When NOT to Charge GST – GST Business Guide
It is that time of the financial quarter. Time to consolidate customer billings and supplier payouts over the past three months and submit your GST liabilities. If you’re an SME owner or finance manager, chances are you’ve done this for a long time with little or no issues. So all is good isn’t it? Perhaps not.
You’d be familiar with the practice of charging 7 percent GST every time you invoice a customer. That’s basic. But are you aware of instances where you are NOT required to charge GST?
Get this right, and its smooth sailing in the years ahead. Get this wrong, and tidal waves may return to haunt you in the future.
The good news is there are only two primary aspects to consider. GST is not chargeable on exempt and out-of-scope supplies.
What are exempt supplies?
Exempt supplies comprise three categories:
- Sale and lease of residential properties
- Financial services
- Sale and importation of investment precious metals (IPM)
Sale and Lease of Residential Properties
Exempted types of sale and lease of residential properties include:
- Condominium flat
- Detached/semi-detached/terrace house
- Strata landed house
- Upper floors of a shophouse if the floors are approved for residential purposes only
- Workers’ dormitories
- Serviced apartments
- Student hotels
- Homes for the aged
Note: Selling one of these? Just make sure they are bare (unfurnished) to be considered for GST exemption. Renting it out instead? The authorities have been kind enough to offer exemption leeway on permanent fixtures such as built-in cabinets and wardrobes, kitchen and sanitary wares, as well as wall-mounted air conditioners.
Exempted types of financial services include:
- Provision of loans
- Issue or sale of shares or bonds
- Provision of life policy by an insurance company
- Charges by banks for the operation of bank accounts
- Exchange of currency
- Provision of futures or forward contracts
Note: Fees charged for advising on, arranging, broking or underwriting of financial activities have no GST exemption. Exemption still applies when these services are offered to overseas customers.
Sale and Importation of IPM
Exempted types of precious metals:
Note: Make sure they are in the form of a bar, ingot, wafer, or coin.
What are out-of-scope supplies?
Out-of-scope supplies comprise three categories:
- Private transactions
- Third country sales
- Sales of overseas goods made within a free trade zone (FTZ) and zero GST (ZG) warehouse
Put it simply, if you do something without expecting to be paid, that’s counted as a private transaction. For example, you helped drive a client’s employee to the hospital out of goodwill following a work accident.
Business transactions fulfilled overseas count as third-country sales. For example, your business ships an order of disposable utensils from your Malaysian warehouse directly to your customer’s warehouse in Thailand without entering Singapore.
Sales of Overseas Goods Made within an FTZ and ZG Warehouse
Think of an FTZ and ZG Warehouse as special areas where the GST Act does not apply. This means any goods stored in these locations have GST suspended.
Note: GST suspension in an ZG Warehouse only applies to the import of non-dutiable overseas goods. Examples of common dutiable overseas goods include alcohol and cigarettes.
Bonus Insight: Charge GST when Collecting a Deposit?
Its common for a supplier to invoice a client for a deposit after an order has been placed. Typically, GST should not be charged if the deposit is refundable after the goods or services have been delivered. But if the deposit forms partial payment, then GST applies.
Report Faster and Smarter
Some of us dread quarterly GST reporting because it’s really time consuming. Worse still, the headache grows when paperwork is all over the place.
Deskera has helped numerous companies overcome their reporting struggles by automating existing manual administrative processes. Starting from correct tax invoice generation all the way to the accurate retrieval of information for GST Form 5, being compliant has never been easier.
With costs attributed to the rectification of human error and unproductive use of time now reduced significantly, businesses can focus on more revenue-generating activities – built on the assurance of being GST compliant.
Besides GST reporting, are other compliance related issues troubling you? Download our FREE eBook: 10 Compliance Tips for SME Bosses