What about Taxes and Fees?
If you plan to start up a Singapore trading company and get involved in the import/export business, you’ll have to be aware of the various taxes and fees involved. These are:
- Customs and excise duties
- Goods and Services Tax (GST)
You can make payment for all duties, GST and Custom fees to Singapore Customs via GIRO. This will grant authority to the Singapore Customs to make direct deductions from your chosen bank account.
Now, let’s look at each of these taxes and fees:
Singapore Customs Fees
Singapore Customs will charge procedural and administrative fees.
Customs and Excise Duties
Dutiable goods are those goods, whether imported or exported, that are subjected to customs and/or excise duties. In Singapore, common dutiable goods include (but are not limited to): tobacco products, intoxicating liquors, petroleum products and motor vehicles.
The duties that are levied on these dutiable goods are based on two different basis, as defined below:
Specific Rate – As its name implies, this is a specific amount per unit weight/other quantity. For example: SGD 500 per kilogram.
Ad Valorem – this means a percentage of the total Customs value of the imported good in question. This is usually stated in the following manner: 15% ad valorem, 20% ad valorem, etc.
Duties on these goods may be suspended temporarily, up to point of consumption, under the various Customs schemes. Check with Singapore customs for other qualifying conditions required for the purpose of duty exemption. Goods and Services Tax (GST)
The Goods and Services Tax apply to goods that are imported into Singapore for the purpose of local consumption.
How much is it? – The current rate is based on an ad valorem basis: 7% of the value of the goods, whether they are dutiable or non-dutiable.
How is it calculated? – GST is calculated based on the CIF (Costs, Insurance and Freight) value PLUS all duties and chargeable costs, whether or not these costs show up on the invoice.
Who administers it? – The IRAS – Inland Revenue Authority of Singapore.
Who collects it? – Singapore Customs.
Can GST be temporarily suspended? – Yes. Under various Customs schemes, GST can be temporarily suspended, but only up to the point of consumption.
Is there any GST relief? – Yes. Certain items, if they meet certain criteria, can be subject to GST relief. Check with Singapore Customs.
Can I charge my customers GST? – Yes, you can. You’ll have to register with the IRAS in order to be able to collect GST.
Can I get a GST refund? – If you’ve paid GST for imports that are later exported out of Singapore, you can get a GST refund. In order to do so, however, you’ll have to be GST-registered with the IRAS.
Are there any ways to reduce GST? – There are some special schemes that can help alleviate the GST burden. The ‘Major Exporter Scheme’ can help with the cash flow of those major exporters who also have significant imports. The ‘Import GST Deferment Scheme’ helps you defer the GST payment for imports, at the point of importation. This is a great boon for taxable traders as it helps then ease their cash flow.
How do I handle all the Financial Risks involved in the Trading business?
Trading companies often have to juggle large amounts of goods and even larger amounts of money; there’s a lot of financial risk involved.
So how can a trading company in Singapore reduce its financial risks?
There are three methods:
Now, let’s look at each of these methods to help reduce financial risk:
Letters of Credit (LC) A Letter of Credit, or more commonly referred to as simply an ‘LC’, is where the buyer’s bank guarantees payment to the exporter. Exporters prefer this because they have secured payment even before the goods are shipped. Buyers prefer this because they do not have to make any payments whatsoever until they receive the goods.
With the LC in hand, you can also avail yourself of some other financing options, like:
Back to Back LC – To be used when the exporter buys his goods from a third party in order to meet the buyer’s order. The exporter can open an LC, based on the Original LC of his buyer.
Packing Credit – This is a loan/overdraft privilege based on the LC. It acts as a form of pre-shipment financing, where repayment is made when the goods are finally shipped. It also acts as post-shipment financing, where the repayment is made after the buyer has already paid for the goods.
Trust Receipt – An importer may head over to their bank to get a loan based on the LC and the goods that said LC promises the importer will be getting.
Loans – Singaporean banks often offer financing options that can make life easier for a trading company.
Here are just some of the options you can take advantage of:
Overdraft – allows you to overdraw your current account, up to a maximum amount that has been agreed with the bank beforehand. You pay interest only on the amount that is overdrawn.
Inventory Financing – allows you to get financing against your unsold inventories.
Revolving line of credit – makes available to you an agreed-upon amount of funds (for a fee). You are then able to top-up or withdraw the funds regularly.
Factoring Loans – allows you to get instant payments from your outstanding invoices. The collection will be done by the factoring agent in question, usually banks or financial institutions. You will have to pay a fee, of course, to the factoring agents, for collecting the payments. This fee can go up as high as 15%.
Term Loans – taking out a loan which has a collateral subject, one that’s approved by the bank.
Transaction Loans – allows you finance a confirmed order, but it would depend on the creditworthiness of the company that has placed the order.
Sometimes, buyers are unable to make payment due to commercial and non-commercial risks. Trade Credit insurance will protect you against the risk non-payment by buyers due to such risks. If the buyer does indeed default on payment after the due date and grace period, the insurance company will make payment to the claimant, provided that the claim has been verified and checked.
Where can I deposit and store the goods temporarily?
You can deposit and store your goods through either FTZs (Free Trade Zones) or Licenses and Zero-GST Warehouses.
Free Trade Zones (FTZs)
What are FTZs? – Free Trade Zones are special designated areas in Singapore’s sea and airports where GST and duties are temporarily suspended for imported goods.
I don’t have to pay GST and duties? – You will only have to pay duties and taxes if the goods leave the FTZs and enter into customs territory to be consumed. With the exception of liquors and cigarettes, all dutiable goods can be stored in FTZs.
So who benefits from FTZ? – You will benefit from FTZ if you import goods for the purpose of exporting them (otherwise known as re-exporting). The FTZ allows you to avoid paying duties and taxes, and thus alleviates your business’ cashflow.
Are all goods deposited into FTZs? – No. Only goods that arrive by air and sea are deposited into FTZs. Those that arrive by rail and road are not; they’re subject to duties and taxes.
Licensed & Zero-GST Warehouses
Licensed Warehouses is an option for storing dutiable goods. The GST and duties payable for said goods would be suspended until you remove the goods from the premises to bring them into the local market for consumption.
Zero-GST Warehouses is an option for storing non-dutiable goods. The GST payable for said goods would be suspended until you remove the goods from the premises to bring them into the local market for consumption.