Global e-commerce has been growing, on average, 20% each year and revenue in the Singapore "digitised goods" (e.g. digital video, digital music, digital games) market amounted to SGD406.3 million in 2015.
For a GST-registered business starting out as or moving towards an online business model, it is essential to understand the Singapore GST implications unique to such businesses. One common question raised is whether GST applies on the sale of digital goods and services (e.g. market studies, copywriting), since such electronic transactions do not involve delivery of physical goods and are often cross-border in nature.
IRAS' existing guidelines provide that whether to charge GST relating to digital goods and services supplied online depends on the belonging status of the customer:
- If the customer belongs in Singapore, 7% GST applies.
- If the customer belongs in a country outside Singapore, 0% GST applies.
Assessing the belonging status of a customer
Generally, a supplier should examine the following indicators to determine if a customer belongs in Singapore:
- Business address of the customer (or usual place of residence if the customer is an individual)
- Email address’ domain name (whether it ends with dot sg, e.g. [email protected])
- Customer's declaration, at the time of transaction, as to his belonging status
- Internet Protocol (IP) address
- Other relevant information to determine the location of customer
Common oversight by online businesses
Of all the indicators above, it appears that the IRAS places more importance on the Customer's declaration, at the time of transaction, as to his belonging status. This is reinforced by the following examples published by the IRAS:
|Customer's domain name ends with dot sg||Standard-rate (e.g. 7% GST applies). Customer treated as belonging in Singapore.|
Customer's domain name does not end with dot sg
|Customer declares that his usual place of residence is in Singapore.|
|Customer does not declare his usual place of residence.|
|Customer declares that his usual place of residence is outside Singapore.||Zero-rated (e.g. 0% GST applies). Customer treated as belonging in a country outside Singapore.|
Online businesses should ensure that customers declare their belonging status at the time of transaction. However, this important question is frequently left out during the order and checkout process. It is also challenging to ascertain the validity of such declarations (e.g. customer with domain name not ending with dot sg declares residency outside Singapore but may actually reside in Singapore).
Avoid GST non-compliance and fines by the IRAS
As GST is a self-assessed tax, a supplier of digital goods and services should take reasonable steps to determine customers’ residency so that the correct GST treatment can be accorded. Businesses may be penalised for up to 200% of the tax undercharged for the submission of incorrect GST returns and business owners may be liable to a fine and imprisonment term.
We help online businesses identify potential GST compliance issues and reduce exposure to penalties. For further information, please contact our team of GST professionals.
Richard Ong, Partner
Accredited Tax Advisor (GST)
T +65 6594 7821
Huang Yanlin, Senior Manager
Accredited Tax Advisor (GST)
T +65 6715 1140
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