Charging GST to Foreign Clients: A Guide for Singapore GST Registered Companies

A large number number of businesses fall into the trap of incorrectly handling GST on international services, which can lead to costly penalties.

One common mistake is assuming that all services provided to overseas customers are automatically zero-rated, which is not the case.

This oversight can have severe negative impacts, including hefty fines and damage to your business's credibility. It's a reminder that understanding GST regulations is crucial for any business operating internationally.  

To avoid this mistake, it's essential to understand the specific conditions under which services can be zero-rated.

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Understanding GST in Singapore

GST, or Goods and Services Tax, is a consumption tax levied on the supply of goods and services in Singapore. As a GST registered company, you are required to charge GST on your supplies of goods and services to customers in Singapore. However, the rules change when it comes to foreign clients.

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Do I Need to Charge GST to Foreign Clients?

The answer is no, you do not need to charge GST to foreign clients if the services are considered "international services" under the GST Act if they meet specific criteria under Section 21(3). International services are services that are supplied to a person who is not in Singapore at the time of supply. For example, if you provide consulting services to a client in the United States, you do not need to charge GST on those services.

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Zero-Rating Conditions:

• The services must fall within the descriptions of international services under Section 21(3) of the GST Act to be zero-rated.
• Not all services provided to overseas customers can be zero-rated; they must meet specific criteria.

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Types of Zero-Rated Services:

1. Transport Services:

• Air and Land Transport: Services involving the transport of passengers or goods from a place outside Singapore to another place outside Singapore, from Singapore to a place outside Singapore, or from a place outside Singapore to Singapore.
• Sea Transport: Similar to air and land transport, but specifically for sea transportation.

2. Consultancy Services:

• Services of engineers, lawyers, accountants, and other similar consultancy services, not being services supplied directly in connection with land or any improvement thereto situated in Singapore, or goods situated inside Singapore at the time the services are performed, except for goods for export outside Singapore.

3. Services Related to Land and Goods:

• Services supplied directly in connection with land or any improvement thereto situated outside Singapore.
• Services supplied directly in connection with goods situated outside Singapore when the services are performed, or goods for export outside Singapore and supplied to a person who belongs in a country other than Singapore at the time the services are performed.

4. Financial Services:

• Prescribed financial services supplied in connection with goods for export outside Singapore, or the supply of which involves the removal of goods from a place outside Singapore to another place outside Singapore.

5. Telecommunication Services:

• Services comprising the provision of any means of telecommunication transmitted from a place outside Singapore to another place outside Singapore, from a place in Singapore to a place outside Singapore, or from a place outside Singapore to a place in Singapore.

6.  Services Under Contract:

• Services supplied under a contract with a person who belongs in a country outside Singapore and which directly benefit a person who belongs in a country other than Singapore and who is outside Singapore at the time the services are performed, or a registered person who belongs in Singapore.

3. Examples of Zero-Rated Services:

• Transport services, including air tickets for flights from Singapore to another country and then to another country.
• Services performed completely outside Singapore, such as organising a concert in Malaysia or conducting a management course in Beijing, China.
• Consultancy services provided to overseas customers, such as feasibility studies for conducting business in Singapore, if they do not relate directly to land or goods in Singapore.

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How to treat International Services

To handle GST on international services correctly, you will need to follow these steps:

• Determine the Belonging Status of Your Customer: Understand whether your customer is a local or overseas entity, as this will determine whether your service can be zero-rated.
• Check if Your Service Falls Under International Services: Ensure that your service meets the criteria for international services as defined under Section 21(3) of the GST Act.
• Apply the Correct GST Treatment: If your service is eligible, apply the zero-rating correctly to avoid any errors.

For example, if you provide software development services to a client in India, and the client is not in Singapore at the time of supply, then the service is considered an international service and you do not need to charge GST.

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Conclusion

Charging GST to foreign clients can be a complex issue, but by understanding the rules and taking actionable steps, you can ensure that you are complying with the GST Act.

Every business is different. If you would like peace of mind to know that you are correctly invoicing your overseas clients, and you are filing your GST returns correctly, reach out to us at Harvest Accounting for expert advice on your unique situation.