Blog article for PwC

Engaging overseas service providers is common for many businesses in Singapore. However, with the introduction of the GST reverse charge, some companies now need to account for tax on imported services differently. If your business is affected, understanding how reverse charge works can help you stay compliant and avoid costly mistakes.

What Is Reverse Charge?

Under normal GST rules, local suppliers in Singapore charge GST on taxable goods and services. But what happens when the service provider is based overseas and isn’t GST-registered in Singapore?

The reverse charge mechanism shifts the responsibility for accounting for GST from the overseas supplier to the recipient of the service in Singapore. In other words, instead of the supplier charging GST, the local business must self-account for GST as if they were both the buyer and seller.

Consider this example: A Singapore-based investment firm engages a foreign consultant for market research. Since the firm’s income is primarily from dividends—an exempt supply—it cannot claim full input tax credit.

Under the reverse charge mechanism, the firm must self-account for GST on the consultant’s fees. If the service costs S$100,000, it would need to report S$9,000 as output tax (assuming a 9% GST rate). Depending on its level of input tax recovery, it may only be able to claim part of this amount back.

Who Needs to Apply the Reverse Charge?

Reverse charge applies to GST-registered businesses that are not entitled to claim full input tax credits. This includes financial institutions, property developers, charities, and other partially exempt businesses. If these businesses purchase services from overseas suppliers or import low-value goods, they must apply the reverse charge.

Companies that are not GST-registered are also liable when their total imported services and low-value goods exceed S$1 million over a 12-month period. Once registered for GST, these businesses must follow the same reverse charge rules as other GST-registered companies.

What Services and Goods Are Affected?

The reverse charge applies to most business-to-business (B2B) imported services, including professional and consultancy services, digital marketing and advertising, software licensing, legal and financial services, and cloud computing. However, certain services—such as financial services and some government-related supplies—are excluded.

From 1 January 2023, GST also applies to imported low-value goods (LVG). These are goods valued at S$400 or less at the point of sale and delivered into Singapore by air or post. Businesses that import such goods must self-account for GST if they fall under the reverse charge rules.

How Does Reverse Charge Affect Business Accounting?

You should account for GST when payment is made or when your supplier issues an invoice, whichever comes first. If your business consistently uses the invoice posting date, it may be beneficial to opt for that as the basis for GST reporting to maintain consistency.

Unlike regular GST transactions, where the supplier collects and remits GST, reverse charge means you’ll need to pay GST upfront and can only claim input tax if eligible. If your business is partially exempt, you may not be able to recover the full amount, so it’s worth considering how this might impact costs and cash flow.

Keeping accurate records can help you ensure compliance. Tracking imported services and low-value goods properly reduces the risk of errors, which could otherwise lead to penalties or additional administrative work for your business.

Staying Compliant

If you think reverse charge might apply to your business, reviewing your GST status and accounting processes could help clarify your obligations. Ensuring that your systems capture imported services and low-value goods accurately can also make reporting smoother. If cash flow is a concern, tax planning strategies may help manage the impact. For businesses handling a high volume of imported services or LVG, we recommend seeking out professional advice.

Navigating GST compliance can be complex, but you don’t have to manage it alone. At PwC Singapore, we help businesses understand their obligations and streamline their tax processes. If you’d like to discuss how we can support your business, feel free to reach out.