Singapore taxes foreign digital companies with new registration regime
Singapore’s new Overseas Vendor Registration (OVR) system started on January 1, 2020, and compels foreign digital companies with customers in the city-state to register, collect, and remit 7% GST rate on their sales there.
Singapore’s new system includes a two-tier threshold. The OVR system applies to foreign suppliers of digital services whose annual global turnover exceeds SGD$1,000,000 and whose sale of digital services to consumers in Singapore exceeds $100,000. The latter threshold is included to minimise the compliance burden on overseas vendors which do not make significant sales to Singapore consumers.
On this date, 22 months of preparation by the Inland Revenue Authority of Singapore (IRAS) came to an end. In first announcing Singapore’s new GST plans back in February 2018 the country’s Ministry of Finance (MOF) declared that “introducing GST on imported services will ensure that, irrespective of whether the service consumed in Singapore is bought from suppliers here or from suppliers abroad, the same GST treatment will apply.”
This levelling of the playing field is expected to recoup SGD$90 million in extra tax revenue each year for Singapore’s MOF.
The reasoning for Singapore’s GST rule change mirrors those of many tax jurisdictions worldwide. The treatment of foreign-supplied digital services had led to competition issues with domestic suppliers being affected by a market imbalance. Domestic suppliers were being taxed while the foreign companies (overseas suppliers) were carrying out business with no taxation applied to their supplies of digital services.
The definition of “overseas” in the context of these Singapore GST changes and the new registration system. The term is defined by lawmakers as businesses with a status that belongs outside Singapore with no business or fixed establishment, nor a usual place of residence in Singapore.
Singapore’s new registration system
B2B imported services will be taxed via a reverse charge mechanism with local GST-registered businesses collecting and remitting the tax for the services that they import.
B2C imported services, however, will be taxed through the new Overseas Vendor Registration (OVR) system. Here are some additional characteristics of the OVR system:
- For B2C imported services, overseas suppliers and electronic marketplace operators (such as app stores) will need to be registered with IRAS.
- Specifically, overseas suppliers and electronic marketplace operators which make significant supplies of digital services to consumers based in Singapore will be required to register with IRAS. Once GST-registered, they will collect GST for IRAS on their B2C supplies of digital services. Singapore is the first country to introduce the contractual approach, in addition to the deemed supplier one, as recommended by the OECD in their October 2017 titled Mechanisms for the Effective Collection of VAT/GST When the Supplier Is Not Located In the Jurisdiction of Taxation.
Two pieces of non-conflicting evidence
How will these affected foreign suppliers of digital services correctly identify their end customer in Singapore? Well, the end customer of the B2C digital service can be determined by collecting two pieces of non-conflicting evidence.
The acceptable pieces of evidence are based, according to a helpful IRAS e-Tax Guide, on three proxy categories:
- Payment proxy (e.g. credit card information based on BIN number, bank account details)
- Residence proxy (e.g. billing address, home address)
- Access proxy (e.g. mobile country code of SIM card, IP address, location of a fixed landline through which the digital service is supplied)
The two pieces of evidence must include a payment proxy, as it is the hardest piece of evidence to falsify, and either a residence or access proxy. However, if for some reason a payment proxy is not available or is contradictory then the two pieces collected must consist of both a residence and access proxy. Of course, it is not always possible to obtain payment information in real-time so it will be interesting to see how this approach works in practice.
Scope of Singapore GST: affected digital services
The precise Singapore definition for affected digital services is as follows: “For the purposes of the overseas vendor registration regime, digital services are defined as any services supplied over the Internet or other electronic network and the nature of which renders its supply essentially automated with minimal or no human intervention, and impossible without the use of information technology.”
Affected digital services by this change to Singapore’s GST law include the supplies of the following (non-exhaustive list):
- Downloadable digital content (e.g. downloading of mobile applications, e-books and movies);
- Subscription-based media (e.g. news, magazines, streaming of TV shows and music, and online gaming);
- Software programs (e.g. downloading of software, drivers, website filters and firewalls);
- Electronic data management (e.g. website hosting, online data warehousing, file-sharing and cloud storage services); and
- Support services, performed via electronic means, to arrange or facilitate a transaction, which may not be digital in nature (e.g. commission, listing fees and service charges)
Taxamo support for Singapore GST
Taxamo supports Singapore GST compliance for affected digital service businesses through our Advantage and Intermediary Plus services.
Here at Taxamo, we would like to commend the Singapore authorities for their excellent level of communication with the market since their plan was revealed back in February 2018.
An example of Singapore’s proactive approach was how they engaged with businesses potentially affected by their GST law change. Their direct approach was impressive and included direct contact with these businesses. Equally effective in educating the market is the content available on the IRAS website explaining the new rules, such as this excellent video.
MORE: Click here for more background information to this GST rule change in Singapore.
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