When to Charge GST: Expert Tips & Strategies 

For any business owner in Singapore, understanding Goods and Services Tax (GST) and your tax matters is crucial. Not only does it impact your pricing strategy, but failing to comply with GST regulations regarding taxable turnover can lead to hefty penalties. This blog post will equip you with the knowledge you need to determine when to charge GST, navigate the mechanics of reverse charge, and master GST calculations and tax invoices. 

What is GST? 

GST is a broad-based consumption tax levied on most taxable supplies of goods and services made in Singapore, including the import of goods at the prevailing rate. In simpler terms, it’s a tax that gets added to the price of most goods and services you buy. Businesses that are registered for GST collect this tax from their customers and then pay it to the Inland Revenue Authority of Singapore (IRAS). 

The current GST rate in Singapore stands at 9%, with exemptions for the sales and leases of residential properties, importation and local supply of investment precious metals, and most financial services. Additionally, the export of goods and international services are zero-rated. 

Understanding GST Registration 

Not every business in Singapore needs to register for GST. The primary criterion for mandatory GST registration is your annual turnover. If your business turnover exceeds S$1 million in a calendar year or you expect it to exceed that amount in the next year, you must register for GST. 

However, even businesses with a turnover below the threshold can voluntarily register for GST. There are potential benefits to consider, such as claiming back GST incurred on your business expenses. We’ll delve into the pros and cons of voluntary registration later. 

When to Start Charging GST? 

Once your GST registration application is approved by IRAS, you are legally obligated to start charging GST on your taxable supplies. This typically takes effect from the GST registration date specified in your approval letter. 

It’s important to factor in key milestones and timelines. Ensure you update your accounting system, pricing structure, and invoicing templates to reflect the inclusion of GST. You’ll also need to start keeping proper records of your GST transactions. 

Exceptions to the 9% GST Charge 

While the default GST rate is 9%, there are specific scenarios where businesses are not required to charge the full percentage or may even be exempt from GST altogether. Let’s examine these exceptions in detail: 

Zero-Rated Supplies: Exports and International Services 

Exports of goods and the provision of international services are considered zero-rated supplies. This means that while these transactions are still considered taxable supplies, the GST rate applied is 0% instead of the standard 9%. Businesses engaging in these activities can claim input tax credits on their expenses, but they do not need to charge GST on their sales. 

Exempt Supplies: Financial Services, Residential Properties, and Investment Precious Metals 

Certain supplies are categorized  categorised as exempt, which means that GST does not need to be charged on these transactions. Broadly, the exempt supplies include the provision of financial services, the sale and lease of residential properties, and the import and local supply of investment precious metals (IPM). 

While the default GST rate is 9%, there are specific scenarios where businesses are not required to charge the full percentage or may even be exempt from GST altogether. Let’s examine these exceptions in detail: 

Zero-Rated Supplies: Exports and International Services 

Zero-rated supplies refer to exports of goods and the provision of international services. While these transactions are considered taxable, the GST rate applied is 0% instead of the standard 9%. This allows businesses engaged in these activities to claim input tax credits on their expenses, meaning they can recover GST paid on their purchases. However, they are not required to charge GST on their sales. 

Exempt Supplies: Financial Services, Residential Properties, and Investment Precious Metals 

Exempt supplies, on the other hand, are transactions where GST is not charged, but businesses cannot claim input tax credits on related expenses. Exempt supplies typically include the provision of financial services, the sale and lease of residential properties, and the import or local supply of investment precious metals (IPM). While these supplies are GST-free for the customer, businesses offering them are unable to recover GST on their purchases. 

How to Charge GST? 

Now that you understand when to charge GST, let’s explore the mechanics: 

• Including GST in invoices and receipts: Clearly display the GST amount separately on all your invoices and receipts. This ensures transparency for your customers and simplifies record-keeping for you. 

• Record-keeping requirements: As a GST-registered business, you’re required to maintain accurate records of all your taxable supplies, including sales and purchases. These records should be kept for at least seven years from the date the supply was made. 

• Calculating GST: To calculate the GST amount you need to add to your sales price, simply multiply the net price of your good or service by the current GST rate (9%).  

Here’s the formula version for calculating GST: 

GST Amount = Net Price × GST Rate (9%) 

Total Selling Price (including GST) = Net Price + GST Amount 

Example: 

If the net price is S$100: 

GST Amount= S$100 × 9% = S$9 

Total Selling Price = S$100 + S$9 = S$109  

Navigating Common GST Charging Scenarios 

While the general rule and exceptions provide a solid foundation, businesses often encounter specific situations that require further clarification. Let’s explore some common scenarios and how to approach GST charging in each case: 

Recovery of Expenses 

When a business recovers expenses from a client, such as travel costs or other out-of-pocket expenses, the GST treatment depends on the nature of the expense. If the original expense was subject to GST, the recovered amount should also include the corresponding GST component. 

Gifts and Samples 

The GST treatment for gifts and samples can vary. If the gifts or samples are provided to customers or potential customers, they are generally considered as part of the overall supply and should include the applicable GST. However, if the gifts or samples are provided to employees, they may be considered as input tax and subject to different GST rules. 

Issuance of Vouchers 

The GST treatment for vouchers depends on whether they are issued for a specific good or service, or if they are general-purpose vouchers. For specific-purpose vouchers, the GST is typically charged at the time of redemption. For general-purpose vouchers, the GST is charged at the time of sale. 

Customer Accounting for Prescribed Goods 

Effective from January 1, 2019, businesses making local sales of prescribed goods (such as mobile phones, memory cards, and off-the-shelf software) to GST-registered customers must apply customer accounting if the value of the supply exceeds $10,000 (excluding GST). In these cases, the supplier does not charge GST, and the customer is responsible for accounting for the GST inclusive on the purchase. 

Penalties for Not Charging GST 

Failing to comply with GST regulations can have serious consequences. Here are some potential penalties: 

• Default penalties: IRAS may impose penalties for late registration, late filing of GST returns, or underpayment of GST. 

• Composition penalty: In severe cases, a composition penalty, which is a fixed percentage of the tax evaded, may be imposed. 

• Prosecution: For deliberate evasion of GST, you could face prosecution in court. 

Remember, avoiding these penalties is far easier than dealing with them later. 

Common mistakes and how to avoid them: 

Entrepreneurs often make mistakes regarding GST, particularly during the initial stages. Here are some common pitfalls to avoid: 

• Not understanding the difference between taxable and exempt supplies: Ensure you correctly identify which of your supplies are subject to GST and which are exempt. Referring to IRAS guidelines or seeking professional advice can help clarify any doubts. 

• Miscalculating GST amounts: Double-check your GST calculations to ensure accuracy. Consider using accounting software specifically designed for GST compliance. 

• Failing to keep proper records: Maintaining meticulous records of your GST transactions is crucial. Invest in a robust record-keeping system to avoid future complications. 

Conclusion 

Understanding when to charge GST and adhering to the regulations is essential for any Singaporean entrepreneur. By familiarizing yourself with the key concepts covered in this blog post, you can navigate the system with confidence and avoid potential pitfalls. 

Seeking Professional Help 

While this blog post provides a solid foundation, navigating the complexities of GST can be challenging. If you have any doubts or require further guidance, consider seeking professional help from a qualified accountant or a firm specialising in GST, such as Grof. 

Grof offers a comprehensive range of GST services, including registration assistance, return filing, and ongoing compliance support. Our team of experts can help you ensure your business adheres to all GST regulations and maximises its benefits. 

For more detailed guidance, visit Grof’s resources on GST here. 

By understanding your obligations and seeking professional help when needed, you can ensure your business thrives in a GST environment.