Corporate Tax in Singapore
- Posted by admin
- 26 July 2013
Singapore’s Goods and Services Tax (GST) is akin to the VAT and is compulsory for all businesses with a yearly turnover exceeding $1 million. This tax is different, and entirely separate, from your corporate tax. However, financial activity related to GST can affect your accounting, audits and, ultimately, the amount of corporate tax in Singapore you’ll incur.
Many companies choose to get themselves GST-registered even though their annual turnover is less than $1 million. Reasons include the requirements laid down by your customers that might stipulate a condition for obtaining supplies from GST registered entity only. Voluntary GST registration must be carefully thought through in terms of cost of compliance for registration. This, of course, depends on whether GST claims will be greater than the costs involved in the GST registration process, such as consultancy fees, registration fees, renewal fees and other charges. Because of these charges, it would be wise to do a thorough financial analysis before deciding to become a GST-registered company.
Companies which do decide to become GST-registered even though their annual turnover is less than $1 million must note that once registered, registration cannot be cancelled for a period of two years.
An illusion may be created that by registering for GST, companies are volunteering to pay additional tax in Singapore? On the surface it makes no sense that a company would voluntarily pay additional tax – this is not so as any GST registered entity will act only as a collection centre. Collection of GST on sales (the output tax) will be offset against GST paid on import and or purchases and eligible expenses (the input tax) and the difference is remitted back to IRAS.
Input tax refers to the GST that is charged to your company when you incur expenses. For example, if you’re a manufacturing firm which purchases GST-added raw materials, then the GST you have to pay on your supplies will count as input tax. The input tax will be applicable to some, but not all, of your expenditure.
Output tax, on the other hand, is the GST you charge on your sales to your customers.
But why choose to be GST-registered instead of simply marking up your selling prices in order to make up for the extra costs you’ve incurred by paying your suppliers the 7% GST?
Firstly, if you’re a startup that does not envision turning a profit for the first 2 years of business, it is likely that the amount you’d spend on GST will be higher than the GST you’re charging to your customers. And so being GST-registered will actually reduce your costs.
Many trading companies that import goods for local supplies make a gross margin of between 5% to 10% and if they are not GST registered, the 7% GST paid on imports will be absorbed by them as cost, thereby making them less competitive. The decision on registering for GST will primarily depend on the gross margin of the entity and the nature of business.
Another reason is input tax claims can be relatively wide. You can claim GST for a variety of activities, and are not limited to the GST of your supplies, raw materials, or even services engaged. Do note that these claims can only be made when your suppliers are also GST-registered; therefore, purchasing from non-GST registered companies that do not charge you the 7% GST tax will not entitle you to these claims.
If you’ve paid the GST on goods and services that are part of your expenditure, you can claim GST for the following with certain exceptions, as well as a host of other expenses:
1. Company-registered vehicles
2. Expatriate employee’s school fees
3. Staff medical expenses
4. Dining expenses for corporate purposes
Certain expenses do not qualify for GST redemption. These include gifts and giveaways. For example, if you have purchased a TV set and wish to give it away as part of a lucky draw, you will not be able to claim the 7% GST.
Sandhurst can show you whether it’s beneficial for you to become GST-registered if your annual turnover is below $1 million. If GST is mandatory for your business, we can work out the amounts you have to pay, and what you can claim. Contact us for more information on considering to become a GST-registered company.