Since 2020 services procured in Singapore from foreign suppliers were not subject to Goods and Services Tax (GST) which created an unfair advantage for foreign merchants. Thus, from ! January 2020 GST was introduced to imported services through two mechanisms:
- The reverse charge mechanism is well known to European companies. Under this mechanism imported services from GST-registered persons are taxed in Singapore from the entities that have received the service;
- Overseas Vendor Registration (OVR) – a regime for taxation of non-GST registered persons
In this article, we will briefly explain the OVR regime. Keep in mind that it only applies to B2C digital services provided by foreign vendors to Singapore customers.
OVR Registration Threshold
Oversea suppliers must register in Singapore and charge GST if:
- They have a global turnover exceeding S$ 1 000 000 and;
- Make B2C supplies of digital services to customers in Singapore exceeding S$100 000
If both conditions are met during a calendar year the vendor must register as an OV in Singapore within 30 days of the calendar year-end in which the threshold has been reached.
Furthermore, foreign businesses that expect to reach the threshold in the next 12 months should also register under the regime.
Digital Services under the OVR
GST under the OVR will be applied to digital services provided by overseas suppliers to non-GST registered customers in Singapore. The Inland Revenue Authority of Singapore (IRAS) considers digital services to be such services which are performed on the Internet through automation or with minimal human intervention.
Examples of digital services that will be subject to the new regime are for example content publishing, downloadable content, online subscriptions, software programs. An example for excluded service will be any sort of consultancy service provided over the internet that is indeed provided by a real person.
Application of the OVR to Digital Marketplaces
Digital (Electronic) marketplaces are also affected by the overseas vendor registration regime if they are considered suppliers of services. This will be true in any of the following conditions:
- The marketplace authorizes the charge of the customer or the delivery of the service;
- The marketplace sets the terms and conditions under which the service is provided;
- The marketplaces identify itself as a supplier of the service;
- The marketplace and the actual service providers agree that the marketplace will be responsible for GST obligations.
The thresholds for the overseas vendor registration apply also to marketplaces but when calculating the total sales in Singapore and the global commercial turnover of the marketplace it must also include the B2C digital services sold through the marketplace by overseas service providers.
Here is an example of a marketplace for freelancers. Through the marketplace freelancers from all around the world provide software development services to customers all around the world. Some of the freelancers, as well as some of the customers, are Singapore citizens. The marketplace imposes a service fee to freelancers. In 2020 the total fees charged to Singapore freelancers amount to S$30 000. These are digital B2C services provided by the marketplace to customers in Singapore. Their amount is not enough to reach the S$100 000 threshold. However to this amount the marketplace must add the total amount of transactions provided to Singapore customers by freelancers on the marketplace. If they exceed S$70 000 the marketplace must register as an overseas vendor and start charging GST.
Given the above criteria, it is safe to say that basically all foreign marketplaces that reach the threshold should register as overseas vendors and charge GST.
Currency Conversion
For the purpose of charging VAT and calculating yearly turnover, digital services providers must convert foreign currency-denominated supplies. The suppliers may adopt the prevailing exchange rate at the following time periods:
- The time of supply;
- The end of the taxable period; or
- The time of filing the GST return
The adopted time period should be consistently applied to all sales of digital services for at least one year.
