Singapore Overseas Vendor Registration regime: concessions for banks has been saved
Singapore Overseas Vendor Registration regime: concessions for banks
Following discussions with the Inland Revenue Authority of Singapore (IRAS) on the practical compliance difficulties faced by the banking industry to comply with the new requirements under the Overseas Vendor Registration (OVR) regime, IRAS is now prepared to grant the following administrative measures to help overseas banks cope with the OVR implementation and compliance.
Divisional goods and services tax (GST) registration will be allowed for overseas branches of a Singapore GST registered bank branch. Once under divisional registration, each branch will have its own GST registration number and will file its own simplified OVR pay-only GST returns. Note that these overseas branches cannot claim input tax, if any incurred.
In our view, divisional registration would be helpful to clearly segregate the activities of the Singapore branch from the rest of its head office and branches and can ease the process of future GST review(s). Further, the Singapore branch should be able to directly approach the relevant branch in case of any questions or clarifications received from the IRAS.
GST filing frequency
Overseas bank branches that apply for divisional GST registration will be granted a half-yearly GST filing frequency.
(i) Supplies to be regarded as business to business (B2B) supplies
The IRAS will allow the use of proxies for overseas banks to determine whether a supply is made to GST-registered customers who would then be excluded from OVR. IRAS has indicated that it is prepared to regard the following supplies as being made to GST-registered customers
- All remote services supplied to funds (including Variable Capital Company [VCC]) that are granted the GST remission for claiming GST on fund expenses.
- Any services that are generally supplies to MNCs with operations in multiple jurisdictions and/or any remote services made by business segments that generally only service such MNCs.
- Any advisory services supplied to non-GST registered funds and investment holding companies in relation to acquisition/divestment of investments and raising capital.
We welcome this pragmatic approach in treating certain supplies as described above that are made by overseas bank branches as falling outside the scope of OVR. However, at the same time, there may also be practical issues especially if the overseas bank branches need to monitor and track whether their supplies can continue to be regarded as B2B supplies. For example, the overseas bank branches would need to assess whether the funds are still qualifying funds on an annual basis such that they can claim the GST incurred on their business expenses under the GST remission.
(ii) Assessing GST registration liability and GST reporting
The IRAS will allow the use of proxies for overseas banks that are unable to identify and assess the actual value of supplies made to non-GST registered customers in Singapore. The proxy can be used for the following purposes:
- Determine the overseas banks’ liability to register for GST and the overseas banks may perform the assessment every five years; and
- GST reporting purpose and the proxy should be reviewed and updated on an annual basis.
The IRAS is now working with other various industry players to refine the proxies and separate circular(s) will be issued in due course once the acceptable proxies are finalised. For example, we are keen to see the applicability for the provision of fund management services by overseas fund managers to funds (including VCC) that are granted the GST remission for claiming GST on fund expenses.
As an initial step to assess GST registration liability under OVR, overseas banks should identify the nature of their supplies. If they are wholly making supplies that fall within the following categories, the overseas banks should not have any GST registration liability:
- Services that fall within the description of exempt supplies under the Fourth Schedule to the GST Act.
Example: provision of loans, issue/sale of shares or bonds, operation of any current, deposit or savings account, exchange of currency.
- Services that qualify for zero-rating under section 21(3) of the GST Act had the services been supplied by a taxable person belonging in Singapore.
Example: provision of services supplied directly in connection with goods or land situated outside Singapore such as property valuation on an identified building located outside Singapore.
- Services provided by the government of a jurisdiction outside Singapore, if the services are of a nature that fall within the description of non-taxable government supplies under the Schedule to the GST (Non-Taxable Government Supplies) Order of the GST Act.
Example: court fees paid to the court of an overseas jurisdiction.
If any overseas banks are facing OVR implementation difficulties, IRAS encourages them to write in as soon as possible to agree on the use of reasonable proxies to facilitate their compliance. In case they require more time to assess their GST registration liabilities, they should also inform the IRAS early.
In addition, it should be noted that the IRAS is also prepared to consider granting waiver of penalties for bona fide GST errors that occur in the first year of OVR implementation on the basis that businesses may require some time to familiarise themselves with the new GST rules. This however does not waive the requirement for the overseas bank branches to back pay the GST due in case their GST registration liabilities are backdated.
For further information on OVR, please contact Gek Teng Ng.