There were significant changes in various taxes arising from the 2022 Budget announced by the Minister for Finance on 18 February 2022. The key changes include increases in Goods and Services Tax (GST) rates, individual income tax rates for higher income brackets and property taxes on residential properties.

These changes will affect a number of businesses, individuals who are paying taxes as well as owners of residential properties. We highlight below the key tax changes that are likely to affect most clients. As can be seen below, the most extensive changes are those relating to GST with effect from 1 January 2023.

Goods and Services Tax

GST Rate Increases

One of the major tax changes announced in the 2022 Budget is the widely anticipated increase in GST rates. What is less expected is that the 2% increase will be staggered over two years. The standard GST rate will be increased on 1 January 2023 and 2024 from the existing 7% to 9% in the following manner:

a. 1 January 2023 – Increase in standard GST rate from 7% to 8%, and
b. 1 January 2024 – Increase in standard GST rate from 8% to 9%.

Businesses should note the transitional rules for GST treatment of transactions that straddles across the dates of GST rate changes and apply the correct GST rates to those transactions. Additional attention is required in applying GST rates on goods that are partially delivered before the dates of GST rate changes and which are invoiced after those dates. Generally, GST should be charged based on the prevailing GST rate at the time of supply of the goods and services. However, GST may be charged at existing rate (e.g., 7%) if full payment is received or if goods and services are supplied before the date of GST rate change.

Detailed guidance on transitional GST rules is available in the e-tax guide “2023 GST Rate Change: A Guide for GST-registered Businesses” issued by the Inland Revenue Authority of Singapore (IRAS) which is available from their website.

Prepare Early for GST Rate Changes

GST-registered businesses need to ensure that their invoicing, accounting and POS systems are able to cater to the GST rate changes on 1 January 2023 and 2024. Clients are encouraged to plan and arrange for the required changes in advance as these may require time to be implemented, especially if external vendors are required to provide the necessary changes.

In addition, retail businesses will need to ensure that their displayed prices are updated to reflect the new rates on the dates of GST rate change. This may require printing of new price displays and ensuring that these are replaced on the dates of rate changes.

The staggered increases over two years means that GST-registered businesses will have to perform the changes twice over the two years.

GST Treatment for Travel Arranging Services

Another change in GST relates to treatment of travel arranging (or, arrangement) services provided to local customers.

Currently, services provided to arrange for international transportation of passengers between Singapore and a place outside Singapore or between two places outside Singapore may be zero-rated as an international service under section 21(3)(c) of the Goods and Services Tax Act 1993 (GST Act).

From 1 January 2023, the basis for determining whether zero-rating may be applied to such services will be changed to be based on whether the customer and the direct beneficiary of the service belongs in Singapore or outside Singapore. The travel arranging service can be zero-rated if the following two conditions are met:

a. The customer of the service belongs outside Singapore, and
b. The direct beneficiary of the service either belongs outside Singapore or is GST-registered in Singapore.

IRAS has indicated that it will provide further details on the changes by 31 July 2022.

GST on Importation of Low Value Goods and Non-Digital Services

Since 1 January 2020, overseas suppliers of digital services with global turnover of more than S$1 million and supply digital services of more than S$100,000 to non-GST registered customers in Singapore are required to be registered for GST under the Overseas Vendor Registration (OVR) regime. These overseas vendors are required to charge and account for GST on sales of digital services to non-GST registered customers in Singapore which includes both consumers as well as non-GST registered businesses.

With effect from 1 January 2023, the Overseas Vendor Regime will be expanded to cover the following types of supplies:

a. Imported “Low-Value Goods” via air or post with values of up to $400 which are currently not subject to GST, and

b. Imported Business-To-Consumer (B2C) non-digital services.

This was announced in Budget 2021. With this change, both digital and non-digital services will be termed collectively as “Remote Services”. In addition to the current GST charged on digital services since 1 January 2020, consumers and non-GST registered businesses will be charged GST for importation of Low-Value Goods as well as non-digital services from 1 January 2023.

For purchases from overseas vendors that are not GST-registered under the Overseas Vendor Registration (OVR) scheme, the current GST relief for goods imported by post or air (excluding intoxicating liquors and tobacco) with a total Cost, Insurance and Freight (CIF) value not exceeding S$400 will remain.

Recent GST developments from 1 January 2019

Businesses should also be aware of relatively “recent” changes in the GST system that were effective from as early as 1 January 2019. Such changes include Customer Accounting, Reverse Charges on Imported Services and Missing Trader Fraud. We plan to issue a publication on key GST topics soon. In the meantime, all businesses should be aware of these developments as they may affect their GST liability or GST input tax claims. Businesses which are currently not GST-registered should also be aware of the GST rules as some of them may affect their liability for GST registration.

We are available to assist clients which have any questions or which require additional information on any GST matter.

Corporate Income Tax

As expected, there are no changes in corporate income tax rates which remains at 17%. The existing partial exemption regimes on taxable income of up to S$200,000 continues to be available to all qualifying companies.

However, the global tax landscape has been changing and continues to evolve. On 1 July 2021, the OECD/G20 countries released a Statement on the Two-Pillar Solution to Address Tax Challenges arising from the Digitalisation of the Economy. There are two interlocking rules under Pillar Two which are known as the Global Anti-Base Erosion (GloBE) rules. Under these rules, multinational enterprises (MNEs) with annual revenues of Euro 750 million will be subject to a minimum effective tax rate of at least 15%. These rules will affect MNEs operating in Singapore.

The Model GloBE Rules have been published on 20 December 2021. The Commentary to the Model GloBE Rules and Illustrative Examples were published by the OECD/G20 on 14 March 2022.

In response to the proposed rules under Pillar Two, Singapore will be considering a top-up tax for MNEs such that they will be subject to a minimum effective tax rate (METR) of 15%.

IRAS has indicated that they will be conducting further studies of the METR and will consult industry stakeholders on the design of the METR. As these rules should be affecting only MNEs which meet the revenue threshold, they are not expected to affect most local businesses.

Individual Income Tax

Individual Income Tax Rates

There are no changes in individual income tax for Years of Assessment (YAs) 2022 and 2023.

However, with effect from YA 2024 (for income earned in year 2023), individual income tax rates for income above $500,000 will be subject to higher tax rates of 23% and 24% as follows:

Taxes on Non-resident Individuals

Non-resident individuals with income derived in or accruing in Singapore will also be taxed at the higher 24% from YA 2024 onwards. Consequently, withholding tax rates on payments to non-resident individuals, including director’s fees paid to non-resident directors, will also need to be withheld at 24% with effect from YA 2024 onwards.

Property Tax on Residential Properties

Another tax change announced in the 2022 Budget is the increase in property tax on both owner-occupied and non-owner-occupied residential properties.

From 1 January 2023, owner-occupied residential properties with annual values above S$30,000 will be taxed at higher rates. From the current tax rates of 4% to 16%, such properties will be taxed at 5% to 23% of their annual values from 2023. From 2024, these rates will be increased to 6% to 32% of their annual values.

All non-owner-occupied residential properties regardless of their annual values will also be taxed at higher rates from 1 January 2023. From the existing tax rates of 10% to a maximum of 20% of their annual values, non-owner-occupied residential properties will be taxed at 11% to 27% of their annual values in 2023. From 2024 onwards, these properties will be tax at rates ranging from 12% to a high of 36% of their annual values.

The comparisons of the changes in property tax rates according to the annual values of the properties are as follows:

It should be noted that the changes in property tax affects only residential properties. Industrial and commercial properties are not affected by the changes in property taxes.

Impact of Income Tax and Property Tax changes on Foreign Investors

There are both an increase in tax rates for non-resident individuals from 22% to 24% and increases in property tax rates on residential properties from 1 January 2023 (YA 2024). The combined effects of these changes may have a large impact on the net rental income after taxation from residential properties owned by non-resident individuals.

Other changes

Also announced in the 2022 Budget are higher additional registration fees (ARF) of 220% on Open Market Values (OMVs) of vehicles above $80,000. This change is meant to be a form of indirect wealth tax targeted at more expensive luxury vehicles.

There are other measures including incentives for certain sectors and certain types of income which are not discussed in this publication.

Disclaimer

Information is updated as of 15 March 2022 and may be subject to change. The above information may have been summarized, simplified or paraphrased for easier understanding and to suit scenarios more commonly applicable to client companies. It is not meant to be a comprehensive guide or substitute for professional advice. All opinions or interpretations are solely those of ourselves and our partner firms and may be subject to agreement by the relevant authorities. While effort has been made to ensure the accuracy of the above information, we shall not be liable for loss arising directly or indirectly from any inaccuracy or omission in the information provided.