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Overview of GST Reverse Charge

Overview of GST Reverse Charge

In Budget 2018, two regimes to levy GST on imported services, are announced to be implemented from 1 January 2020 onwards, namely Reverse Charge regime for Business-to-Business (“B2B”) supplies and Overseas Vendor Registration regime for Business-to-Consumer (“B2C”) supplies.

Reverse Charge Regime subjects the B2B procurement of imported services to input tax or GST. The current GST rule only requires input taxes to be applied on services procured from local GST-registered persons. The Reverse Charge (RC) regime stipulates the transfer of GST obligation to the buyers of imported services intended for business use.

The advent of technological advancements initiated the influx of virtual business solutions. This offered an option for Singapore businesses to procure service from outside of the country. The goal of the changes is to level the GST treatment for services procured locally and those obtained overseas.

Example

Company A obtains payroll services in Singapore from Payroll Company who is based in Singapore, and marketing services from an online marketing solutions provider.

In the current GST rule, Payroll Company has to report the GST on the payroll services in its GST return, while no GST is chargeable for the marketing services.

With the RC regime, Payroll Company will shoulder the GST for the payroll services, while Company A will be accountable for the GST on the marketing services.

Who are subjected to RC?

The following are covered by the changes in the RC regime;

  • A GST-registered entity who is
    1. A business not entitled to claim input tax in full;
    2. An organization who carries out non-business activities (such as charities or welfare groups who offer free or subsidised services, and investment holding companies which derive dividend income) and receives non-business receipts, is not entitled to claim input tax in full; or
    3. A fully taxable person who chooses to apply RC.
  • A Non-GST registered business
    1. Whose total value of imported services, procured within a 12-month period, exceeds the S$1 million threshold; and
    2. Who is not entitled to claim input tax in full even if it was GST-registered.

Exceptions to the Rule

By announcing these changes in the announcement in Budget 2018, this move gave the affected businesses about 22 months, providing ample time to prepare. Once the law takes into effect, no extension will be granted to anyone who might attempt to request for leniency. However, there are exceptions to the rule:

  1. Businesses that create and provide non-taxable goods and services may qualify for partial GST claims. Products and services include but not limited to:
    • Tax-exempt supplies under the 4th Schedule of the GST Act.
    • Zero-rating supplies under Section 21(3) of the GST Act.
    • Non-taxable government services under the Non-Taxable Government Supplies Order of the GST Act.
  2. Businesses that provide free or subsidized products and services.
  3. Regulations 28 of the GST General Regulations or the De Minimis Rule is not satisfied.
  4. RC is not applicable to supplies that have been previously taxed in Singapore.

Example

Singapore Corporation engages Foreign Services to conduct a market research for $20,000. Foreign Services will outsource the job to Local Research Firm for $15,000. After the completion of the project, GST computation is as follows;

Local Research Firm will bill Foreign Services $15,000 plus the 7% GST of $1,050 to get a total of $16,050.

Foreign Services will bill Singapore Corporation $20,000. Singapore Corporation will account for 7% GST on $5,000 as the $15,000 has already been taxed. GST charged to Singapore Corporation for this transaction is $350.

Which transactions are affected?

Although the law was announced as early as 2018, the blanket implementation of the rule is on 1 January 2020. RC will apply to all transactions of the affected services paid or delivered, whichever is earlier, on or after the implementation date.

  1. General Rule – The earlier of when the invoice in respect of the supply is issued and when the payment is made.
  2. Consistent Application – Businesses may also account for RC at the earlier of when the invoice in respect of the supply is posted and when the payment is made, if all GST returns are prepared on the same basis.
  3. RC Business Applying RC At The End of Longer Periods – The day immediately after the last day of the longer period. If the accounting period end on 30th June, the time of supply is 1st July.
  4. Special Rules
    • Intra-GST group and interbranch transactions – The earliest of when the invoice in respect of the supply is issued, when the payment is made, and 12 months after the basic tax point. This rule done not apply to continuous supply of services.
    • Transactions straddling the registration – Services performed before registration can be (a) excluded from RC or (b) the time of supply set to the service date or when the service was rendered.
    • Transactions straddling the de-registration – Services performed before de-registration are subject to RC, with the time of supply set to the day immediately before the de-registration takes effect.
    • As an administrative concession, GST-registered businesses who are unable to accurately determine if they will be partially exempted from year to year, they may elect to apply RC only at the end of the longer period.

Mighty Glory Corporate Solutions provides accounting and tax services, bookkeeping, payroll services, and more corporate solutions in SingaporeConnect with us today to know more about the Reverse Charge Regime and how it may affect your business. We look forward to helping you identify your business needs and provide customized, efficient and holistic solutions.

GST Implication From Customer Accounting

GST Implication From Customer Accounting

Starting from 1 January 2019, customer accounting for prescribed goods is mandatory required under the GST regulations. This is applicable to the supplies of certain prescribed goods acquired by a GST-registered customer intended for business use, provided that it is (a) a local sale of prescribed goods with a GST-exclusive value of over S$10,000 and (b) not an excepted supply.

Customer accounting transfers the responsibility of GST accounting from the seller (or supplier) to the buyer (or customer). The changes are aimed to counter non-reporting and other fraud schemes where the supplier or seller absconds with the collected GST.

Under the Customer Accounting (CA) scheme, the sellers are not allowed to charge and collect GST from their customers. They are, however, required to issue a customer tax invoice that reflects the customer’s GST registration number and a statement to inform the customer of his/her GST accountability, and the application of CA in that purchase. The seller will also have to report the transaction in his GST returns.

What are the Prescribed Goods?

The application of CA is limited to the prescribed goods, which include but are not limited to the following:

  • Mobile Phones – Examples include smartphones, Blackberry, or tablets that can transmit and receive calls and messages over a cellular network. The purchase of a mobile phone is, however, excluded from customer accounting if it comes with a post-paid mobile subscription plan by a local telecommunication service provider. Satellite phones, walkie-talkies, smartwatches, mobile landlines, phones over 17.5 cm in screen size, and smartphone accessories such as chargers, screen protectors, and batteries are not included in the CA scheme.
  • Memory Cards – This category includes memory sticks, Secure Digital (SD) cards and CompactFlash. The exclusions are solid state drive (SSD), thumb drive, dual in-line memory module (DIMM), random access memory (RAM), portable external hard disk, hard disk drive (HDD), and other smart cards with embedded chips such as ATMs, SIM cards, and credit cards.
  • Off-the-Shelf Software – The software included in this category are those that are not specifically customized for the customer. Such software is stored in a CD or similar storage device; or the product can be accessed through a product or license key, activating or other similar code which is provided as part of the purchase. Prescribed goods for CA include software sold in physical boxed packaging like anti-virus, accounting, gaming, design tools, etc. Pre-installed software is not prescribed for CA. Software back-ups stored in CD or similar storage device, Xbox Live, software downloadable from the internet (whose key or code for access is provided via email), and PlayStation Plus are examples of software not qualified for CA.

‘Excepted Goods’ which are not subject to CA, are the supplies of goods made under:

  • Gross Margin Scheme – The computation of GST is based on the gross margin, not the full value, of the goods supplied. This scheme is applicable if (1) the primary business activity is dealing with used goods and (2) the second-handed goods are purchased free of GST.
  • Approved Third Party Logistics (3PL) Company Scheme – Under certain conditions, no import duty or GST is applicable on the supplies of goods from the overseas customers of these approved logistics companies.
  • Approved Refiner and Consolidator Scheme – Either the approved refiner or consolidator can enjoy the certain GST benefits, which are specially designed to ease cash flow and relieve indirect taxability on refining activities for investment precious metals (IPM).
  • A deemed taxability arising from the transfer or disposal of goods at no cost.

When to Apply Customer Accounting

To apply CA, the following conditions must be met;

  • The customer must be a GST-registered person;
  • The purchase of prescribed goods is conducted in the ordinary course of a business; and
  • The value of the prescribed goods exceeds S$10,000.

Connect with us today to learn more about customer accounting and how this may affect and/or apply to your business. We look forward to helping you identify your business and personal needs, and providing you with efficient and holistic solutions.

Replacement of FRS 17 With 116 (IFRS 16): Leases

Replacement of FRS 17 With 116 (IFRS 16): Leases

In 2016, the International Accounting Standards Board (IASB) published a new accounting standard IFRS 16, Leases.  The Accounting Standards Council (ASC) of Singapore, in following the IASB, announced the equivalent standard for leases, FRS 116.  This will come into effect from January 2019 onwards, replacing the current FRS 17, with early adoption permitted.

This Standard is applicable to all leases, including leases of right-of-use assets in a sublease, except for those leases which are applying other standards.

The primary change that FRS 116 entails is that lessees will now use a single lessee model.  Previously, under FRS 17, leases could be categorised as capital or operating leases.

FRS 116 implementation is expected to be challenging for businesses with many lease contracts.  This stems mainly from the high financial obligations of implementing it, which includes establishing a consolidated database of the existing lease contracts and transactions, as well as revising prior accounting information to meet the requirements of FRS 116, where necessary.

The financial implication of implementing FRS 116 is the expected increase in leverage ratio (long term solvency) due to the increase in financial liabilities and decrease in equity.  Current ratio (liquidity) would be decreased as well; current liabilities will increase, provided that the current assets remain at status quo.  Meanwhile, the non-current assets amount is not reporting the exact value of assets owned by the business because leased assets are included in the lessees’ books. Businesses might consider purchasing assets rather than leasing and prioritising service contracts over leasing assets.

Nevertheless, FRS 116 assists in enhancing transparency because of the disclosure requirements in the financial statements, such as the net effect of the sale and leaseback transactions and expenses on leases of low-value assets and short-term leases.

Do you have other questions regarding the new accounting standard FRS 116 in Singapore or any concern about accounting works on leases? Talk to the accounting experts in Singapore. Contact Mighty Glory Corporate Solutions today and discuss with us your needs.

Implementation Of CorpPass Replaces SingPass With Effect From 2018

Implementation Of CorpPass Replaces SingPass With Effect From 2018

SingPass Update:

Businesses can still login to access statutory e-services with SingPass before 31 August 2018.  On 1 September 2018, only users with a CorpPass account can access.

Original

Since 25 March 2017, all local businesses can use a new corporate digital identity (CorpPass) to access the Government-to-Business (G2B) digital services in Singapore.

With the increased digitalisation of businesses and platforms, a high volume of business transactions is being conducted through digital platforms with SingPass. However, there are security concerns over the sharing of SingPass login details with other individuals for transactions with statutory boards, such as ACRA, IRAS and CPF Board.

CorpPass allows for the conflation of such e-services – as a single corporate digital identity, it enhances the convenience and ease of management for businesses. For businesses that carry out transactions with multiple government agencies, CorpPass will remove the need for multiple login identities. Businesses can also allocate CorpPass’s various administrative roles to employees, allowing them to have a greater level of control and management.

Businesses have to obtain their CorpPass via online application.  The use of SingPass will cease on 31 December 2017.  From 1 January 2018 onwards, business entities can only transact with ACRA with the CorpPass accounts registered.

Do you have other related questions about CorpPass? Get in touch with Mighty Glory today, let’s discuss your business needs.

IFRS 15 – Impact On The Construction And Advertising Industries

IFRS 15 – Impact On The Construction And Advertising Industries

IFRS 15 specifies the circumstances under which an entity recognizes revenue as well as requiring companies to provide users of financial statements with more informative and relevant disclosures. The standard provides a principles-based five-step model to be applied to contracts with customers and will apply to the annual reporting period beginning on or after 1 January 2018.

IFRS 15 replaces the following standards and interpretations:

  • IAS 11 Construction contracts
  • IAS 18 Revenue
  • IFRIC 13 Customer Loyalty Programmes
  • IFRIC 15 Agreements for the Construction of Real Estate
  • IFRIC 18 Transfers of Assets from Customers
  • SIC-31 Revenue – Barter Transactions Involving Advertising Services

The impact of IFRS 15 on the Construction Industry:

Contract inception

1. Capitalizing on pre-contract costs
  • Under IFRS 15, an entity recognises as an asset the incremental costs of obtaining a contract with a customer only if it expects to recover those costs. However, if the amortization period of the asset is one year or less, the entity is allowed to expense such costs as incurred.
  • Incremental costs of obtaining a contract are costs that are incurred only as a result of winning a contract (e.g. a sale commission). Although this focus on purely incremental cost already exists in current IFRS; it is a new approach in contract accounting.
  • Costs incurred during the bid process that would have been incurred regardless of whether the contract was won or lost (e.g. due diligence costs) are recognised as an expense when incurred unless they are directly chargeable to the customer. This is regardless of whether the contract is obtained.
  • For costs other than the costs of obtaining the contract, a contractor would first consider if such costs can be capitalised under another standard (e.g. as inventory). If these costs cannot be capitalized, the contractor considers if these costs represent ‘fulfilment costs’ under IFRS 15.
2. Identifying contract performance obligations
  • IFRS 15 requires an entity to identify the performance obligations in a contract. A performance obligation is a promise to transfer a good or service to a customer. A performance obligation may be identified explicitly in the contract or implied through previous business practices, published policies or specific statements. A good or service is distinct from other goods and services, and so is a performance obligation if, firstly, the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and secondly the promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
3. Revenue Recognition
  • While IFRS 15 was under development, a key concern was whether contractors would continue to recognise revenue as the contract progresses, similar to the stage of completion method under IAS 11.
  • Under IFRS 15, revenue is recognised when, or as, performance obligations are satisfied through the transfer of control of a good or service to a customer. An entity recognises revenue over time if one or more of the following criteria are met:
    • The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs – for example, routine or recurring services
    • The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced – for example, building an asset on a customer’s site
    • The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date – for example, building a specialised asset that only the customer can use, or building an asset to a customer order.
  • If it cannot be demonstrated that a performance obligation is satisfied over time, then an entity recognises revenue at the point in time when it satisfies the performance obligation by transferring control of the completed good or service to a customer. IFRS 15 defines control as the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. The benefits of an asset are the potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly.

During the contract life cycle

1. Capitalising of contract costs
  • An entity recognises an asset for the costs incurred to fulfil a contract (e.g. work in progress) when the criteria for recognising an asset are met. Costs that qualify for capitalisation under other standards – e.g. property, plant and equipment – continue to be capitalised under the relevant standards. IFRS 15 provides specific guidance on what costs are required to be expensed. The aim is to ensure that only costs that relate to satisfying (or continuing to satisfy) future performance obligations are capitalised with all other costs expensed off to profit or loss.
2. Measuring contract progress
  • If performance obligations are satisfied over time, i.e. similar to the current stage of completion accounting, an entity uses a measure of progress that depicts the transfer of goods or services to the customer in order to determine the amount of revenue to be recognized during the period.
  • An entity applies a single method of measuring progress for each performance obligation satisfied over time and applies that method consistently to similar performance obligations and in similar circumstances.
  • This may be one of the two methods:
    • An input method (e.g. contract costs incurred to date as a percentage of total forecast costs); or
    • An output method (e.g. surveys of work completed to date).
  • A contractor applying an input method excludes the effect of any inputs that do not depict its performance in transferring control of goods or services to the customer. For example, when using a cost-to-cost method, the contractor would exclude unexpected amounts of wasted materials, labour and any uninstalled materials.
Singapore New Audit Exemption For Financial Periods Starting On Or After 1 July 2015

Singapore New Audit Exemption For Financial Periods Starting On Or After 1 July 2015

The amendments to the Companies Act include Singapore Audit Exemptions for smaller companies with financial periods on or after 1 July 2015. Let’s find out more.

With accordance to the legislative amendments introduced by the Companies (Amendment) Act 2014, the first phase of the legislative amendments has taken effect on 1 July 2015. Amongst the list of proposed amendments, one of the most significant changes would be the new audit exemption for “small companies” concept. In prior to the amendments, a company is exempted from having its accounts audited if it is an exempt private company (EPC) with annual revenue of $5 million or lower.

The amendments have been modified to include a broader set of criteria that defines those entities eligible for audit exemption, reflecting that audit is more of value to broader groups of stakeholders like suppliers, employees and customers than shareholders. This newly introduced concept allows more corporations to opt for audit exemption. This would in turn reduce compliance costs and responsibilities.

Thirteenth Schedule (Section 205C) of the Companies Act states that a company is considered a “small company” if:

  • It is a private corporation throughout the financial period in question; and
  • It satisfies any two of the three criteria below for each of the two preceding consecutive financial years:
  1. The annual revenue does not exceed $10 million.
  2. The value of total assets does not exceed $10 million as at the end of the financial year,
  3. There are no more than 50 employees at the end of the financial year

The qualifying factors are consistent with Singapore Financial Reporting Standards for Small Entities approach, but are slightly different by incorporating additional requirements that the “small company” status to be determined through reference of a two-year period. There is limitation in revealing the reason behind this requirement but there has been justifications made to further justify the criteria, namely to safeguard against manipulation in order to achieve the audit-exemption status and to assess the eligibility on a longer term basis so that the impact of abnormal earnings are reduced and the company will not lose its exemption status due to a sudden yet short-lived increase in their earnings.

As the amendments are scheduled to take effect only for financial periods commencing on or after 1 July 2015, there have been transitional arrangements made for corporations that are formed before the day that the “small company” criteria starts. Companies, which are formed before the effective date, will still be qualified as a small company from the first or second financial period on or after the effective date, on the condition that it is a private company throughout the concerned financial period and meet the quantitative criteria for that financial period.

Once audit-exemption status has been granted to a company, the status shall remain valid until it is no longer a small company when:

  • The Quantitative Criteria is not being satisfied for two immediately preceding financial years; or
  • It ceases to be a private company during a financial year.

Do you have further questions regarding the New Audit Exemption in Singapore? or any concerns on your accounting and tax works? Please do not hesitate to ask Mighty Glory Corporate Solutions. We would gladly answer your questions and provide solutions to your business needs.