Act now to comply with the new tax rate in Singapore

Managers need to make sure their systems can cope with the hike in the goods and services tax rate when it comes into force in January.

Businesses need to act now to prepare for Singapore’s new higher rate of goods and services tax (GST), which will be introduced on 1 January 2023.

The Inland Revenue Authority of Singapore (IRAS) has raised awareness of the transitional rules through various channels and social media for businesses, and recommended that they update their systems to manage the rate change.

The GST rate in Singapore will rise from its current level of 7% to 8% in January 2023, following measures announced in the Budget of 2022. There will be a further rise to 9% in January 2024.

Over the transition period, businesses will need to ensure their systems and invoicing can accommodate the changes.

How does GST work under the Singapore tax system?

GST was introduced in 1994 and its increase in the 2022 Budget is part of a government plan to keep income tax low and encourage savings and investments, rather than taxing workers and savers.

At present, the GST rate in Singapore is 7% and all companies with a taxable turnover of more than SGD 1 million must register.

If you run a business in Singapore that is not currently registered for GST, you can register voluntarily. This could be for several reasons but is important if you expect annual turnover to be more than SGD 1 million in the next 12 months. However, there are pros and cons – so it may be wise to speak to an adviser who can help you decide whether this is the right course of action.

Managers need to be aware of several transitional rules on invoices issued and goods and services delivered during the run-up to the new tax rate in Singapore.

When you are sending out an invoice or delivering goods, you will need to ensure you are charging the correct rate of GST. The transitional rules are as follows:

• If goods are delivered before 1 January 2023 but your invoice is sent out subsequently, you may apply GST at the preceding 7% rate under the transitional rules. To qualify, you will need to be able to prove all the services were provided or goods delivered before the new rate was implemented.
• If goods or services are to be provided on or after 1 January 2023 but you invoice them in advance of the date of the rate change, you will have to charge the new higher rate of 8% by issuing a new invoice and a credit note to cancel the previous invoice charged at 7%.

What do organisations providing services to Singapore need to do this month in preparation for changes to the GST rate?

Businesses need to ensure their systems, invoicing, bills etc reflect the new changes that are taking place.

If you are selling goods and services to the public, you must show the price inclusive of GST at 8% with effect from 1 January 2023.

As there are transitional rules in place, it is important to think about the turnover threshold of your company and also the timing and format of your invoices.

IRAS allows easing measures within a certain stipulated period to rectify should businesses elect transitional rules to charge GST at 7%.

According to IRAS, under certain conditions, you can elect to charge GST at 7% on your taxable supplies that span the date of rate change.

For submission of incorrect return without reasonable excuse or through negligence, businesses may be liable to the following conviction(s):

1. A penalty equal to double the amount of tax undercharged; and
2. A fine not exceeding SGD 5,000 or an imprisonment term not exceeding 3 years; or both fine and imprisonment.

Why Intertrust Group?

As one of the most business-friendly jurisdictions in the world, Singapore provides a combination of factors including political stability, a trusted legal system, high-quality infrastructure, openness to foreign talent and an attractive tax regime. We have highly specialised teams who guide companies through every aspect of setting up and running companies, trusts and investment vehicles, with extensive knowledge of local rules and regulations in the region.

• We offer a full-spectrum service tailored to meet all back-office needs throughout the life cycle of a private capital fund. This, against a background of ever-increasing reporting demands.
• Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration and corporate actions, investor relations and portfolio management.
• Intertrust Group has 70 years’ experience in providing world-class trust and corporate services to clients around the world. Intertrust Group has been acquired by CSC, the world’s leading provider of business, legal, tax and digital brand services, worldwide.