Invoicing an overseas company is not enough to zero-rate a service. Under section 21(3)(j) of the Goods and Services Tax Act 1993, the service must be supplied under a contract with an overseas person and must directly benefit an overseas person who is outside Singapore when the service is performed, or a GST-registered person belonging in Singapore. If the real beneficiary is a Singapore entity that is not GST-registered, or the overseas client actually belongs in Singapore through a local establishment, the service is standard-rated at 9% even though the invoice goes abroad.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
Why does an overseas invoice sometimes still attract GST?
Zero-rating exists so that services consumed outside Singapore are not taxed here. IRAS therefore looks past the billing address to two questions: who the contract is with, and who actually receives the benefit of the work. A Singapore consultancy, marketing agency or IT firm can satisfy the first test by contracting with a foreign company and still fail the second because the work is done for, and used by, that company’s Singapore subsidiary, branch or customers.
The rules are strictly applied. In its published results of past GST audits, IRAS describes a company that zero-rated advertising space sold to a party belonging in Singapore and had more than S$2 million of GST and penalties recovered. This article focuses on that beneficiary problem. For the wider list of zero-rating categories for goods and services, see our guide to GST zero-rating for exports.
What are the conditions for zero-rating under section 21(3)(j)?
IRAS’s guidance on providing international services sets out the conditions. In summary, the service qualifies only if all of the following hold:
- Contract test. The service is supplied under a contract with an overseas person, meaning a person who belongs outside Singapore. If the contract is with a person belonging in Singapore, the service cannot be zero-rated under this provision even if a foreign party benefits.
- Direct benefit test. The service directly benefits either a person who belongs outside Singapore and is outside Singapore when the service is performed, or a GST-registered person who belongs in Singapore.
- Not land or goods in Singapore. The service is not supplied directly in connection with land in Singapore, or with goods in Singapore, other than certain goods for export.
The second limb of the direct benefit test was added from 1 January 2020, when GST on imported services through reverse charge was introduced. Since then, a service contracted by an overseas person that directly benefits a GST-registered Singapore entity can still be zero-rated. If it directly benefits a Singapore person who is not GST-registered, including individuals, it cannot. Our article on GST reverse charge explains the customer side of that change.
When does an overseas company “belong” in Singapore?
An overseas company is not automatically an overseas person. IRAS’s guidance treats a customer as belonging in Singapore if it has a business establishment or fixed establishment here and none elsewhere. Where a company has establishments in Singapore and overseas, it belongs in the country of the establishment most directly concerned with the service, meaning where the service is most directly used.
- A business establishment includes a branch or agency in Singapore.
- A fixed establishment is one with the technical and human resources to provide or receive services on a permanent basis, such as a local office with staff, even if it is not a registered branch.
So a foreign company with a Singapore office that uses your services in that office is, for GST purposes, a Singapore customer. The contract test fails, and the service is standard-rated. IRAS has a separate e-Tax guide on determining the belonging status of suppliers and customers for borderline cases.
Common scenarios: who really benefits?
| Scenario | Contract with | Direct beneficiary | Likely treatment |
|---|---|---|---|
| Overseas parent pays for bookkeeping and payroll for its Singapore subsidiary, which is GST-registered | Overseas parent | Singapore subsidiary, GST-registered | Can qualify for zero-rating under the post-2020 limb |
| Same, but the Singapore subsidiary is not GST-registered | Overseas parent | Singapore subsidiary, not registered | Standard-rate |
| Market research on Southeast Asia for a head office abroad, used for its own regional decisions | Overseas company | Overseas company | Can qualify for zero-rating |
| Consultancy for a foreign company, delivered to and used by its Singapore office and staff | Customer belongs in Singapore through its fixed establishment | Singapore establishment | Standard-rate: the contract test fails |
| Media or advertising services contracted by an overseas brand owner but taken up by a Singapore distributor that is not GST-registered | Overseas brand owner | Check carefully: may be the local distributor | Standard-rate any part that directly benefits the unregistered local party |
| Relocation or tax filing help for an overseas company’s employees living in Singapore | Overseas company | Individuals belonging in Singapore | Standard-rate |
The table shows typical outcomes, not rulings. The answer turns on the facts, especially on who receives the work, gives instructions and uses the output. IRAS’s e-Tax guide on “directly in connection with” and “directly benefit” contains detailed examples and should be checked for your sector.
What if both overseas and local parties benefit?
Group services often benefit several entities at once. A regional compliance review paid for by a foreign head office might benefit the head office and several subsidiaries, one of which is in Singapore and not GST-registered. In that case, IRAS guidance expects the value of the supply to be apportioned on a fair and reasonable basis, with GST charged on the part that directly benefits the unregistered Singapore party and the rest zero-rated. Keep the working that supports the split, such as hours spent, headcount or the scope of work for each entity.
How to assess a contract before you invoice
- Identify the contracting party. Check who signs the engagement letter and who you invoice. Note where that party is constituted and whether it has a branch, office or staff in Singapore.
- Decide which establishment uses the service. If the customer has a Singapore establishment, ask whether that establishment is most directly concerned with the work.
- Identify the direct beneficiary. Ask who receives the deliverables, who gives day-to-day instructions and whose business the service is for. The party that pays is not always the party that benefits.
- Check GST registration of any Singapore beneficiary. Verify the GST registration number on IRAS’s GST register search and keep a dated record.
- Check that the person is outside Singapore when the service is performed, where the beneficiary is an overseas person.
- Apportion if needed and document the basis.
- Record the conclusion on the client file, so the same analysis is not repeated each quarter, and revisit it when the client’s structure changes.
Documents to keep for each zero-rated service
- Signed contract or engagement letter naming the overseas customer
- Evidence of the customer’s belonging status, such as its overseas registration details and confirmation of whether it has a Singapore establishment
- Scope of work showing who the deliverables are for
- Correspondence showing who instructs you and who receives the work
- GST registration check of any Singapore beneficiary, with the date checked
- Apportionment working where there are local and overseas beneficiaries
- Invoices and payment records
These records sit alongside your general GST record-keeping obligations, which require records to be kept for at least five years.
What if you have already zero-rated services that did not qualify?
If a review shows past invoices were wrongly zero-rated, the supplier is liable for the GST. Where the customer cannot be asked to pay the extra amount, IRAS treats the amount received as including GST, so output tax is 9/109 of the amount for supplies at the current 9% rate. The correction is made through a GST F7 for the periods affected, unless the error falls within IRAS’s limits for adjusting in the next return. Errors must be corrected within five years from the end of the accounting period.
Coming forward before IRAS starts a review usually gives the best penalty outcome. Our guide to the IRAS Voluntary Disclosure Programme explains the conditions. Going forward, check whether your contracts allow you to add GST if the treatment changes.
Example: the parent pays, the subsidiary benefits
Example: A hypothetical Singapore consultancy is engaged by a Hong Kong holding company to design an HR policy manual and train managers. The Hong Kong company signs the contract and pays. The work is done for its Singapore subsidiary, whose managers attend the training and use the manual. The consultancy zero-rates its invoices because the customer is overseas.
Applying section 21(3)(j), the contract test is met, but the direct beneficiary is the Singapore subsidiary. If that subsidiary is GST-registered, zero-rating can still apply under the post-2020 limb, and the consultancy keeps a dated record of the registration check. If the subsidiary is not GST-registered, the service should have been standard-rated. In that case, the consultancy works out GST at 9/109 of the fees received for the affected periods, files a GST F7 and amends its engagement terms so GST can be added to future invoices.
Frequently asked questions
Does payment from an overseas bank account prove the customer is overseas?
No. Where payment comes from is not the test. What matters is the contracting party’s belonging status and who directly benefits from the service.
Our overseas client has one employee working from home in Singapore. Does that make it belong here?
It depends on whether that arrangement amounts to a fixed establishment with the human and technical resources to receive services on a permanent basis, and whether the service is most directly used there. Look at the facts and IRAS’s belonging-status guide before deciding.
Can we zero-rate if the Singapore beneficiary is GST-registered but in another group?
The post-2020 limb refers to a GST-registered person belonging in Singapore, not only to group members. Keep evidence of that person’s registration at the time of supply.
Is the customer in trouble if we wrongly zero-rated?
The liability to account for output tax sits with the supplier. Whether the supplier can recover the GST from the customer depends on the contract.
How is this different from the standard, zero-rated and exempt categories?
Those categories describe the type of supply. This article deals with one condition within zero-rating for services. For the overview, see our explanation of standard-rated, zero-rated and exempt supplies.
Need help checking your zero-rated services?
If your business invoices overseas clients for services used in Singapore, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133. We can review your contracts and invoicing against the zero-rating conditions, prepare apportionment workings, keep your GST records in order and prepare and file any GST F7 needed to correct past periods.
Kevin Yeo, Raffles Corporate Services