With effect from January 1 2023, the Minister for Finance announced Singapore’s goods and services tax (GST) has been extended to imports of low value goods (LVG).
It is an 8% Goods and Sales Tax (GST) on Low-Value Goods (LVG) that applies to all goods valued at or below SDG400 imported into Singapore by air or post.
The change follows a rise in eCommerce activity and cross-border transactions involving LVG imports where GST or Value-Added Tax (VAT) was not collected. This move is aimed at levelling the playing field for local businesses within Singapore to compete effectively.
This guide will take you through how the extension of the GST impacts overseas logistics providers and how you can better prepare for it.
You will learn the following:
- What are Low-Value Goods?
- What Businesses are Affected by GST?
- Which Overseas Vendors Must Register for GST?
- What Happens If Overseas Vendors Fail to Register for GST?
- Recommendations for Overseas Vendors Affected by GST
- How Luwjistik Helps?
What are Low-Value Goods?
The Inland Revenue Authority of Singapore (IRAS) defines LVG as goods that at the point of sale:
- Are not dutiable goods (or where certain waivers of duties apply);
- Are not an exempt supply;
- Each item of the goods has an entry value that does not exceed the GST import relief threshold of SGD400; and
- Are to be delivered to Singapore via air or postal service.
What Businesses are Affected by GST?
The new GST on LVG may affect many businesses (including logistics service providers and eCommerce enablers not based in Singapore).
The responsibility to account for GST on the imported LVG lies with the GST-registered customer in Singapore, regardless of whether the supplier is local or overseas and irrespective of the supplier’s GST registration status.
If the customer isn’t GST-registered, the responsibility to account for GST may fall on one of the following entities:
- Overseas Suppliers: Belonging status outside of Singapore (i.e. has neither a business establishment, fixed establishment, nor usual of residence in Singapore).
- Overseas Electronic Marketplace Operators: When the Electronic Marketplace is regarded as the supplier under certain conditions.
- Overseas Redeliverers: When the Redeliverer is regarded as the supplier under certain conditions.
You can find more details on the abovementioned conditions on slides 15, 16, and 17 under Extended Overseas Vendor Registration (OVR) Regime by IRAS.
Which Overseas Vendors Must Register for GST?
An overseas vendor (i.e., supplier, electronic marketplace operator or re-deliverer) must register for GST if they meet the threshold for mandatory GST registration.
If the taxable turnover for the past 12 months exceeds SDG1 million or is expected to exceed SGD1 million in the next 12 months, the vendor must register for GST.
What Happens If Overseas Vendors Fail to Register for GST?
Overseas vendors that must register but do not comply may be subject to the same penalty and compliance measures as domestic GST-registered persons.
Failure to register for mandatory GST may result in a fine of up to SGD5000 and, in default of payment, an imprisonment term of up to 6 months. To avoid late filing or non-filing for mandatory GST, IRAS provides preparation checklists for entities registered under the OVR Regime for LVG and remote services.
Once registered, late tax payments may result in a 5% penalty. 60 days after the due date, there will be an additional 2% penalty for every month the tax remains unpaid (subject to a maximum of 50% of the outstanding tax).
You can find more information regarding penalties for not registering for GST, charging GST, and paying GST here.
Recommendations for Overseas Vendors Affected by GST
Bloomberg published an insightful list of recommendations for overseas vendors that we are reproducing here.
Determine the GST registration status of the customer.
- Businesses should identify whether their customers are GST-registered in Singapore, as this affects who is responsible for accounting for GST on the supply of LVG. If you are a supplier of LVG outside Singapore’s customs territory, you are required to register for GST if you meet the thresholds of the OVR regime under a retroactive or prospective basis as outlined above.
Characterise the business transaction.
- Businesses should examine their business operations in relation to the various suppliers of LVG to customers to determine if they are regarded as direct suppliers, electronic marketplace operators, or re-deliverers. This is crucial because, under certain circumstances, an electronic marketplace operator or re-deliverer will be treated as the supplier of the LVG and, therefore, responsible for the GST on the supply of LVG to customers instead of the underlying supplier.
Determine the entry value of LVG.
- It’s important to note that the entry value is not the value of the supply of the LVG (i.e., import value) on which GST is to be accounted. Generally, the import value includes the cost, insurance and freight value, any custom duties payable, commission, and other incidental charges. In other words, businesses must contend with two different sets of values. For ease of compliance, businesses may use the import value of the goods to determine their entry value.
Apply GST to multiple goods shipped as a single consignment.
- Generally, goods bundled in a single shipment are still valued separately and treated as individual items. A GST-registered business may apply the entry value threshold on a per-consignment basis instead, subject to circumstances — for example, having complete oversight of the supply and logistics chain. This is highly recommended, especially to ease the administrative burden of determining the individual entry value of each item.
Be aware of transitional rules.
- There are transitional rules that may affect the application of GST on LVG. For example, even if an overseas supplier’s invoice was issued before Jan. 1, 2023, and the goods are delivered to the customer and payment is received on or after Jan. 1, the supply of LVG will still be subject to GST on the lower of the payment received or value of the goods provided.
In light of these changes to Singapore’s GST regulations on Low-Value Goods (LVG), overseas vendors and logistics providers must adapt and ensure compliance with the new requirements. The adjustments aim to create a level playing field for local businesses and apply proper taxation to cross-border transactions involving LVG imports. To help companies to navigate this regulatory landscape, Luwjistik offers a range of tools and services designed to streamline the process and enhance transparency.
How Luwjistik Helps?
Luwjistik offers several valuable tools and services for logistics companies to navigate through local rules and regulations across Southeast Asia successfully and easily. To learn more about how Luwjistik can benefit your shipping needs and explore the platform’s offerings, you can contact our representative at email@example.com or visit our website at luwjistik.com.