Still waters run deep
Examining GST implications for the financial services industry
Financial services are exempted from GST in Singapore as it was recognised that it was difficult to tax them. Its products and services are complex, and transactions can seem conceptual-like. Apart from that, Singapore is a key hub for financial services in the region and applying a different treatment would risk the viability of the financial services industry in Singapore.
GST is not chargeable on exempt supplies and therefore, GST-registered businesses do not need to collect and remit any GST to the IRAS on exempt supplies they make. However, from a reporting perspective, GST-registered businesses are still required to report the value of exempt supplies made in their GST return.
GST-registered businesses are generally not entitled to recover input tax credits for any GST paid on goods and services where the GST is directly attributed to exempt supplies. Where a GST-registered business makes both taxable and exempt supplies, only input tax directly attributable to the making of taxable supplies is recoverable in full. In cases like these, partial exemption recovery rules come into play. Such rules in Singapore can be complex and are subject to a number of concessions, requirements, etc. Therefore, unlike fully taxable businesses, GST incurred on purchases can become a cost for partially exempt businesses.
As such, though the GST law and principles appear to be straightforward, certain difficulties crop up when such laws and principles are applied to financial services.
Some of the key issues faced by those in the financial services industry are as follows:
- Application of valuation of supplies rules to financial services. For example, what is the “consideration” for entering into an interest rate swap? Should businesses report the present value of either the fixed or floating leg? Or it is perhaps a marked-to-market (MTM) valuation of the swap, which is typically monitored by financial institutions on a daily basis.
- Determination of belonging status of offshore funds and offshore fund managers when applying the zero-rating requirements under s 21(3)(j) of the GST Act.
- When considering the zero-rating of reinsurance policies, should the reinsurer look only at the cedant-insurer’s belonging status or look beyond that to the location of the underlying risks and/or the belonging status of the cedant-insurer’s customers.
- Determination of the recipients of an insurance broker or agent’s services for GST purposes.
- GST treatment of services provided by insurance brokers to overseas insurers with a branch in Singapore.
Guide to GST and the Financial Markets in Singapore
Guide to GST and the Financial Markets in Singapore explains the above and more, with the aim of bringing clarity to practitioners and students regarding the GST implications of supplies made by financial services providers in Singapore.
Not only does the Guide cover GST basics such as concept of exempt supplies, zero-rating and GST programs, it also focuses on how GST affects specific financial services sectors such as:
- Banking and Finance
- Securities and Markets
- Investment Management
- Islamic Banking