Previously, there was a disparity in GST treatment between locally-procured services and imported services. Services that are imported from overseas are not subject to GST, unlike those procured from local suppliers, which has resulted in unfair competition.
Hence, with effect from 1 Jan 2020, the Reverse Charge (RC) mechanism and Overseas Vendor Registration (OVR) regime were introduced to level the GST treatment for ALL services consumed in Singapore.
Local businesses that fulfill certain criteria are now obligated to apply RC and be known as RC Businesses. On the other hand, those that do not meet the criteria may choose to apply the mechanism if it is deemed to be beneficial to them.
Now, let us take a look at two scenarios that are common to SMEs in Singapore and how the new rule applies to each of them.
Example 1: Company A is a GST registered business which does not make exempt supplies (e.g. financial services, sales and lease of residential properties, import and local supply of investment precious metals, etc.) and belongs to a GST group that is entitled to claim full input tax.
Example 2: Company B is a non-GST-registered business that does not import more than $1 million worth of services within a 12-month period.
In these 2 cases, the application of RC is optional.
Overseas Vendor Registration
In line with the introduction of RC, the overseas vendor registration (OVR) regime has also taken effect from 1 Jan 2020. This requires overseas suppliers meeting the following criteria to register for GST in Singapore:
have an annual global turnover exceeding $1 million; and
make B2C supplies of digital services to customers in Singapore exceeding $100,000.
This regulation has the following implications on local businesses:
Non-GST-registered persons (businesses and individuals) will be charged GST when they import digital services from OVR vendors
Non-RC Businesses that are GST-registered will have to provide their GST Registration Numbers to OVR vendors in order to avoid being charged GST by the OVR vendor.
GST in Singapore continues to evolve alongside the advent of technological and cross-border transactions. While SMEs are not likely to be impacted much by these new rules, should you require a more comprehensive analysis or simply wish to know more about how RC and OVR will impact your business, do consult your accountant.
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