Zero-Rated Supplies under Singapore GST: Treatment, Claiming ITC and Refund

Zero-rated supplies under Singapore's Goods and Services Tax (GST) refer to goods and services taxed at a rate of 0%, allowing businesses to make these supplies without collecting GST from customers. This policy primarily applies to exports and international services, aiming to promote Singapore’s competitive edge in global trade by removing tax burdens on cross-border transactions.

While no tax is collected on nil-rated supplies, businesses can still claim input tax credits on related purchases, ensuring that the tax system remains efficient and equitable. This blog will explain in the following in detail 

• What are zero-rated supplies in Singapore?
• Difference between zero-rated and exempt supplies
• Claiming input tax on zero-rated GST supplies
• Refund of zero-rated supplies in GST

What is Zero Rated Supply Under GST?

Zero-rated goods and services are charged a 0% tax on them whenever they are sold. This means:

• You don’t have to pay any GST on their sales.
• You have to show proper treatment for them, even then.
• You can claim input and out tax credits on them.

Many governments, including Singapore, use nil-rated GST to encourage exports by diluting taxes and making them more attractive. As a global import-export hub, Singapore only has 0% GST on exports of goods and international services. These two supplies are essential for Singapore to maintain its competitive edge in global trade.

Types of Zero-Rated Supplies in Singapore

Exports of Goods and International Services are the only two supplies charged with nil GST.

International Services

To zero-rate services, businesses must verify the belonging status of the customer under Sections 21(3) (j), (k), and (s) of the GST Act. The usual place of residence determines whether an individual belongs to Singapore for GST purposes. But you should also note that not all services to overseas customers qualify for Zero-rated status.

Only those services that qualify for zero-rated GST meet the following conditions:

• Services are provided to an overseas business (if the customer’s belonging status is outside Singapore).
• International transport services (e.g., airline tickets, cargo shipping).
• Financial services for overseas customers (e.g., fund management for non-residents).
• Telecommunication & broadcasting services (used outside Singapore).
• Consultancy & professional services (if the beneficiary is outside Singapore).
• Services directly related to land or property outside Singapore.

Export of Goods

The following goods qualify for the zero-rated status in Singapore:

• Direct exports (where the supplier controls the export and has the required documents).
• Indirect exports (with exceptions) (where the goods are confirmed to be exported and documents are available).
• Hand-Carried Exports (via Hand-Carried Export Scheme (HCES) at Changi Airport).
• Supplies to aircraft & ships, including: Fuel & operational supplies, Merchandise sold onboard, Parts for maintenance or installation.

So, the standard 9% GST rates must be charged when:

• Goods are indirectly exported, where the supplier cannot control the export process.
• If the required export documents are not maintained within 60 days of supply.
• Local sales, even if the buyer later exports the goods.

Claiming Input Tax Credits on Nil-Rated Supplies

Claiming input tax on zero-rated supplies follows the same process as other GST-claimable expenses. However, there are some key considerations:

• The business is GST-registered.
• The input tax was incurred for business purposes.
• The business holds valid tax invoices and supporting documents. They must maintain proper export and transaction records to justify zero-rating and input tax claims.
• The input tax is not explicitly disallowed under GST regulations (e.g., club memberships and personal expenses).
• The purchase directly relates to making taxable supplies (including zero-rated and standard-rated ones).
• If a business mainly makes zero-rated supplies, it may be in a GST refund position. Since they do not charge GST on sales but still incur GST on purchases, they will often receive a net GST refund from IRAS.
• Input tax claims must be included in the GST F5 return in Box 7 of the GST return, even for zero-rated supplies.

Difference Between Zero-Rated and Exempt Supplies in Singapore

Zero-rated supplies are not the same as goods exempted from GST. They differ by:

Refund on Sale/Export of  Zero Rated Supplies

For businesses making zero-rated supplies, GST is charged at 0%, but the business is still able to claim a refund for the GST paid on purchases related to these supplies (i.e., input tax).

If your input tax (the GST you paid on your business purchases) exceeds the output tax (the GST you charge on your sales), you can claim a refund of the excess input tax from the Inland Revenue Authority of Singapore (IRAS).

Filing GST Return for Refund

1. You need to file GST returns through IRAS's myTax Portal. The return must reflect the correct input and output tax amounts for the period in question.
2. If the input tax exceeds the output tax, the IRAS will review the details and process the refund, typically within 60 days if the application is complete.
3. Refund claims must be submitted within five years of the payment date, and all the applications should be made via TradeNet with the necessary documents.
4. If GST was deducted via (Inter-Bank GIRO) IBG, businesses should claim it as input tax from IRAS instead of requesting a refund.

Conclusion

Zero-rated supplies i allows businesses to make these supplies without collecting GST from customers while still enabling them to claim input tax credits on related purchases. The primary aim of zero-rating is to maintain Singapore's competitiveness in global trade by reducing the tax burden on cross-border transactions, thereby promoting exports and international services, which are vital to the country’s economy.

Businesses that deal with zero-rated supplies can claim a refund if their input tax exceeds their output tax. To do so, they must file accurate GST returns via the IRAS myTax Portal and maintain proper records and documentation. This refund mechanism ensures that businesses making zero-rated supplies do not face financial disadvantages due to GST on their purchases.