, the GST-registered recipient would be entitled to claim the self-accounted output tax as input tax, subject to the usual partial exemption recovery rules.
Who will be affected by RC?
The RC will largely affect two types of businesses in Singapore (irrelevant of their legal structure);
- GST-registered businesses who procure services from overseas suppliers and are not entitled to full input tax recovery or it belongs to a GST group that is not entitled to full input tax recovery. Examples of such businesses include taxable businesses that do not meet the De Minimis rules, financial institutions, mixed property developers, and charitable and welfare organisations that provide free or subsidised (non-business) activities; and
- Non-GST registered businesses who procure services from overseas suppliers exceeding SGD1 million in a 12-month period and would not be entitled to fully input tax recovery if they were GST registered. Examples of such businesses include pure investment holding companies, residential property developers and charitable and welfare organisations that provide free or subsidised (non-business) activities that are not already registered.
Next steps - What should you consider in order to be ready?
As always, the key to staying compliant lies in preparing ahead of time. Here is a handy checklist to help you get started.
- Identify your imported services that are subject to the reverse charge.
- If you are not GST registered, monitor the value of imported services that may tip you over the GST registration threshold and if you exceed the threshold, to ensure that you are registered by 1 January 2020.
- If you are GST registered, consider whether you are entitled to full input tax recovery to avoid the liability to account for reverse charge on your imported services.
- Ensure that your accounting system has the relevant tax codes for imported services to ensure you can easily track and account for the reverse charge on such supplies.
- Consider automating the process of accounting for the reverse charge.
- If necessary, undertake additional training for your procurement and finance teams to ensure that they understand the rules and identify the services that are within scope of the reverse charge including inter-branch and inter-GST group transactions.
- Consider the impact for services which span 1 January 2020 implementation date (there are complex transitional provisions and opportunities for planning and cost mitigation); and
- Consider the possibility of seeking professional advice or clarification from the IRAS on uncertain transactions.
Download our Reverse Charge guide here [ 668 kb ] to understand more or reach our to our GST expert Jeremy O'Neill for more information.
