Singapore 2018 Budget : GST to be levied on imported services from 1 January 2020 – Will Malaysia follow suit?
In the recent announcement of the Singapore 2018 Budget, from 1 January 2020, consumers and businesses who buy imported services from suppliers based overseas which has no establishments in Singapore will have to pay goods and services tax (GST).
The GST will be levied on two types of services which are business-to-business (B2B), such as marketing services, accounting services and IT services; and business-to-consumers (B2C), mainly digital services including video and music streaming services, apps and online subscription fees.
The new measures will not affect the importation of goods or physical products traded via e-commerce.
The Services of B2B – Reverse Charge Mechanism
Singapore is going to adopt similar mechanisms that were adopted by other countries including Malaysia which has implemented imported services for B2B in which case businesses in Malaysia (including GST registered and not GST registered) who acquire and consume the services supplied by overseas suppliers and said services are consumed in Malaysia for business purposes, the local businesses have to account for GST to the Royal Malaysian Customs Department (RMCD).
In Malaysia, for imported services that are acquired and consumed in the course of making taxable supplies by a GST registered business, the GST accounted for via reverse charge mechanism can be claimed as input tax credit by that GST registered business.
If the imported services are acquired for making tax exempt supply or by a business which is not GST registered, the GST accounted for via reverse charge mechanism is not claimable as input tax credit.
The Services of B2C – Overseas Vendor Registration
For B2C services, Singapore will adopt Overseas Vendor Registration which is followed by a few countries such as Australia and New Zealand. Under this model an overseas supplier who does not have any establishment in Singapore and supplies services to consumers in Singapore, if its global turnover exceeds US$1 million and the value of services supplied to consumers in Singapore exceeds S$100,000, it is required to account for GST to the Singapore IRAS (Inland Revenue Authority of Singapore).
Malaysia has so far not adopted such a model but there is a model of GST Agent registration on behalf of overseas business entities who have made supplies in Malaysia which exceeds RM500,000 in 12 months’ time. At present in Malaysia, a foreign entity or a company not able to register for GST directly (unless they set up a Malaysian company to register GST) and if they have made supplies in Malaysia that exceeds RM500,000 they have to look for a Malaysian entity to register on their behalf to carry out the compliances duties required under GST legislations.
Malaysia refers to OECD’s guides on new industries taxation
All these measures emerge mainly to cope with the evolution of E-Commerce which businesses transacted easily without borders and in digital forms which are difficult to trace. The Malaysian authority always keeps an eye on monitoring these industries and as mentioned by Second Finance Minister Datuk Seri Johari Abdul Ghani, Malaysia is eager to learn from Organisation for Economic Co-operation and Development (OECD) how to tax new industries such as Uber, Grab Car, Airbnb etc.
We anticipate that tax will become more dynamic moving forward, in view of rapid economic and technological changes.
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