The Singapore government has given us at least eleven months to prepare for this day, when they announced the staggered implementation of our Goods and Services Tax (GST) hike during February’s budget 2022 – from 7% to 8% on 1 January 2023, and from 8% to 9% on 1 January 2024.
With about half a month more before the 1% rise, some property buyers, sellers, landlords, tenants, upgraders and right-sizers may wonder to what extent this GST increase impacts them.
Do note that GST is only chargeable if you’re engaging the services from a GST-registered provider or representative of a GST-registered company.
It is mandatory for a business provider to be GST-registered if its taxable turnover over the past year or coming year exceeds S$1m. It may also be liable to be GST-registered under the Reverse Charge and Overseas Vendor Registration regime (see importing overseas furniture and appliances below).
Of course, sole proprietors, partnerships and smaller companies may also voluntarily register to be GST-registered.
|Worried if the GST increase (8% from Jan 2023) will impact you? Here’s a checklist|
|Examples of Types of Products or Services||GST chargeable or exemption
(notes for some scenarios)
|Sale and lease of residential properties||Vacant residential land, HDB flats, condos, executive condominiums (ECs), serviced apartments, residential component of a shophouse, landed residential property, etc.||GST exempt (see furnished residential properties below)
Note: If you run a small office home office (SoHo) in an HDB flat or condo, it will be treated as residential. You should also check the property’s approved use under URA’s Grant of Written Permission (eg. Master Plan) to be sure.
|Sale and lease of non-residential properties||Non-residential components of a shophouse, boarding or guest house, chalets, holiday bungalows.||GST-chargeable|
|Sale and lease that consist of both residential and non-residential portions||A shophouse with both a residential and non-residential (ie. commercial) component||GST-chargeable only for the non-residential portion|
|Furnished residential properties||Supply of movable furniture and fittings.
Fixtures such as built-in cabinets, wardrobes, kitchen and sanitary wares, wall-mounted air conditioners
|GST-chargeable for the supply of movable furniture and fittings.
Note: GST incurred from the purchase and installation of immovable and permanent fixtures (like ventilation fans) for a leased property cannot be claimed.
GST-chargeable if you buy new loose furniture or electrical appliances; or engage GST-registered renovation and related services contractors.
|Real estate agencies||Brokering services to sellers, buyers, landlords and tenants of properties||Agent commissions are GST-chargeable (regardless of whether the property is residential or non-residential)|
|Monthly service expenses, maintenance or service fees||Water, electricity, Internet service provision
Condo monthly maintenance fees or HDB’s Service and Conservancy Charge (S&CC)
|GST-chargeable (note that as of Budget 2022, HDB’s S&CC rebates will be included under the permanent GST Voucher (GSTV) scheme)|
|Rental transactions||Deposits, maintenance fees, agent commissions, property tax and monthly rental||Rental deposit (GST-exempt if fully refunded; GST-chargeable if used to offset rent payable)
Maintenance fees (if a landlord pays these on behalf of a tenant, he’ll need to charge GST when he recovers the amount from the tenant)
Agent fee for securing tenant (while the landlord is charged GST by the agency, he cannot claim it from the tenant as the lease is GST-exempt)
Property tax (if it is a non-residential property, you need to account for GST on the full rental, whether the tax is included in the rent or itemised separately. If it is a residential property, the full rental is GST-exempt)
Monthly rental (GST-exempt only for the bare residential unit) – the monthly rental value of the bare unit is 1/12 of the annual value of the property. In other words, the monthly rental value of the furniture and fittings will the difference between monthly gross rent and 1/12 of the annual value of your property. If gross rent is lower than 1/12 of annual value, then the rental of furniture and fittings is GST-exempt.
Sale and Lease of Residential and Non-residential Properties
The sale and/or lease of vacant residential land, residential buildings, flats or tenements (referred to as ‘buildings’) are exempted from GST.
The easiest way to determine if said property type is for residential use is to refer to URA’s Master Plan.
Examples of residential properties include dwelling houses (eg. bungalows), living or workers’ quarters, halls of residences, the upper floors of shophouses approved for dwelling, and serviced apartments.
Non-residential property examples include boarding or guest houses, chalets, canteens (within halls of residence), and the lower floor of a shophouse approved for non-residential use.
Furnishings, fixtures and fittings
According to Singapore’s Inland Revenue Authority of Singapore (IRAS), GST is chargeable only on the supply of any movable furniture and fittings. IRAS advises that GST-registered sellers should apportion the selling price of their furnished residential property into:
- Value of furniture and fittings based on open market value or cost (these will be subject to GST); and
- Value of bare property (not subject to GST)
Of course, if you’re selling or buying a new or resale property, you will be exposed to higher GST when you engage GST-registered moving companies and renovation services next year. If you’re purchasing furniture, electrical appliances and furnishings next year, expect to pay more in GST.
Import of furniture and electrical appliances from overseas
Many new homeowners usually save money buying imported furniture and electrical appliances from overseas online marketplaces and Internet platforms such as Taobao or Alibaba.
Many GST-registered Singapore-based intermediaries (eg. online shopping platforms like Shopee, Lazada and Qoo10) that broker the ordering and service deliveries from overseas vendors will have to charge higher GST come 1 January 2023.
Since 1 Jan 2020, “imported services” for business-to-business transactions are GST-chargeable via a ‘reverse charge’ based on their accounting periods.
For example, if a Singapore-based company engaged the services of a non-GST-registered customer support company from overseas versus a local GST-registered company, there may be a reverse charge incurred to “level the playing field”.
Over the past two years, this reverse charge only applied to “imported services”, not goods like imported furniture and electrical appliances.
Unfortunately, with effect from 1 January 2023, GST will also apply to imported low-value goods (LVG).
Broadly, non-dutiable goods valued below the import relief threshold of S$400 are considered LVGs.
At the moment, this reverse charge on imported services and LVGs will apply to the following:
- GST-registered personnel and companies who are not entitled to a full input tax credit; or
- GST-registered personnel and companies who are part of a GST group (eg. regulated list of taxable and/or exempt supplies), and are not entitled to the full input tax credit.
- Non-GST registered person whose imported services and LVG exceed S$1m in a 12-month period.
You’re probably wondering – what’s a full input tax credit?
A full input tax credit allows a Singapore company (eg. an importer of goods and services) to claim tax incurred as long as they satisfy certain conditions.
It is not entitled to a full input tax credit if it:
- Provides free or subsidised services
- Imports certain services and supplies which exceed an average of S$40,000 a month and 5% of all taxable and exempt supplies (something known as the De Minimis Rule)
Granted, these taxation rules may sound complex. Still, if you want to delve deeper into which types of personnel or companies will be subject to reverse charges for imported services and LVGs, you can refer to IRAS’ explainer here.
In summary, from 1 January 2023 onwards, personnel or companies importing LVGs and not entitled to a full input tax credit may need to account for reverse charges in their relevant accounting periods.
These could include local importers selling you low-cost furniture or electrical appliances on Taobao and Alibaba.
As they may be subject to reverse charges, they may pass on some or all of these additional costs to you.
Still on furniture and fittings, if you’re a GST-registered landlord and you’re leasing out a furnished residential property to tenants, the rental of the bare residential unit is GST-exempted.
However, you need to charge GST on the rental of loose furniture and fittings.
IRAS’ guideline to landlords is this: To compute the rental value, you first need to find out the annual value of the property.
The monthly rental value of the bare unit is 1/12 of the annual value. The rental value of the furniture and fittings will then be the difference between your monthly gross rent (which you charge the tenant) and 1/12 of the annual value.
If the gross rent is lower than 1/12 of the annual value, then you don’t need to charge GST for the rental of the furniture and fittings.
Sounds complex? Here’s an example:
Total rent of the furnished flat = S$4,500 a month
Annual value in the Valuation List = S$36,000
Value of GST-exempted supply (per month) = 1/12 x S$36,000 = S$3,000 per month
Value of supply of furniture and fittings (per month) = S$4,500 – S$3,000 = S$1,500 per month
GST charge from Jan 2023 onwards (per month) = 8% x S$1,500 = S$120
Note that the value of S$1,500 a month is regardless of the amount of rental of furniture and fittings stated in the tenancy contract (which could be higher or lower).
However, if the gross rent is lower than 1/12 of the AV (eg. less than S$3,000 a month), you don’t need to charge GST.
Real estate agencies and agents
Regardless of whether the property is residential or non-residential, commissions received for brokering services for Singapore-based properties from GST-registered real estate agencies are subject to GST.
GST is accounted for when:
- The commission is received; or
- Tax invoice is issued
The GST charge applies if the property transaction is aborted and the agent is still entitled to the agreed commission (in part or full) for services rendered. This is because the provision of estate agency work is treated as a separate taxable supply from the property’s sale (or aborted sale).
GST-registered agents and salespersons may also receive commissions from banks to introduce clients to bank loans. They will also have to charge and account for GST on the value of the commission received, as that is a taxable supply.
Monthly expenses and maintenance
Beyond furniture and fittings, your monthly expenses, such as Internet services, water and electricity, will be subject to increased GST from your respective vendors next year.
If you live in a condo or strata-landed housing community, your monthly (or quarterly) maintenance fees will probably see an increase in GST.
As HDB’s Service and Conservancy Charges are permanently part of the GST Voucher (GSTV) scheme, homeowners should not be as impacted once GST increases next year.
Landlords and Tenants
Finally, if you’re a GST-registered landlord, you’ll need to know which portion of your tenancy charges is GST-exempt and which is not.
For rental deposit, it is GST-exempt if it is fully refunded once the lease expires but is GST-chargeable if used to offset rent payable.
If you’re paying maintenance fees on behalf of your tenant, you’ll need to charge GST if you’re recovering the amount from the tenant.
If you’ve paid an agent commission for securing a tenant, you cannot claim it from the tenant as the rental of the residential property is GST-exempt.
If you’ve paid property tax, you can only claim GST (either itemised or included in the full rent) from the tenant if it’s non-residential. For residential properties, the full rental is GST-exempt.
Finally, as described earlier, as your bare residential unit rental is GST-exempt, you can charge GST for the rental of furniture and fittings based on the difference between monthly gross rent and 1/12 of the annual value of your property. If gross rent is lower than 1/12 of annual value, then the rental of furniture and fittings is GST-exempt.
Hopefully, the above scenarios, in terms of which component is GST-exempt and which is not, help you make a more informed decision in your property journey.
Whether you’re in the midst of purchasing, selling, renovating or leasing, know which financial component will see a GST increase next year. At least to avoid any unpleasant surprises when you receive your tax invoices next year.
Planning to list and sell your house? Let us know in the comments section below, or send us a request to meet with a property consultant.
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