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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.

Should I Hire Overseas Returnees?

Should I Hire Overseas Returnees?

According to Hays, about 85% of employers in Singapore say that they are willing to hire overseas returnees in the coming years. Also, 90% of employers recommend to their peers that they should employ overseas returnees. Why such a high number, and what can you expect when you hire one for your company?

WHAT IS AN OVERSEAS RETURNEE?

If a Singaporean who lived and studied abroad, then decides to return to Singapore and stay for good, that person can be considered as an overseas returnee. Some overseas returnees are children whose parents in Singapore sent them overseas to study abroad. As international students, they are exposed to different levels of education and cultural awareness compared to their Singaporean counterparts. Someone is also considered as an overseas returnee if he or she has worked outside of Singapore for several years. The person may have been assigned by their company to work in an international division. However, some were lucky and bold enough to look for a job overseas and successfully gain employment. According to Hays, about 86% of Singaporeans show interest in extending their job search overseas. Due to the economic decline of superpowers such as the US, UK, and Australia, Singaporeans realize that better opportunities now await them at home. As a result, there are more overseas returnees compared to the past years. This influx is seen as an opportunity by companies to improve their capabilities and business functions.

BENEFITS OF HIRING OVERSEAS RETURNEES

Many employers find great success in hiring overseas returnees, and many of them have got a good experience in working with their returnee. There are many reasons behind the benefits of getting a skilled worker who has worked or studied aboard and will be a company’s advantage. Both returnees and employers have the same views on the benefits that local experience of the former can bring to the table.

REALISTIC SALARY EXPECTATIONS

Unlike overseas returnees in China, Singaporean returnees have realistic salary expectations. Although they do have excellent skillsets, Singaporean overseas returnees are least expectant, followed closely by mainland China.

Although about 45% of returnees are open to having the same salary as they have while they are employed overseas, only about 34% are expecting an equivalent pay. This is much higher compared to those who are returnees from Hong Kong, with about 61% are looking for a higher salary. As for Singaporean returnees, only 32% are looking for higher pay.

The remuneration package is competitive. There are employers who are willing to pay returnees with premium salaries that will match the returnee skillset. Based on the report, about 44% of employers are willing to pay overseas returnees higher salary packages, as compared to their local peers. 28%, on the other hand, are more than willing to give “up to 10% more.”

OVERSEAS COMMERCIAL EXPERIENCE

What returnees have over their local counterparts is their overseas commercial experience. About 62% of employers hire returnees because of the knowledge which they have acquired that one cannot expect to find in Singapore.

Commercial experience increases a person’s ability to view situations based on a business perspective. Increased commercial awareness arms a candidate with the tools needed to understand what drives a business to success. Such experience becomes valuable as the career progresses.

HIGH SKILL-SET

Most overseas returnees, as close as 63% hold bachelor degrees, while a good 24% hold master degrees. This high skill-set makes overseas returnees highly attractive for those who are looking to hire someone who can bring more value to the table.

CROSS-CULTURAL AWARENESS

Because of the difference in cultural exposure, 64% of the companies surveyed voted to hire overseas returnees because of their “different perspectives on business.” Their knowledge can potentially improve existing business processes, providing better overall business value. With the advent of globalization, many first have high regard over the solid mix of international experience and local cultural understanding that overseas returnees have.

According to Lundbeck, who hired overseas returnees, having experience working abroad, these employees usually prove to be strong in their cultural awareness, adaptability, and willingness to learn and are generally go-getters.

LANGUAGE AND COMMUNICATION SKILLS

Overseas returnees have better language and communication skills. Working for a foreign-owned enterprise allows returnees to exercise their English language fluency daily. It is easier for companies to have communication with foreign business partners and such credit goes to returnees’ grasp. Their exposure in different cultures also gives them the confidence to communicate better without the cultural barrier. They will help you penetrate the global market.

ISSUES WITH OVERSEAS RETURNEE WORK POOL

Still, although an overseas returnee is highly sought-after by most employers, there are some hurdles that you will find when you hire one.

LACK OF LOCAL WORK EXPERIENCE

Their understanding of foreign business practices comes with a price. Because of your overseas returnee’s years of isolation from Singapore, he or she will have a hard time understanding the local work practices. About 36% of employers are facing such an issue of their talent difficulty in adapting to local cultural nuances and corporate processes. Overseas returnees should research their home countries’ corporate culture and identify any distinct or essential customs that are observed in a day-to-day business setting. This would enable their transition to their jobs back home an easier one. They should also understand the company and industry for which they will be working and relate how their past working experience or education could value-add to the business.

A MISMATCH IN EXPECTATIONS OF OFFER PACKAGES

Although previously stated that there are overseas returnees who have the least expectations when it comes to salary packages, there are about 32% of them who will expect an increased salary compared to what they are earning abroad. Overseas returnees believe that there are a lot of things they can offer to the companies in their home country because of their global experiences. While there are some companies that are willing to offer higher salary packages, the packages still depend on the skill-set of the returnee and the employer’s budget.

WHY DO THE RETURNEES RETURN

There are many reasons why there is an increasing rate of overseas returnees in Singapore
  • Being closer to their families – this is most especially true for children, who are sent abroad to study. A good majority of returnees, about 45%, feel the need to return home to take care of their family. Most returnees think that taking care of their parents is one of the duties that they must fulfill as a part of the Confucian’s filial piety teachings. Children are expected to take care of their aging parents as well. Failure to go back to one’s home country for them means that they have neglected their duty to their own family.
  • Opportunity to develop their careers – This is particularly especially true in popular destinations for Singaporean migration, such as Australia, UK, and the US where work visas and immigration rules are tightened, and the economy of superpower decline. Due to the increasing strictness and shortage of career opportunities abroad, many are now realizing that better jobs are waiting for them at home. When the recession hit the economy, most of the returnees were forced to either receive lower salaries or take jobs that are not paying that well. Change in the government also helped them realize that there are better opportunities back home.
  • Culture or lifestyle ties in Singapore–this is true for most who grow up in Singapore and find a longing to be part of their home once again. Most of the returnees would like to continue enjoying their lifestyle in their home country. Most returnees would like to experience once again the familiar vibes that their own country has to offer. Although it is easier to live in other parts of the world now because you can have access to whatever you would need in another country, nothing would still beat the sense of comfort their home country could offer. Singapore talents living abroad are drawn to what it can offer, such as low crime rates, relative cleanliness, proximity to loved ones and a keen sense of familiarity in lifestyle and culture.

GETTING THE RIGHT MATCH

Most companies often rely on recruiters to find the ideal and suitable overseas returnee to hire. The mismatch in platforms where employers and overseas returnees go to present a problem in getting the right candidate for the right job. About 37% of the candidates use a recruiter to seek employment, with about approximately 32% using search engines like Google or Yahoo to look for opportunities.

ARE YOU AN OVERSEAS RETURNEE?

Mighty Glory Corporate Solutions is very glad to assist on your financial planning and individual income tax reporting. Our goal is to assist you with professional, efficient, and affordable services that will aid you on your return.

ARE YOU TRYING TO HIRE AN OVERSEAS RETURNEE?

We offer a wide variety of accounting services such as setting up and implementation, accounting and GST Return. Contact us now to know more about how Mighty Glory can help with your business.

Foreign Domestic Worker (FDW) Levy Concession

Foreign Domestic Worker (FDW) Levy Concession

Businesses in Singapore are required to adhere to accounting regulations set by ASC or the Accounting Standards Council. Compliance with accounting standards is important to ensure transparency and reliability of a business’ financial information. Transparency and reliability of financial information enable comparability of global financial data and smooth functioning of international capital markets. The increasing number of businesses in Singapore is another compelling reason for entities to adhere to a uniform financial standard.

As a business, it can be time-consuming, exhausting and even downright intimidating, to maintain your seemingly infinite financial records. Hiring an accounting firm is one of the best ways to manage your business’ financial data. With a reputed accounting service provider, you will have an expert to take care of the financial aspects of your business. You can focus more on your core business knowing that your financial matters will be taken care of duly in compliance with the law. An accounting firm will also ensure a robust accounting system, which will give you a reliable and actionable financial base to make business decisions.

Expertise of an accounting firm is the key to your business success

With Mighty Glory Corporate Solutions, you get a wide range of accounting services delivered by a team with substantial industry experience. We offer a deposit-free accounting service with complete client confidentiality and a transparent fee structure.

If you are in search of a professional accounting firm, then you may want to explore the services such firms offer. Here are some types of services that an accounting firm usually offers business:

Singapore citizens, needing domestic care, can get support from Singapore government through the foreign domestic worker (FDW) levy concession. FDW employers who meet the criteria can qualify for a S$60 monthly concessionary rate.

The following are the employer qualifications for the FDW levy concession:

  • One has to be a Singapore citizen.
  • Living with a child under 16 years old.
  • Living with an elderly person 67 years old and above.
  • Living with a person with disability (PWD) who needs help with at least one daily living activity such as showering, dressing, feeding, or toileting.

Applications for the FDW levy concession must be submitted by qualified individuals. If you have a minor or elderly relative or family member and is qualified for the levy concession, you can follow this link to apply online. The application for FDW levy concession for a PWD is coursed through the Agency for Integrated Care (AIC). Please follow this link for your PWD application.

Please collect the information of the employer, foreign domestic worker and the eligible person (i.e. the person who needs care) to complete the form and application.

No application is necessary if you need the foreign domestic worker for your care or your child’s. If you or your spouse is a Singapore citizen, the levy concession will automatically start on your 67th birthday or upon your child’s birth and will continue until his or her 16th birthday provided that he or she is a Singapore citizen, or on the date your child is granted the Singapore citizenship.

The FDW levy concession is granted for one FDW per eligible person, with a maximum of two FDW per household.

The monthly concessionary rate can be as much as S$120 for FDWs hired to care for an eligible person who needs permanent assistant on at least three daily living activities.

Conclusion

Effective 1 September 2019, the FDW levy concession coverage will include employers needing domestic care for an extended family member or a friend living with them, provided the eligible person is a Singapore citizen, as opposed to the previous limitations of the levy to immediate family members. All existing qualifications applied to immediate family members will also apply to the expanded FDW levy concessions.

Connect with us today to discuss more on the other personal tax reliefs and how we can incorporate them to your personal individual income tax. We look forward to helping you identify your business and personal needs and provide you with efficient and holistic solutions.

Introduction And Impact Of SORA On Corporate Borrowers

Introduction And Impact Of SORA On Corporate Borrowers

On August 30, The Monetary Authority of Singapore (MAS) announced the transition of the interest rate benchmark from SOR to SORA. The USD reliant Swap Offer Rate (SOR) will cease to be relevant upon the imminent discontinuation of the USD Libor or the London Inter-bank Offered Rate. The Association of Banks in Singapore (ABS) and the Singapore Foreign Exchange Market Committee (ABS-SFEMC) studied several replacement options and concluded on the viability of SORA.

What is SORA?

The Singapore Overnight Rate Average (SORA) is an interest rate benchmark pegged on actual transactions. It is the weighted average rate of all overnight cash transactions brokered in Singapore from 9:00 am to 6:15 pm and is published daily on the MAS website at about 6:30 pm.

Why is there a need to transition?

The UK regulatory authorities recently announced the discontinuance of the USD Libor by the end of 2021. This will take away one of the major inputs in the computation of SOR. The volume-weighted average forex rate of USD and SGD is another SOR factor that is looked into as extraneous and causes extreme volatility of rates.

Are there any options aside from adopting SORA?

Aside from adopting SORA, ABS-SFEMC is also looking into two other options – reforming SOR and enhancing SIBOR. Reforming SOR would mean replacing USD Libor with another component. In the US, the Alternative Reference Rate Committee (AARC), endorsed the recommended alternative, the Secured Overnight Financing Rate (SOFR). The SOFR is published by the Federal Reserve Bank of New York at about 8:00 am and is the overnight measure of the cost of borrowing money. However, producing forward-looking benchmarks using SOFR is too complex. Furthermore, SOFR is not intended for the derivatives market and is not expected to be in use until late 2021.

Enhancing the SIBOR is looked into as another option to SOR. The SIBOR (Singapore Interbank Offered Rate) reflects the rate at which banks are willing to lend and is already in use in various financial products, but not on derivatives. However, due to the structural shifts in banks’ sources of funding and derivatives markets towards overnight interest rates benchmark referencing, this option proves to be unsustainable.

Why is SORA the recommended option?

SORA is liquid and deeply reflects the daily trends and conditions of the SGD money markets. Using SORA as a benchmark is aligned with global trends and the transition will result in significant synergies in the global trading capabilities of derivatives. This will put the SGD market ahead in the global trends, encourage and apply best practices and keep domestic derivatives competitive and attractive in the global markets. Daily SORA has been published by the MAS since July 2005, providing accurate data for historical analyses on prices, risks, and market trends.

What happens to legacy SOR contracts?

Existing SOR contracts which will expire after 2021 will remain as is for now. However, expect your bank to notify you regarding the transition in due time. They will provide alternative loan packages that will replace the current SOR-referenced contract to be applied to its remaining term.

How will the transition impact corporate borrowers?

The transition from SOR to SORA is deemed favorable to corporate borrowers. The elimination of the USD/SGD forex factor in the interest rate computation will hugely improve the volatility of rates. The compounded 6-month SORA is more stable and lower than SIBOR, SOR and other benchmarks.

There will be no immediate impact before the end of 2021 and existing SOR referenced contracts will remain as is. MAS and ABS-SFEMC are keeping close tabs on the transition process, making sure the market functions continuously, with the least disruption and hassle to end-users as possible.

Ample communication and public information dissemination will be in place, while banks will be required to provide their clients with enough time, information, and guidance on loan restructuring and contract switching as necessary. Corporate service providers in Singapore such as accounting firms and business outsourcing firms will also be on hand to assist their clients in a smooth transition.

Connect with Mighty Glory today to know more about the transition and to discuss your financial contracts and options. We look forward to helping you with your business needs and in meeting your company compliance requirements in Singapore by providing you with the efficient and holistic solutions.