GST Claim for Singapore Businesses (Business Guide)

Running a business can be exhilarating for entrepreneurs.  Getting all the basic components in place to get your venture off the ground can pump you up. From an idea to initial product-market fit. From identifying target customer segments to how you intend to change the world. But what if someone tells you that you can get even more pumped from Goods and Services Tax (GST) claims, would you buy it? Or would you tell him to get out?

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With this mindset, you may even gloss over accounting and tax-related matters if you comply with the Singapore authority’s frameworks. But yet, accounting, cash flow and taxes are fundamentals to the building blocks of an entrepreneurial journey.

Singapore GST payment and claims can be one of those “love it” or “loathe it” elements in your business machinery. 

What many entrepreneurs and sometimes, even seasoned business executives may miss out on is financial efficiency, which this form of tax can help to improve cash flows. And with the anticipation of the progressive increase in Singapore GST from 7% to 8% and 9% for the projected year on 1st Jan 2023 and 1st Jan 2024 respectively, it may be even more crucial to get your GST claims right.

There are several components to GST claims and this article aims to dissect and simplify some of its explanations to provide a glimpse of what you may want to avoid missing out.

According to the Singapore Ministry of Finance (MOF) definition, GST is a tax levied on locally consumed goods and services. The tax on these goods and services also covers imports which must be supported by import permits stating that you are the importer of the goods. GST is also a multi-stage tax across the exchange process and value chain each time the goods and services are being transacted.

GST is divided into two parts, Input Tax and Output Tax.

• Input Tax: Refers to the GST you paid for your business purposes on the invoices of GST registered businesses of the goods and services you buy from your suppliers, contractors, and business partners
  
  
• Output Tax: Refers to the GST charged or GST collected for your business purposes on behalf of the government, as a GST-registered outfit to those who buy from you

Still don’t see the upside of GST?

Read on to find out about how GST claims in the entire process may help you and your business venture with more liquidity and give you the dry powder in times of need.

• Firstly, your Singapore business must be GST-registered for you to claim Input Tax. Inland Revenue Authority of Singapore (IRAS), provides a simple formula and explanation of how and where the two aspects of GST come together.
  
  
• Input Tax minus Output Tax gives the figure of what may be claimed. This is also known as your GST refund.
  
  
• Supporting documents are required when you claim GST, you will need to provide valid tax invoices for your local purchases. For goods that are less than S$1,000, a simplified tax invoice is what you will need as proof of GST paid.

Assuming your GST-registered start-up incurs business operations expenses (goods and services you buy and pay locally or goods and services which you import. With this, Input Tax incurred.) for your business purposes in the financial year from 1st Jan 2022 to 31st Dec 2022, is at S$12,000.00.

And your GST-registered startup charges for goods and services (Output Tax), reflected in your tax invoice to your customers, within the same financial year period, at S$6,000.00

The current GST rate is at 7%, and the figures below are derived from the tax invoices in both the Output and Input components.

· S$840.00 – S$420.00 = S$420.00, which is the amount you can claim back from IRAS for a GST refund.

There are some basic requirements to note in the Singapore GST claims. One such area is the time period.

As the owner of your business company, you are likely to wear many hats. Especially when you first started off. It is your responsibility, and you need to ensure that any GST claims fall within the accounting period of your business.

Such responsibility should not be taken likely. And as the complexity of GST gets deeper, it is advisable to adopt a reliable accounting software to keep your accounting and tax records in order.

The accounting period coincides with the financial year. And such periods can vary for different entities, but a common one tends to be April to March. However, some oddball companies, such as HP Inc and HP Enterprise, have their financial years from November to October.

Some businesses and entrepreneurs may prefer to bookend their financial year to the common calendar period of January to December. This is usually a form of individual preference. But is somehow perceived to give an easier way for many businesses to manage.

We next give a quick breakdown below in what may be “GST Claims Commandments”

IRAS has mandated that GST filing needs to be dutifully submitted within one month of the end of your official accounting period. If your financial year ends on 31st Dec 2022, the deadline you must submit your GST claims would be on 31st Jan 2023.

Failing which, even if you are late for just one day, the aftermath is something you may remember for a long time. There would be a penalty of S$5,000.00 or you could be sent to prison for six months!!  

1. F5 and F8. No, these do not refer to the function keys on your computer’s keyboard. They also do not refer to fighter airplanes. These are processes which kick in, if you miss the deadline of your GST filings.

There are several layers and dimensions to the penalties imposed for GST related offences. As we just indicated in the first commandment, F5 and F8 are something that you do not want to bother yourselves with. But if you would still like to read further about them, you can visit IRAS website for more details.

2. www.mytax.iras.gov.sg portal is the official website for your Singapore GST claims and GST refund. Do keep in mind of phishing websites, which may be very good at tricking you into visiting malicious pages.

Keeping track of all your business transactions is the key to a proper GST filing. The best way is to leverage easy-to-use software like ABSS to manage and automate your accounting and tax records. ABSS is designed for small businesses and SMEs in Singapore. The software emphasizes workflows and business processes, which helps you keep track of your income and expenses and keep your business operating smoothly.

With some of these basics out of the way, how can your business capture the benefits of a GST refund?  

It is not an exaggeration to say that many Singapore start-ups and SMEs slogged for years before generating reasonable revenue. Those in the areas of science, technology, engineering and mathematics, collectively known as STEM, may require to carry out research and development (R&D) activities before giving birth to their first product prototypes. And you probably know that R&D can consume a substantial portion of a company's finances.

For instance, the table below illustrates a common scenario in many deep tech start-ups (and SMEs) in their accounts and finance.

As you can see, a deep tech company needs to invest and incur various expenses from buying equipment and consumables for R&D requirements to paying for office rentals and utilities.

If your business is GST-registered, IRAS will make the GST refund upon approval of your tax filing, which would then go back to your coffers and contribute to your day-to-day business expenses. At first look, this may not seem a lot. But in many start-ups (or SME) environments, S$84,000.00 can go towards office rental, pay wages and keep the lights on.

Yes, this is not a typo. You are reading it right!  And this may even seem counterintuitive.

As the world is still battling Covid-19 since the onset at the end of 2019 and early 2020, the pandemic upended the entire economies of many countries.  Inflation turns Hydra and starts to rear its ugly heads.

From food and transportation price hikes to salaries reportedly spiralling out of control in some countries. Many economies are scrambling for Herculean solutions to tamp inflation down.

And before you know it, the Ukraine and Russia war further exacerbates the already wobbly supply-chain-driven economic malaise.  With the war going into its sixth month, it is unclear when this conflict would end.

As an entrepreneur, your job could get tougher. More often than not, you need to make purchases to support your start-up operations before you even generate the first dollar in company’s revenue.

As reported by Reuters, Singapore’s official core inflation rate stands at 4.4% as of June 2022, a 13-year high, and a headline inflation rate of 6.7%.

MAS also provides an official statement on 14th July 2022, that projected inflation rate to be between 4% to 5%.

On the ground, you know that this may not be exactly how price increases work.

A simple cup of beverage in a local drink store used to cost S$1.20.  Now, it is S$1.50.  This S$0.30 increase is not 4%, 5% or even 6.7%, but a whopping 25% jump!

An office equipment which you used to pay S$1,000.00 may now have your suppliers quoting you S$1,100.00 due to the various cost increases such as labour and transportation expenses.

And if you are not able to claim back for your GST incurred on legitimate expenses, you would likely feel the pinch, and this may add some drags to your business finances.

• How then can you make inflation a friend in this seemingly counterintuitive situation?
• What and when can you strategise your business to go in tandem with inflation?

Some businesses are not GST-registered because their revenues do not hit the stipulated guidelines of S$1.0mil of revenue for mandatory GST registration. While this is legally right, the Singapore government does not prevent any businesses or companies if they want to proceed with GST registration.  In fact, it should be encouraged.

And if you are not registered for GST, even if your revenue is nowhere near S$1.0mil, you may be at the shorter end of the stick.

For example, imagine that you are a timepiece seller who is not GST registered.

Assuming the cost price of a watch you buy is S$1,000.00 before GST is levied. The nett cost you would need to pay is S$1,070.00 reflected in the tax invoice from your supplier.

The selling price of the watch is S$1,100.00, after GST is factored in. This is the nett figure your customer would have to pay.

But your non-GST registered business cash outflow for this watch is S$1,070.00. Which means, your gross profit is S$30.00 instead of S$100.00

The percentage in gross profit margin shrinks from 10% to 3%!

Such a scenario is not uncommon for SMEs and sole proprietors in Singapore, and some stay away from being GST registered due to the S$1.0mil threshold guideline. But despite the voluntary GST registration option, some find that being registered is a hassle and become disdain for being part the Singapore GST ecosystem.

This is an unfortunate misconception because by paying for GST to your suppliers as being at the early stage of the GST value chain, you are already in the ecosystem and yet, not reaping the benefits of it. And what is worst, letting GST refunds leak out.

Last but not least, there are several layers in respect to the responsibility of being a GST-registered company. Here's our guide on how to register for GST.

It may come across as daunting, but when you invest a little amount of time and effort, you may find that it is not such a tall order as you might have initially thought.

What type of goods and services should the company charge GST?

• If your business provides rebates (volume rebates) or discounts (prompt payment) to your customers, you should charge and account for GST.
  
  
• Provision of services to overseas customer. GST is charged at 0% if they fall within Section 21(3) of GST Act.
  
  
• GST must be charged on any goods delivered or sold in Singapore.
  
  
• As part of your business strategy, you can choose to absorb the GST payable by your customer. In this instance, the amount of money you receive from your customer is deemed as inclusive of GST.

Can the company request for a change in GST accounting periods?

• If there is a change in the financial year-end, the company may write to IRAS to request a change in the GST filing frequency.
  
  
• If the company’s financial year-end does not end on the last day of the calendar month, the company may write to IRAS to apply for special accounting period GST filing.

Are there any GST Schemes to help businesses?

• Tourist Refund Scheme – It allows tourists to claim a refund of GST paid on goods purchased from participating retailers if the goods are brought out of Singapore.
  
  
• Gross Margin Scheme – GST is chargeable only on the gross margin of your goods.
  
  
• Major Exporter Scheme (MES) – This scheme is designed to help the cash flow of major exporters who have significant imports.

Before we end this note, we want to thank you for reading till the end, and leave you a parting shot.

Singapore GST is a big topic.  What we have here is non-exhaustive to cover the entirety of the GST claims regime. The above is just but a snippet of the regulatory frameworks by IRAS. There are several more pointers to stay within the legal limits of your GST claims. 

Have fun and keep up the spirit!