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Singapore – GST In The Construction Industry.

 31 August, 2012

 

Legal News & Analysis – Asia Pacific – Singapore – Tax

 

The Inland Revenue Authority of Singapore (IRAS) has updated its tax guide on goods and services tax (GST) for the construction industry. Industry activities encompass erection of buildings and structures, and civil engineering works. GST is charged on the supply of goods or services by a person registered for GST. 
 
GST is charged at the standard rate of 7% for all construction services performed in Singapore, e.g. site preparation, foundation work, scaffolding, brick or tile laying, roofing, renovation and repairs. Unlike sales of residential property which are exempt from GST, construction services involving residential as well as nonresidential property are subject to GST. The supplier needs to charge and account to IRAS for GST in relation to progress payments and release of retention sums.
 
On-charging of expenses incurred is common in the industry. These amount to reimbursements and GST is chargeable on recovery of the expenses, even if the on-charging was done on a cost-to-cost basis or if the expenses were incurred without GST. However, reimbursements which fulfil various conditions qualify as disbursements and GST need not be charged on their recovery. This applies to cases of a joint venture or rebilling to a related company.
 
The sub-contractor (SubCon) providing services to the main contractor (MainCon) is required to charge GST on his supplies. In cases of counter supplies or “back-charges”, SubCon supplies both raw materials and services. For example, in a construction project SubCon contracts to provide flooring works which include both providing the tiles and the tile-laying services. The developer later specifies the brand and type of tiles he wants and MainCon then purchases such tiles and passes them to SubCon for laying work. There are 2 separate supplies here. The first is the supply of tiles by MainCon to SubCon. The second is the supply made by SubCon to MainCon for the contracted amount (including both the tiles and the tile-laying services). Both MainCon and SubCon need to issue a tax invoice for the gross value of the supply made to the other and account for GST on such gross value of each person’s supply, without netting off the value of the tiles. Where SubCon is only contracted for tile-laying services and not also the supply of tiles, then between MainCon and SubCon there is only one supply from SubCon to MainCon for services in tile-laying.In cases of tender and contract deposits, GST is generally chargeable. This applies where a deposit is required to be paid to obtain copies of contract documents, such as plans, specifications or schedule of quantities, as these are sales of documents. Where a deposit is intended to be used to offset against future payments (whether partly or fully) once the supply has been made, GST should be charged on the deposit. An exception is where the deposit is a security to ensure that the tenderer proceeds with the contract or to ensure that the successful tenderer carries out the obligations specified in the contract. GST is not chargeable in such a case.
 
For international projects, construction services provided overseas may be zero-rated for GST (i.e. charge GST at 0%). This is possible where the services are supplied in connection with land or improvements situated outside Singapore, even if the company supplying the services is a Singapore company.For damages and out-of-court settlements which are paid for breach of warranty or delays in completion of contracts, and which are compensatory in nature, the payments are not regarded as being for taxable supplies. As such, GST need not be charged on the sums recovered. 
 

 

 

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