With digital tax gaining momentum in many jurisdictions, it came as little surprise when the overseas vendor registration (OVR) regime was announced in Singapore’s 2018 budget.
Echoing similar regimes worldwide, including in Australia, New Zealand, Japan and Taiwan, this so-called “Netflix tax” finally introduces good and services tax (GST) on digital services sold by non-resident suppliers to consumers in Singapore.
The new rules come into force on 1 January 2020 with GST registration under this regime available from 23 October 2019. In addition to streaming subscriptions like Netflix, digital services include anything sold and delivered digitally, requiring minimal human intervention, where delivery would be impossible without information technology.
Taxable digital services include:
Subscription-based digital media like magazines, online gaming and content streaming
Data management services like webhosting and data warehousing
Digitally enabled support services like listing fees and service charges, even for physical transactions
Downloads like apps, e-books, media files and software
The new system is meant to level the playing field for local businesses facing heavy competition from overseas suppliers that are not taxable in Singapore. With GST chargeable across the border, brick-and-mortar businesses in Singapore will no longer be at a competitive disadvantage on account of extra tax liability.
What this means for businesses
From 1 January 2020, overseas suppliers will be required to register for, charge and account for GST on digital services sold to Singaporean consumers if they meet or exceed the revenue threshold. This is a global turnover exceeding S$1 million, together with digital sales to Singaporean consumers valued at over S$100,000.
This makes all major suppliers of digital services equally liable for GST, whether they are overseas vendors or homegrown Singapore vendors.
Where an electronic marketplace operator like the App Store or Google Play Store sells digital services on behalf of third-party suppliers, the tax burden could fall on the operator rather than the supplier, depending on factors like sale and delivery arrangements.
To ease the tax compliance burden facing nonestablished businesses, overseas businesses will be registered under a simplified regime with reduced registration and reporting requirements.
Next steps for overseas suppliers
If you are a digital service provider based outside Singapore with customers in Singapore, first determine whether your digital services fall within the regime and whether you meet the revenue threshold. Even if you did not meet them in the last calendar year, if you are projected to do so within the next 12 months, you are required to prospectively register for GST.
The key to staying compliant lies in preparing ahead of time.
Here is a handy checklist to help you get started:
1 Consider the nature of your services
Are they digital in nature?
Can they be delivered without information technology?
Do they fall within the regime?
2 Consider whether you meet the revenue criteria
If you are projected to meet the revenue threshold in the next 12 months, when do you need to register by?
3 GST does not apply if the consumer doesn’t belong in Singapore, or if the buyer is also a GST-registered business.
Consider how you would determine and evidence your customer’s location and GST registration status
Do your systems currently capture and retain this data e.g. IP address/credit card billing address and GST registration number?
Do your suppliers or intermediaries collect data on your customers?
Are your data collection and retention policies PDPA and GDPR compliant?
4 Once you’ve assessed these questions, you can determine your registration liability
Who will be responsible for overseas compliance?
5 Impact assessments will establish what needs to be done
Do you have the systems, personnel and IT resources you need?
Can you scale tax policy and procedures relating to other similar VAT/GST regimes?
Do you need to review your pricing and margins to protect market share?
Do your tax, finance and compliance staff need training on the OVR regime?
How we can help
Our international indirect tax team has experience in advising on the taxation of digital services, including the implementation of the VAT MOSS scheme in the EU and similar VAT/GST rules across EMEA, APAC and LATAM regions. We can provide commercial and scalable advice around identifying customer location, pricing and system, invoicing and currency requirements.
In addition, Grant Thornton Singapore can provide specific local Singapore GST advice, and can assist with registration and GST compliance.