A Guide to Tax Regulations for E-commerce Businesses in Singapore
One of the advantages of starting a business in Singapore is the liberal tax system, which provides generous incentives for business owners. However, starting an e-commerce business in Singapore has its own set of challenges. It involves transactions that are multi-jurisdictional in nature and multiple anonymous parties. So before you begin, you will need to understand Singapore’s tax regulations so that you will know your tax liabilities.
In this article, we have put together information about Singapore’s tax regulations that will help you to run your e-commerce business smoothly.
We will cover:
What is the Singapore Tax System?Benefits of Singapore Tax for E-commerce Business
GST vs Income Tax for E-commerce Businesses in Singapore
How Does Corporate Tax Rate Work for E-commerce Transactions?
Sources of Taxation
How Will your Company Be Charged for Tax?
What is Considered as Taxable?
Do you Need to Register GST for your E-commerce Business?
How Do you File GST Returns?
Summing up
What is the Singapore Tax System?
The Singapore tax system mainly taxed companies and individuals on Singapore sourced income. If the company operates a branch outside of Singapore and receives income from it, the profits are considered as foreign-sourced income.
The company will only be taxed when the foreign-sourced income is remitted to Singapore. However, if the income has already been subjected to tax based on the rate of at least 15%, it will not be taxed. Do note however, that the company has to be a Singapore tax resident.
This concept of the Singapore tax system may appear simple, but when it comes to applying to e-commerce business, the source of income can be complicated and contentious. So to determine the source of income, you have to know what is the nature of the profits and the kind of transactions that contribute to these profits.
Benefits of Singapore Tax for E-commerce Business
Aside from being a strategic location in the South East Asia region, the other main attraction for setting up an e-commerce business in Singapore is the tax. The government has implemented tax benefits and rebates for businesses. This is also to promote entrepreneurship and support local enterprises.
To find out more details about tax benefits, you can take a look at the tax exemption scheme for business.
GST vs Income Tax for E-commerce Businesses in Singapore
The Singapore tax system for e-commerce business comes in two parts: Goods and Service Tax & Income Tax. So what is the difference then?
Goods & Service Tax (GST)
GST refers to Goods and Service tax, also known as VAT in other countries. It is an indirect consumption tax that is charged on the supply of goods and services in Singapore and any imported goods into Singapore. It also applies to the selling price of goods and services consumed in Singapore. However, only GST registered businesses are allowed to charge this tax. Since GST is passed on to the consumer, there is no cost to the company. Currently, the rate of GST is 7%.
Note
You would need to register your company when your company hits a taxable revenue that will exceed S$1 million in the next 12 months. You would need to prove this with supporting documents.
Income Tax
Income tax refers to a tax that is chargeable on the income earned by individuals and companies for the financial year. The current corporate tax rate is charged at a flat rate of 17%, and it applies to both local and foreign companies.
Singapore uses a one-tier corporate tax system. This means companies will pay tax based on the profits they earn and any dividends held by shareholders in Singapore are exempted from further taxation.
How Does Corporate Tax Rate Work for E-commerce Transactions?
Unlike a traditional brick and mortar store where physical goods and services can be easily taxed, e-commerce business works differently. This is because e-commerce transactions are borderless and involve different parties.
As e-commerce business can be set up and based anywhere in the world, the charging of corporate tax rate for e-commerce transactions will really depend on whether the e-seller is trading in Singapore or with Singapore.
Sources of Taxation
To understand how corporate tax rate works during an e-commerce transaction, you will need to consider these factors:
- The place of contract.
- The place of operations for e-commerce transactions.
For the place of operations relating to the transactions, it depends on where the profits come from, and it can be based on the following:
- The location of the labour employed;
- The location of capital invested;
- The location of the goods manufactured;
- The location of the goods stored;
- The location of payment for any expenses incurred;
- The location of the sales proceeds received.
However, most business owners face difficulty in applying the above factors to their e-commerce, as it deals with the source of the goods.
Pamela owns a clothing e-commerce store in Singapore. She purchases clothes that are manufactured and made in China. Due to the high cost of space rental, she decides to store her existing goods in Malaysia. When customers purchase her clothes in Singapore, she will dispatch her orders from her Malaysia store. In this instance, it is difficult to decide the source of income.
One of the ways to handle this tricky situation is to understand which jurisdiction is best connected to the e-transaction on the basis of the factors above.
How Will Your Company Be Charged for Tax?
As the source of income can vary for different e-commerce companies, the Singapore authorities have listed down a series of different scenarios that are common for e-commerce businesses.
Scenario 1: Business and company’s website operate in Singapore
Felix operates his electronic goods company and sets up his website in Singapore. His company supplies goods to his customers in Singapore. His website is managed by a Singapore-hosted service provider, and the customers are able to place orders through his online store, make payments and receive the delivery of their orders. In this case, the income from these online sales will be considered as an income sourced in Singapore. This will be subjected to tax in Singapore.
Scenario 2: Business operates in Singapore but company’s website is based in a foreign country
John operates his bicycle hardware business in Singapore and supplies his goods to his customers in Singapore. But he uses a U.S web-hosting service provider for his company’s website. The customers are able to place orders through his online store, make payments and receive the delivery of their orders. Although the website is hosted in the U.S, the fulfilment of orders is done through the business operation in Singapore, such as, answering customer’s queries, providing information for the website and delivery of orders. In this case, the income from these online sales will be considered as an income sourced in Singapore. This will be subjected to tax in Singapore.
Scenario 3: Business operates in Singapore but company’s website and branch are set up in a foreign country
Chantal operates her successful jewellery online business in Singapore and supplies his goods in Singapore. However, she has a branch in the U.K and uses a U.K web-hosting service for her company’s website. The website allows the customers to place orders, make payments and receive their orders. Her branch supports the business by managing the technical aspects of the website, fulfilling the orders and completing the e-commerce transactions. As the bulk of her business activities are done in the U.K, the income from the online sales will be considered as foreign sourced income. In this case, the income will not be subjected to tax in Singapore, unless the income is remitted back to Singapore.
Scenario 4: Business operates in a foreign country but sets up website in Singapore
Don operates his modern furniture business in Australia. Likewise, he manufactures and supplies his goods in Australia. Though he uses a Singapore web-hosting service provider for his company website, he does not have a branch in Singapore. His company’s website is to facilitate electronic transactions with his customers, upload product information and fulfil orders. As a large part of business activities takes place in Australia, the income will not be considered as sourced in Singapore. In this case, the income will not be subjected to tax in Singapore.
Scenario 5: Business operates in a foreign country but sets up branch and website in Singapore
Kai operates a wine business in France. He manufactures and supplies his wine in France. But he decides to set up his company’s website by using a Singapore web-hosting service provider. He also has a branch in Singapore. The website allows his customers to place orders, make payment and receive delivery of their orders. The branch in Singapore helps with the technical aspects of the website, handle customers’ queries and complete e-commerce transactions. As the business operates in France, it is not subject to any tax in Singapore. However, as the branch is based in Singapore and performed most of the online sales, the income will be considered as sourced in Singapore. In this case, the income will be taxable.
What is Considered as Taxable?
Now you might be thinking: with so many scenarios in e-commerce business, what kinds of items are considered as taxable?
| Company | It is taxable if the control and the management of the business activity are performed in Singapore. If the company is based overseas and there is no proof of tax paid overseas, IRAS may question the company on whether the income has been taxed already. |
| Individuals | Singapore and Permanent residents are considered as taxable individuals. A foreigner who lives in the country for more than 183 days also has to pay tax. |
| Permanent establishment | It refers to a place such as a branch or office situated in Singapore. If the e-transaction takes place in a branch, the income from that transaction will be taxable. |
| Website | The server of the company’s website plays an important role in e-commerce business. If it’s used for communication purposes such as handling customer’s queries and uploading product information, it will not be subject to tax. But if the website is used for transaction purposes, it will be taxable. |
Do you Need to Register GST for your E-commerce Business?
It depends.
Firstly, if your e-commerce business exceeded S$1 million in profits yearly, you are required to register for GST. After which, any goods that you sold through the Internet and delivered will be subject to 7% GST. Prices displayed and published on the Internet have to be inclusive of GST.
Secondly, if you are exporting your goods to other countries, your goods will be considered as zero-rated items and you will be exempted from GST. However, you will need to produce the necessary documents to prove that you are exporting goods to other countries, when needed.
Thirdly, you may have overseas customers who purchase goods from your website. As the delivery of goods will be outside of Singapore, you do not need to charge GST for this transaction.
But if an overseas business entity or customer purchases more than S$400 worth of goods, you must pay GST to the Singapore customs.
To find out more, you may refer to the GST in Singapore and how it works in Singapore.
How Do you File GST Returns?
It is mandatory to file GST returns by submitting GST F5 tax return to Inland Revenue Authority of Singapore (IRAS). Do note that the standard accounting period for businesses is quarterly. You are required to submit the GST return to IRAS within one month from the end of your accounting period. You will need a CorpPass account to file it electronically through myTax portal.
All figures reported in the form must be in Singapore currency. If you receive foreign currency during your e-transactions, you will also need to report the figures in the form. You may refer to the foreign currency transactions for more details.
Summing Up
Tax regulations in Singapore’s e-commerce business context can be a complicated process as it deals with cross border transactions. You may have plans to expand your e-commerce business by setting up another branch outside of Singapore or starting a new e-commerce business. Whatever the case is, understanding the tax regulations will help you to know how your profits are being taxed. It will also help to ease your business operations in future. Now you may want to know more about Singapore’s tax regulations. Don’t worry, we have a team of experienced accountants to assist your business. Drop us a chat.
