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Goods and Services Tax (GST)

Introduction

GST

GST

Goods and Services Tax (GST), also known as Value-Added Tax (VAT) in many countries, is a broad-based consumption tax levied on the import of goods and the supply of goods and services in Singapore. It was implemented in Singapore on 1st April 1994 to shift the reliance from direct taxes to indirect taxes. Through the implementation of GST, the Singapore government does not have to rely on the taxation of income to raise revenue; instead the government can generate revenue through taxation on consumption as well. As such, Singapore is able to maintain a relatively low income tax rate and remain economically competitive.

GST may also be beneficial to businesses. For example, if your business is GST-registered, you are able to claim the GST paid to your suppliers which helps to reduce your business cost. Thus, GST-registered businesses do not suffer a tax cost and simply act as collecting agents of GST on behalf of the IRAS.

The current rate of GST in Singapore is 7%.

Categorisation of Goods and Services

In Singapore, not all goods and services are subject to GST. For the purpose of GST, good and services are classified into 2 categories: Taxable supplies and Non-taxable supplies.

As the name suggests, GST is chargeable on goods and/or services categorised as taxable supplies. Taxable supplies are further categorised as standard-rated or zero-rated.  Standard-rated supplies are goods sold or services provided locally. GST is chargeable at the prevailing GST rate for standard-rated supplies. Meanwhile, zero-rated supplies are goods exported overseas or services classified as international services under Section 21(3) of the GST Act. For zero-rated supplies, GST is chargeable at 0%.

Non-taxable supplies are supplies where GST is not applicable. They include exempt supplies and out-of-scope supplies. Exempt supplies can be divided into 3 categories:

– Sale and rental of residential properties
– Financial services
– Importation and local supply of investment precious metals

Meanwhile, out-of-scope supplies refer to sales where goods did not enter Singapore (i.e third country sales) and goods in transit (e.g. sales made within Free Trade Zone and Zero GST Warehouses). Out-of-scope supplies also refer to private transactions which is defined as non-business activities performed without payment or any expectation of return from the recipients.

Registration Liability

Even though Singapore has implemented GST, not all businesses have to/are allowed to charge and collect GST. Businesses have to be GST-registered before they are permitted to charge and collect GST.

As a business owner, you may be concerned if your business is required to register for GST. To determine your business’ GST registration liability, we’ll have to look at your business’ taxable turnover. Taxable turnover is the total value (excluding GST) of all taxable supplies (includes all standard-rated and zero-rated supplies but excludes exempt supplies, out-of-scope supplies and sale of capital assets) made in Singapore.

It is mandatory for your business to register for GST if the taxable turnover:

  • Exceeded S$1 million in the past 4 quarters (ending March, June, September and December); or
  • Is expected to be more than S$1 million in the next 12 months.

If your business’ taxable turnover did not exceed S$ 1 million, you may register for GST voluntarily. However, you may wish to note that once registration is approved, the business must remain registered for at least 2 years and will have to comply with the GST regulations. As compliance to the GST regulations may be administratively costly, businesses, not mandated by law to be GST-registered, are encouraged to carefully weigh the pros and cons prior to registering voluntarily.

When to register

You must apply for GST registration within 30 days of the end of the quarter where your business is liable for GST registration or within 30 days from the date on which you forecast that your business’ taxable turnover for the next 12 months will be more than S$ 1 million.

If GST is not registered promptly within the 30-day notification period, penalty may be imposed for late notification of GST registration liability. In addition, the date of registration will be backdated to the date that your business is liable to be registered even if no GST has been collected from your customers.

How to register

To register for GST, the form GST F1 “Application for GST Registration” has to be completed and submitted together with the supporting documents. Alternatively, registration can be done online via IRAS’ myTax Portal.

For partnerships, an additional form GST F3 “Notification of Liability to be Registered: Details of All Partnerships and Partners” has to be completed and submitted together with GST F1.

For overseas entities, a local agent in Singapore must be appointed to handle all GST matters i.e. collection and payment of GST and filing of GST returns etc. In addition to GST F1, a letter of authorisation to appoint a local agent has to be submitted.

GST registration application will be processed within 2 working days for compulsory registration via online and 10 working days for compulsory registration via paper application. Meanwhile, it takes longer for application for voluntary registration to be processed i.e. 10 working days for online applications and 1 month for paper applications.

Once GST registration is approved, you will receive a Notification of GST Registration Letter. This notification will state your GST registration number and effective date of GST registration.

Output Tax and Input Tax

You should start charging GST on customers from the effective date of GST registration. This GST charged to customers is known as output tax.

In addition, GST-registered businesses will be able to claim GST paid on business purchases and expenses incurred for making taxable supplies from the effective date of GST registration.  This GST incurred is known as input tax.

The difference between output tax and input tax is the net GST payable to/refunded by the IRAS.

Application for exemption from GST registration

If your business makes solely or mostly zero-rated supplies, you may apply for exemption from GST registration.

Exemption from GST registration allows businesses to save on the hassle of GST collection and filing. However, businesses exempted from GST registration will not be able to claim input tax, which could help businesses to reduce costs.

To apply, the form GST F2 “Application for Exemption from Registration” has to be completed and submitted together with the required documents.

Exemption will be granted only if both conditions are met:

  • More than 90% of your total taxable supplies are zero-rated; and
  • The total amount of output tax that would have been chargeable if you were GST-registered is less than the GST incurred on imports and/or purchases from GST-registered suppliers.

For more information on GST, please refer to GST section of IRAS website here.

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Income Statement by Nature Vs Income Statement by Function

Do you always ponder if an income statement is presented by nature of expense or by function of expense? The following is a brief explanation to help us identify between the two ways of presenting an income statement. The choice between the two presentations of income statement is also relevant in preparing XBRL financial statements as we need to select the type of income statement in “filling information” section of XBRL preparation tool.

Income Statement by Nature of Expense

Expenses in an income statement are either classified by their nature or by their function.

An income statement by nature method is the one in which expenses are disclosed according to what categories they are spent on, such as raw materials, transport costs, staffing costs, depreciation, employee benefit etc. The expenses will not be further classified into their functions (i.e cost of goods sold, selling, administrative, etc).

This method of disclosure of expenses is used in single step income statement, usually employed by small businesses as it is simple and relatively easier to be implemented. However, the drawback of this method is that it cannot be used to calculate gross profit within the income statement.

The following example shows the format of an income statement by nature.

ABC PTE LTD
Statement of Comprehensive Income
For the Financial Year Ended 31 December 2017
Sales 573,610
Expenses:
Purchases, delivery charges and other direct costs (158,401)
Changes in inventory 69,426
Depreciation Expense (3,250)
Rent Expense (24,000)
Employee benefit expenses (124,630)
Utilities Expense (6,900)
Interest Expense (375)
Total Expenses (248,130)
Net Income 325,480

 

Income Statement by Function of Expense

An income statement by function is the one in which expenses are disclosed according to the different functions they are spent on (cost of goods sold, selling, administrative, etc.)

This method allows us to calculate gross profit and operating profit within the income statement, and therefore is usually used in the multi-step format of income statement. Most large and medium sized businesses use this method.

The following shows the format of an income statement by function of expense.

ABC PTE LTD
Statement of Comprehensive Income
For the Financial Year Ended 31 December 2017
Revenue 102,716
Cost of sales (55,708)
Gross profit 47,008
Other income 1,021
Selling and distribution expenses (17,984)
Administrative expenses (17142)
Research and development expenses (1,109)
Other expenses (860)
Results from operating activities 10,934
Finance income 1,161
Finance costs (1,707)
Net finance costs (546)
Share of profit of equity-accounted investees, net of tax 541
Profit before tax 10,929
Tax expense (3,371)
Profit from continuing operations 7,558
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Accounting Workflow for a New Business Owner

Money

In all businesses, it is of utmost importance to have an accounting system to monitor the business’ finances. An accounting system helps the business owner to keep track of the business’ income, expenses, assets and liabilities.  It also helps to monitor the cash flow of the business, ensuring that there is sufficient cash for running the business.  An accounting system is also necessary for the purpose of income tax filing, making retrieval of accurate and up-to-date information less time-consuming.

For business owners without any accounting knowledge, setting up an accounting system may seem like a daunting task. However, one can get started with keeping track of all business transactions with just simple excel templates (or openoffice spreadsheet templates if you are a fan of open-sourced software). If you are a new business owner, the information below will be useful for you to get started.

Sales and Receivables
When a business sells goods or services to a customer on credit, it is important that the business collects what is due. As such, companies need to keep track of the outstanding amounts due to them and this can be done using the account receivables template. With this template, collection efforts can be prioritised for amounts that are way overdue. In the event that your business is in F&B or retails where sales transactions tend to be voluminous, you can use the Monthly Sales Report to keep track of daily sales, modes of payment by customers, credit card charges, the date where sales proceeds are banked in to the company’s bank account. The practice of diligently preparing daily sales report into respective months will really come in handy if you need to report Gross Sales Report to the company’s landlord or if you require your monthly Gross Sales audited by an external auditor.

Purchases and Payables
Businesses often make large purchases e.g. inventory, supplies or equipment on credit. This will result in businesses having to make several monthly payments to various vendors by different dates. The account payables template will help you to keep track of the amounts owed to each vendor and the due dates for payment. It will also provide a quick overview of the total outstanding balances.

Sales Invoice
It is necessary for businesses providing goods or services to issue customers with a sales invoice.  Sales invoice is an invaluable tool for accounting as this helps the business to keep a record of the sale.  These simple bill templates (sale invoice template 1 and sale invoice template 2) are easily customisable to fit your business’ needs – you can add your company details, payee information, payment instructions, itemized list of the goods or services provided, quantity and price of each item.

Proforma Invoice
If you need to issue a sales document for goods or services that you have not yet supplied, you can issue a Proforma Invoice to offer the prices on these goods or services to your customer. They are also often used to declare the value of goods for customs or GST  (in Singapore context) purposes, but are not official invoices, by definition.

Expense Report/Reimbursement Report
The expense report template is useful for keeping track of business expenses for an individual, department, project or company. You can input expense details quickly and conveniently in the template. As a business owner, you can request your team to submit monthly reimbursement report or as the expenses are accrued.

Payroll
As your business grows, you may hire an employee or a freelancer to help out with the business. You will need to determine if that individual is an employee or an independent contractor.  For employees, you will need to maintain Payroll Schedule and ensure that your business is compliant to the tax and CPF regulations in Singapore. In addition, from 1 April 2016, all employers must issue itemised payslips to employees covered by the Employment Act. For detailed requirements such as what items to include, when and how to give them, please refer to MOM link here. Meanwhile, if you decide to hire an independent contractor, you will have to keep track of how much you are paying to each freelancer.

Conclusion
As a new business owner, you may find that the process of starting a business is ridden with obstacles. Accounting could be one of the many challenges that you may find overwhelming. Feel free to use the accounting templates provided to get started with recording common transactions for your new business. These excel templates are easy to use and can be customised to suit your business’ needs. With these templates, you will find that getting your business’ finances in order may not be as tedious as you think.

 

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Free Accounting Software

“There is no such thing as a free lunch” is a popular adage communicating the idea that it is impossible to get something for nothing. Notwithstanding the elements of truth that this adage conveys, making use of cost-free accounting software package is quite simple and effectively practical these days as there are quite a number of reliable free accounting software packages out there on the Internet which earn their revenue from their discreet in-application advertising.

One such example of free accounting software is Wave Accounting Software.

Logo of wave accounting software

Wave accounting software

Wave is a cloud-based, integrated software built especially for freelancers, contractors, entrepreneurs, consultants, and small business owners. Since this is cloud-based, it eliminates the need for passing data files back and forth. It has all the core features a small business needs in an accounting solution. These include the ability to track expenses, create financial reports, send invoices, link bank accounts and more. And unlike other free services that limit usage, Wave is not just a free trial. It stays free no matter how much you use it. The free software comes with unlimited invoicing, expense tracking and recording of accounting entries with no sneaky pricing tiers that raise your rates. This means you can use it for as many customers, invoices, expenses and reports as your business needs.

If you ever wonder why the software can be free in such a way, below is what is stated on their web blog and we have so far agreed with what they claim they are.

“Wave’s invoicing, accounting and personal finance tools are completely free.

Inside Wave, you’ll see offers from companies like Amex, Staples, Dell, Moo and others. We call these our Business Savings. The companies offering Business Savings pay to have a presence in Wave, and that lets us provide awesome, innovative features to you for free. Pretty cool, huh? You get great offers that save you money, plus free online software from us.”

For more information on Wave Accounting Software, click here.

Our recommendation

We have been using Wave for a number of our clients. Base on our experience so far, we are of the opinion that Wave Accounting is one of the best free accounting software for small businesses.

Our Accounting Service using Wave Accounting Software

After you choose your accounting software, if you may need an outside accounting or bookkeeping service to help your business with taxes or handle more complicated bookkeeping tasks, kindly do contact us. We will be glad to offer our bespoke accounting service using Wave Accounting Software.

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