7 common GST errors
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Not just 7 errors, but 7 groups of common errors to avoid: 1. Sales black hole: “Sales” that are commonly omitted 2. Undercover customer: Customer trying to act as export agent – say "no" 3. Banker role-play: You sometimes play banker 4. International visa: Not all services provided to an overseas person can be zero-rated - follow the GST Act 5. Expense overload: They’re not supposed to be there 6. Money changer: Use supplier’s exchange rate 7. “Travelling” expenses: Zero-rated expenses are considered taxable, even though at $0
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7 common GST errors
- 1. G S T c o m m o n Sales black hole Undercover customer International visa Money changer e r r o r s “Travelling” expenses Expense overload Banker role-play
- 2. 3. Purchases 2. Services Sales 1. Goods OSESZRSR Non-taxableTaxable GST SR – Standard-rated ZR – Zero-rated ES – Exempt supplies OS – Out-of-scope supplies Danger Level Warning Watch out 3 key areas: 7 danger spots Based on Singapore context
- 5. • Sale of residential properties • Sale of investment precious metals (IPM) – gold, silver, platinum • Goods delivered from & to places outside Singapore • Sales made within Free Trade Zone (FTZ) or Zero GST (ZG) warehouse ES OS ZR SR Exempt goods Out-of-scope goods Export sales Local sales Excludes: • movable furniture & fittings • service fees GST % 0
- 6. Sales black hole Zero-rated Standard-rated ES OS ZR SR Export sales Local sales GST % 0 Non- ordinary transac- tionsExports not supported by sales
- 7. #1 Sales black hole 1. Sale or disposal of business assets 2. Trade-in transactions 3. Recovery of expenses 4. Deemed supplies: Goods given as gifts or samples 1. Goods to be stored in overseas warehouse 2. Parts & materials for work overseas 3. Equipment for leasing overseas 4. Goods returned to overseas supplier 5. Goods on consignment (i.e., not yet considered sold) Zero-rated exports not supported by sales: Standard-rated transactions commonly omitted (usually extraordinary or non-monetary in nature):
- 9. Direct shipments Exports with documents Local deliveries OS ZR SR GST % 0 LocalYou Overseas OverseasOverseas Supplier NOT nationality of customer BUT destination of goods Invoice
- 10. ZR SR Exports with documents Local deliveries Certainty that goods will be exported ? Control over export arrangement • Goods delivered to freight forwarder appointed by customer • You instruct local supplier to export goods to customer • Good hand-carried out of Singapore ?Custody of goods Indirect (examples)Direct3Cs of Exports As zero-rating of exports is a “relief” from GST, IRAS prescribes specific export documents to be maintained GST % 0
- 11. Undercover customer ZR SR Exports with documents Local deliveries GST % 0 Uncertainty of export Where “exports” become standard-rated
- 12. #2 Undercover customer E.g. Overseas customer instructs you to deliver goods to a local location, e.g., its related company E.g. Local customer promises to export goods and provide you the shipping documents later Rule of thumb for exports: IF you cannot be certain that all the goods will be exported, then you should charge standard-rated GST
- 14. Overseas customers Local customers ZR SR GST % 0 CustomerYou Customer CustomerContractor Invoice By definition, a supply of service is made in Singapore if you (i.e., the supplier) belong in Singapore. Therefore, for a locally-registered GST company/ business, any service invoiced CANNOT be out-of-scope.
- 15. • Lease of residential properties • Financial services Private transactions, e.g., free services ES OS ZR SR Exempt services Out-of-scope services Oversea customers Local customers Banker role-play GST % 0
- 16. #3 Banker role-play 2 common types: • Realised exchange gain/loss from foreign currency transactions • Interest income from bank deposits (i.e., “loans” to banks) Financial services are not confined to financial institutions. Non-financial businesses may also provide “financial services”.
- 17. Exceptions Not applicable -UnrealisedExchange gain/loss International service ZRForeign bank Interest income • NET gain/loss • Absolute amount ESRealisedExchange gain/loss - ESLocal bank Interest income RemarksGSTFinancial services Also, report financial services under the correct supply type
- 19. InternationalInternationalInternationalInternational services All other services ZR SR GST % 0 CustomerYou Customer CustomerContractor Invoice NOT nationality of customer BUT type of service
- 20. ZR SR InternationalInternationalInternationalInternational services All other services GST % 0 As zero-rating of service is a “relief” from GST, the GST Act [S.23(1)] prescribes specific types of services called “international services” that can be zero-rated and the conditions for zero-rating.
- 21. International visa ZR SR InternationalInternationalInternationalInternational services All other services GST % 0 “Non- international” services Where “overseas” services become standard-rated
- 22. #4 International visa As a general guide, services may NOT be zero-rated where: • there are local persons who stand to “directly benefit” from the services • they are “directly in connection” with land or goods (excluding exports) situated in Singapore Legal definitions and interpretations. When in doubt, consult IRAS To be zero-rated, International services • must be specifically listed in the GST Act • comply with the conditions stated. Otherwise, services are standard-rated.
- 24. Exempt purchases Out-of-scope purchases e.g., free services Zero-rated purchases Local purchases ES OS ZR SR SupplierYou Supplier Imports Non-taxable purchases i.e., purchases from non- GST registered suppliers GST % 0 ALL generally treated as “non- taxable”, do NOT report
- 25. #5 Expense overload TOP 3 types of purchases NOT to claim: 1. Specifically disallowed under GST regulations [Regulations 26 & 27 of the GST (General) Regulations] 2. Not for the purpose of the business or directly attributable to taxable supplies 3. Where supplier has been unpaid for more than 12 months NOT all GST incurred are claimable.
- 26. Expense overload • Club subscription/transfer fees • Staff medical expenses & insurance premiums (except obligations under Work Injury compensation Act) • Motor car expenses • Benefits for family members or relatives of staff • Any transaction involving betting and gaming 1. Input tax specifically disallowed under GST regulations
- 27. Expense overload Examples: • Purely private or personal activities • Free activities provided without commercial reasons • Activities with non-business objects in philanthropic, religious, political, or public domain • Activities for the making of exempt supplies 2. Input tax not for the purpose of the business or directly attributable to taxable supplies
- 28. Expense overload Both the original purchase and input tax amounts have to be reversed in the current GST period. 3. Input tax unpaid to supplier for more than 12 months
- 29. #6 Money changer For imports, exchange conversion is not an issue as GST is calculated in S$ by the customs department and has to be paid in order to clear the goods. For local supplier who invoices in foreign currency, claim input tax based on the supplier’s S$ equivalent on the invoice, i.e., ignore your own in-house exchange rate.
- 30. #7 “Travelling” expenses Common examples: • IDD charges • air tickets Zero-rated expenses (i.e., international services invoiced by a GST-registered company/ business to you) are considered “taxable” expenses and have to be reported so.
- 31. Summary of 7common GST errors Expense overload: They’re not supposed to be there Money changer: Use supplier’s exchange rate “Travelling” expenses: Zero-rated expenses are considered taxable, even though at $0 5. 6. 7. Purchases Banker role-play: You sometimes play banker International visa: Not all services provided to an overseas person can be zero-rated - follow the GST Act 3. 4.Services Sales black hole: “Sales” that are commonly omitted Undercover customer: Customer trying to act as export agent – say “no” 1. 2. Sales Goods OSESZRSR Non-taxableTaxable GST
- 32. References • e-Tax Guide: A Guide on Exports • e-Tax Guide: Guide on Hand-Carried Exports Scheme • e-Tax Guide: Clarification on “Directly in Connection With” and “Directly Benefit” • e-Tax Guide: GST on Non-Business Receipts – The Business Tests and Effect on Input Tax Claims • Goods and Services Tax Act (Chapter 117A) • Goods and Services Tax General Regulations Image credits Images are the copyrighted property of 123RF Limited, its Contributors or Licensed Partners and are being used with permission under license. www.123rf.com No image and/or photo may be copied or downloaded without permission from the respective copyright owner/s. © All rights reserved ACCOUNTERN.COMACCOUNTERN.COMACCOUNTERN.COMACCOUNTERN.COM