One of the challenges in operating an e-commerce business in Singapore is knowing your tax obligations. It involves transactions that are multi-jurisdictional and are anonymous to multiple parties. Before you start, it is essential to understand Singapore’s tax regulations to know your tax obligations.
This article has compiled information on Singapore’s tax regulations that will help you run your e-commerce business smoothly.
What is the Singapore Tax System Like?
The Singapore tax system primarily imposes a tax on companies and individuals on Singapore-sourced income. If the company operates a branch outside Singapore and receives income from it, the profits are considered income sourced from abroad.
The concept of the Singapore tax system may seem simple, but when it comes to e-commerce businesses, the sources of revenue can be complex. Therefore, to determine the source of income, you must know the nature of your profits and the types of transactions contributing to these profits.
E-Commerce Tax Regulations in Singapore
Two main taxes apply to e-commerce in Singapore: the Goods and Services Tax (GST) and the Income Tax.
Goods and Services Tax (GST)
Goods and Services Tax (GST), also known as Value Added Tax (VAT) in other countries, is an indirect consumption tax levied on the provision of goods and services in Singapore and the import of goods into Singapore. It also applies to the selling price of goods and services consumed in Singapore. However, only GST-registered businesses are allowed to charge this tax.
Since GST is passed on to the end consumer, it is not a cost to the company. The current GST rate is 7%. The sale and lease of residential land and financial services are exempt from GST. There is no GST for exports of goods and services outside Singapore.
GST is paid directly to Singapore Customs at the point of import to Singapore for goods imports. GST registration is mandatory for all companies whose annual turnover exceeds or is expected to exceed S$ 1 million. Companies that are only involved in the export of goods and the provision of international services are exempt from GST registration. Companies can also choose voluntary GST registration.
GST and E-Commerce
The following are some explanations of how e-commerce businesses will be subject to or exempt from GST.
- If you are registered with GST, selling goods via the internet, and shipping goods in Singapore, the goods will be subject to GST.
- If you are an electronics trader and the goods are exported by you or via your shippers, the goods are considered aero value inventory and exempt from GST. You must save the documents required to prove your export.
- If a physical shipment of goods is from a place outside Singapore to another location outside Singapore, it is outside the scope of the Singapore GST laws and does not need to be subject to GST.
- The sale of digital goods such as online movies, e-books, or computer software that customers can download via the internet is considered the provision of services. It is also subject to GST, as is the provision of physical goods.
- International service supplies are considered zero value supplies and are therefore exempt from the GST. Supplies to qualify as a global service must meet the following requirements:
-it is awarded on a contract basis with a person residing in a country outside Singapore;
-it directly benefits a person who is in a country outside Singapore and who is outside Singapore at the time the service is being performed; and
-it is not supplied directly in connection with goods in Singapore.
- If you import goods by post or by air and the value of the goods exceeds S$ 400, you must pay GST to Singapore Customs.
- If you “import” digital goods, you must not pay GST when downloading these digital goods, regardless of value.
- If you sell digital goods such as music and software over the Internet to individual or business consumers, you must charge 7% GST unless the customer is not in Singapore. To determine whether a customer is from Singapore or a foreign country, the business address, domain name, and IP address can be used as indicators.
- All prices displayed, advertised, published via the internet for the supply of any goods or services must include GST.
- If you sell advertising space on your web page or website that allows access to Singaporean and overseas viewers/browsers, it is a zero value supply and exempt from the GST. However, suppose an advertisement is placed on a website or webpage that only allows access to Singapore viewers/browsers (i.e., .sg domain). In that case, it is a standard-rated inventory and is subject to GST.
- The provision of web hosting services is also subject to GST unless classified as an international service.
To learn more about setting up an e-commerce business in Singapore, refer to this article:
Income tax refers to the tax levied on income earned by individuals and companies for the financial year. The corporate tax rate is currently subject to a flat 17% rate and applies to local and foreign companies.
Singapore uses a one-tier corporate tax system. This means that companies will pay taxes based on their profits, and dividends held by shareholders in Singapore are exempt from further taxes.
The main concerns regarding the implementation of income tax to e-commerce transactions are in the following areas:
- Tax issues related to sources;
- Tax matters relating to residence; and
- Tax issues related to income classification
Sources of Taxation
Given that Singapore follows a territorial basis for taxation, taxes are levied on income (a) earned in or originating from Singapore or (b) received in Singapore from outside Singapore. However, e-merchants may face difficulties in applying this principle to e-commerce as it relates to seamless electronic transactions and not to trade in physical goods and services.
It depends on whether the e-merchant trades in Singapore or with Singapore. In determining this, one must consider:
- The place of contract
- The place of operation for e-commerce transactions
However, most business owners face difficulty applying the above factors to their e-commerce related to the source of goods. For example, orders may be received in one country via a server located in another. Goods may be produced in one country but shipped to another for storage. It turns out that it is not easy to determine the source of income in this case. The only way to meet this challenge is to closely examine which jurisdictions are most associated with electronic transactions based on the factors above.
Common E-Commerce Taxation Scenarios
As revenue sources can vary for different e-commerce companies, the Singapore tax authorities have listed a set of different scenarios common to e-commerce businesses.
Scenario 1: A company with its business operations in Singapore maintains a website in Singapore
Michael operates his electronic company in Singapore, hosting his e-commerce site with a Singapore web hosting service provider. Through the website, his customers can place orders, make payments, and receive their orders online. In this case, the income generated from these online sales will be considered the income sourced in Singapore and taxed in Singapore.
Scenario 2: A company with its business operations in Singapore maintains a website overseas
Bianca has a furniture business in Singapore and supplies her goods to her customers in Singapore, yet hosts her website with a web hosting service provider in Australia. The customers can place orders, make payments, and receive goods through the website. Although the website is hosted in Australia, the fulfillment of orders is carried out through business operations in Singapore. Therefore, the income earned from e-commerce transactions via the website will be considered as the income sourced in Singapore and subject to tax in Singapore.
Scenario 3: A company with its business operations in Singapore establishes a website and branch overseas
Brandon has a thriving online clothing business in Singapore and supplies his goods in Singapore. However, he has a branch in Hong Kong and uses Hong Kong web hosting services for his online store. The online store enables customers to order, make payments and receive their orders. His branch supports the business by managing the technical aspects of the online store, fulfilling orders, and completing e-commerce transactions. Since most of his business activities are conducted in Hong Kong, online sales income will be considered the income sourced from abroad. In this case, the income will not be taxed in Singapore unless it is remitted back to Singapore.
Scenario 4: A company with its business operations outside Singapore maintains a website in Singapore
Andrew runs a jewelry business in Indonesia. He also produces and supplies his jewelry in Indonesia. Although he uses a Singapore web hosting service provider for his company website, he does not have a branch in Singapore. His company website facilitates electronic transactions with the customers, provides product information, and fulfills orders. Since most of his business activities occur in Indonesia, the income will not be sourced in Singapore. In this case, the income will not be taxed in Singapore.
Scenario 5: A company with its business operations outside Singapore sets up a website and branch in Singapore
Anne operates her perfume business in France. She manufactures and supplies her perfume in France. However, she decided to set up her e-commerce site using a Singapore web hosting service provider. She also has a branch in Singapore. The e-commerce site allows her customers to order, make payments, and receive their orders. The unit in Singapore assists with the technical aspects of the website, handling customer inquiries, and completing e-commerce transactions. Since the business operates in France, it is not subject to any taxes in Singapore. However, since the branch is based in Singapore and makes most of its sales online, the income will be considered sourced in Singapore. In this case, the income will be taxable.
What is Considered as Taxable?
Now you’re probably thinking: given the many scenarios in e-commerce businesses, what types of goods are considered taxable?
Tax is subject to control and management of business activities in Singapore. If the company is based abroad and there is no proof of tax paid abroad, the Inland Revenue Authority of Singapore (IRAS) can question whether the income is already taxed.
Singapore permanent residents are considered taxable individuals. A foreigner who resides in the country for more than 183 days must also pay taxes.
It refers to a place such as a branch or an office located in Singapore. If an electronic transaction occurs at a branch, the income from that transaction will be taxable.
Company website server plays a vital role in the e-commerce business. If used for communication purposes such as handling customer inquiries and uploading product information, it will not be taxed. However, if the website is used for transaction purposes, it will be taxable.
How to File GST Returns
It is mandatory to apply for GST returns by submitting GST F5 tax returns to IRAS. Note that the standard accounting period for businesses is quarterly. You are required to submit GST returns to IRAS within one month from the end of your accounting period. All figures reported on the form must be in Singapore currency. If you received foreign currency during your electronic transactions, you would also need to report the numbers on the form.
As a Singapore-registered accounting service provider, we make companies’ filing process more accessible and ensure they comply with statutory requirements. Our experienced accounting consultants can help you prepare and file GST tax returns.
E-commerce tax regulations in Singapore can be complicated as it relates to cross-border transactions. You’re probably planning on expanding your e-commerce business by setting up another branch outside Singapore or starting a new e-commerce business. Whatever the case, understanding e-commerce tax regulations in Singapore will help you figure out how your profits will be taxed. This will also help facilitate your future business operations.