Avoid Costly GST Errors

GST registered businesses are responsible for the proper accounting of GST. Where they make errors in reporting the correct GST amount to IRAS, they may face penalties, particularly when errors are uncovered during IRAS audits. However, you can avoid such costly penalties if you exercise greater care when filing your GST returns. You should also periodically review your past GST returns to uncover and rectify errors in a timely manner. To help you fulfill your tax obligations, we have compiled a list of common GST errors that businesses should seek to avoid.

Standard-rated Supplies and Output Tax errors

Omitted output tax for: Sale or disposal of business assets Goods given free as gifts Trade-in transactions Recovery of expenses

Zero-rated Supplies errors

Wrongly zero-rated due to: Service provided not eligible as international service under section 21(3) of the GST Act Export of goods not evidenced by required documents

Exempt Supplies errors

Incorrect reporting of exempt supplies for: Exchange gain / loss Interest received

Taxable Purchases and Input Tax errors

Wrongly claimed input tax on: Invalid supporting documents or absence of tax invoice or import permit Non-business expenses or expenses incurred directly for the making of exempt supplies Medical, insurance, car and other expenses disallowed under Regulations 26 and 27 of the GST (General) Regulations

Inland Revenue Authority of Singapore | 55 Newton Road Revenue House Singapore 307987 | phone 1800 3568633 | fax 6351 3553
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Standard-rated Supplies and Output Tax

Sale or disposal of business assets
You must account for output tax on the consideration (e.g. money) received when you sell or dispose of your business assets (e.g. office furniture or equipment, factory machinery, non-residential property). If your assets have market value and you dispose of it for free, it is a deemed supply and output tax must be accounted for on its open market value (OMV) of the assets.

Trade-in Transactions
A trade-in transaction is treated as 2 separate supplies for GST purposes. You must charge GST on the full selling price of the goods you traded in and not on the net difference only.

Goods given free as gifts

Similarly, when you give away goods for free to your customers or employees, you must account for output tax on the gift. Prior to 1 October 2012, you are required to account for output tax based on the OMV of the free gifts of goods/assets except when: The cost of the gift or goods is not more than $200 and it does not form a series of gifts*; or You were not entitled to claim input tax on the purchase or import of the goods.
*Series of gifts refers to a situation where 3 or more gifts (regardless of value) are given to the same person within a period of 3 months. Gifts purchased from non-GST registered persons must also be taken into account.

Recovery of expenses
When you recover the expenses from another party (e.g. your subsidiary or customer), whether GST needs to be charged on the re-billed amount will depend on whether the recovery of expenses is a reimbursement or disbursement. Disbursement is not subject to GST. You do not charge GST on a disbursement i.e. where you are merely recovering costs from having made payment on behalf of a third party. The goods or services you have paid for was acquired directly by the third party in his own name. Your recovery of costs from a third party cannot be treated as disbursement if: You acquire the goods or services and incur the cost as a principal. This occurs when: - you contract for the supply of goods or services in your own name or capacity; - you are legally obliged to pay the supplier of the service or goods; AND - you receive the goods or services or the benefits of the goods or services directly from the supplier. The goods or services are used or consumed by you in the course of making your supply to a third party You must charge and account for GST on the recovery of expenses if it does not qualify as a disbursement.

Sale or disposal of business assets / Goods given free as gifts

With effect from 1 October 2012, you are required to account for output tax based on the OMV of the free gifts of goods/assets except when: The cost of the gift or goods is not more than $200; or No credit for input tax was allowed* on the purchase or import of these goods.
*If the GST on the supply of the goods to you has been suspended (e.g. goods imported under Major Exporter Scheme), the GST suspended is treated as input tax allowed to you.

Inland Revenue Authority of Singapore | 55 Newton Road Revenue House Singapore 307987 | phone 1800 3568633 | fax 6351 3553
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Zero-rated Supplies, Exempt Supplies, Taxable Purchases and Input Tax

DO NOT REPORT in GST Returns: Out-of-Scope supplies (i.e. sale of goods from country outside Singapore to another country outside Singapore) Non-taxable purchases (i.e. purchases made from non-GST registered suppliers) DO NOT CLAIM the following input tax specifically disallowed under Regulations 26 and 27 of the GST (General) Regulations: Club subscription fees (including transfer fees) Staff medical expenses and medical and accident insurance premiums unless they are obligatory under the Work Injury Compensation Act or under any collective agreement within the meaning of the Industrial Relations Act; Benefits provided to the family members or relatives of your staff; Costs and running expenses of a motor car; and Any transaction involving betting, sweepstakes, lotteries, fruit machines or games of chance.

Zero-rated Supplies
Not all services provided to overseas customers or export of goods can be zerorated (i.e. charge 0% GST). You may zero-rate your supply only if your: Services qualify as international services under Section 21(3) of the GST Act. - See www.iras.gov.sg > GST > For GST-registered businesses > Charge & Claim GST > When to charge 0% GST > Providing international services Goods are exported or hand-carried out of Singapore and evidenced by the required documents within 60 days from the time of supply.

Exempt Supplies
The two main types of exempt supplies are the provision of financial services and the sale / lease of residential properties. Common errors of exempt supplies are: Wrongly including the value of unrealised exchange gain or loss. Only the net realised exchange gain or loss needs to be reported. Wrongly reporting interest received from an overseas entity (e.g. overseas bank) as exempt supply. Such interest should be a zero-rated supply as it qualifies as an international service.

Taxable Purchases and Input Tax

General Conditions for claiming Input Tax The goods or services must have been supplied to you or the goods have been imported by you; For local purchases The claim must be supported by tax invoices or simplified tax invoices addressed to you. For imports The claim must be supported by import permits showing you as the importer of the goods. The goods or services are used or to be used for the purpose of your business. They must not be for: Purely private or personal activities Free activities provided without commercial reasons Activities with non-business objects in the philanthropic, religious, political, or public domain The input tax is directly attributable to taxable supplies. It must not be incurred for exempt supplies.

Inland Revenue Authority of Singapore | 55 Newton Road Revenue House Singapore 307987 | phone 1800 3568633 | fax 6351 3553
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Managing Compliance through GST Assisted Self-help Kit (ASK)

To assist businesses in managing their GST compliance, IRAS has developed a self-assessment compliance package known as ASK. Businesses are strongly encouraged to adopt ASK to review the correctness of GST submissions and discover past GST errors early to avoid or reduce penalties under IRAS Voluntary Disclosure Programme. ASK focuses on 3 key aspects: (i) GST Practices comprising People, Record Keeping, Systems and Internal Controls to properly handle GST reporting of transactions; (ii) Pre-filing Checklist to ensure correctness of GST returns before submission; and (iii) ASK Annual Review of past GST returns for early detection of errors. See www.iras.gov.sg > GST > For GST-registered businesses > GST Initiatives to Facilitate Voluntary Compliance > GST Assisted Self-help Kit (ASK)

Useful e-Tax Guides

GST: Time of Supply Rules GST: Guide on Hand-Carried Exports Scheme GST: Partially Exempt Traders and Input Tax Recovery GST: Clarification on Directly in Connection With and Directly Benefit GST on Non-Business Receipts The Business Tests and Effect on Input Tax Claims GST: A Guide on Exports GST: Fringe Benefits GST: General Guide for Businesses Please visit our website at www.iras.gov.sg to find out more information on GST treatment applicable to your business and to download the relevant e-Tax guides.

www.iras.gov.sg

Inland Revenue Authority of Singapore | 55 Newton Road Revenue House Singapore 307987 | phone 1800 3568633 | fax 6351 3553
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