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Should I Register GST for my Sole-Proprietorship?

Should I Register GST for my Sole-Proprietorship? When it comes to Goods and Services Tax (“GST”) compliance, there are many practical issues that businesses need to consider. Amongst these is determining whether your business is liable for GST registration. In general, you must register your business for GST if your taxable supplies for the past 12 months exceed $1 million, or if your taxable supplies for the next 12 months are expected to exceed S$1 million. Non-compliance can easily escalate to hefty fines and penalties by the Inland Revenue Authority of Singapore (“IRAS”).

Failure to aggregate income of all sole proprietor businesses

Many sole proprietors mistakenly believe that all their sole proprietor businesses registered under different trading names are separate legal entities. Thus, they do not aggregate the taxable turnover for all the businesses and other business activities (e.g. commission received) in determining their GST registration liability.

Under the law, all businesses under a sole proprietor’s name are considered as a single entity. This means a sole proprietor is liable to register for GST if the total taxable turnover of all his businesses and income from all his trade and professions exceeds $1 million per annum.

Voluntary Registration

A business that is not required to register for GST may choose to register on a voluntary basis if the business satisfies any of the following:

a) Your business makes taxable supplies;
b) Your business makes only out-of-scope supplies. (Out-of-scope supplies mainly refer to sales of goods which did not enter Singapore and goods in transit); or
c) Your business makes exempt supplies of financial services that are also international services.

If you have not started making any supplies but you have the intention to make any of the above supplies, you may also be allowed to voluntarily register.

If you do not have firm intentions and plans to make any of the above supplies, you should not register for GST.

GST Registration

Do note that GST registration will be in the name of the sole proprietor (i.e. your name). All sole proprietorship businesses under your name will be GST-registered. This includes sole proprietor businesses which you may set up in the future.

As far as possible, we do not recommend clients to register for GST under sole-proprietor businesses as personal name is being used and there is a risk of GST complications. For example, a sole-proprietor may own existing commercial properties in his name prior to registering for GST. Being GST registered, he is required to charge GST on the sale of the commercial properties even though he may not have paid or claimed any input tax previously.

It is advisable to register for GST under a company setup rather than a sole proprietor in order to manage GST risks and to segregate personal and business matters. Furthermore, corporate tax rate of 17% is more attractive compared to personal tax rates which may go as high as 22%. Corporate tax exemptions are also available to companies which will definitely help in lowering the effective tax rate.

If you can foresee that your business turnover will be reaching S$1 million soon or you would like to register for GST on a voluntary basis, it will be wise to start planning early for the setup of a company to be in place.