E-commerce is surging, and so is the requirement for accounting and taxation for such companies. Dealing with e-commerce accounting involves bookkeeping, invoice recording, and of course, taxes.
The most challenging part of accounting is doing the taxes for your e-commerce business. Some of the transactions are multi-jurisdictional, so you must have an understanding of the taxation system in each area. But that’s not all; some of these transactions might even appear anonymous to several different parties. Hence, before you begin your business’s accounting, you must know about your tax obligations and Singapore’s tax regulations.
If you don’t take e-commerce accounting and taxation seriously, you might find e-commerce financing a nightmare. But we’re here to make things super simple for you through this guide. So, give it a read.
What is E-Commerce Accounting?
As the owner of an e-commerce business, you must have an understanding of how your business is performing. This is especially in terms of finance. By doing so, you will be able to stand firm in the face of the government’s reporting demands.
E-commerce accounting deals with your overall financial activity. It goes from bookkeeping and management reports to tax filing. All the data gathered and stored through these activities help your business stay regulated and compliant.
As you can already feel, the task is huge. E-commerce accounting is daunting, and that’s mainly why new business owners prefer to use accounting software. These types of software help them import financial transactions and direct them to the relevant ledgers.
Simply put, you’ll be able to know from where and how you’re getting money into your business. And you will also have access to information about the ways you are losing money or how you are paying for certain services and products. Knowing about the payrolls, bills, and everything else that you cash out for will help you see where you’re heading.
We believe it’s best for businesses to focus on outsourcing their accounting services because these service providers specialise in what they do. You can, therefore, rest assured knowing you’re receiving quality, proven services.
What’s the Most Prominent Point in E-commerce Accounting?
The way an E-commerce business operates is different from a traditional business. While a traditional business might have days on which they don’t operate, it’s not the same with an e-commerce business. Due to this, the number of transactions that the business has to enter and keep track of is tremendous.
The nature of the business makes it even more challenging to account for financial intricacies. Therefore, it’s vital not to lose track of sales. There are two ways to record these sales, and they are cash and accrual. While cash accounting is ideal for small e-commerce businesses, it’s not the same when the business grows.
What are the E-commerce Tax Regulations in Singapore?
There are two types of taxes for e-Commerce businesses in Singapore: Goods and Services Tax (GST) and Income Tax.
Goods and Services Tax (GST)
Goods and Services Tax (GST), which is also called Value Added Tax (VAT) in many countries, is an indirect consumption tax charged on goods and services. Also, it’s levied on goods imported into Singapore. Businesses that are GST-registered have the right to charge GST.
Every company with an annual turnover that exceeds S$1 million is required to get a GST registration. GST is not regarded as a cost to the company since it is passed on to the end consumer. The rate of the current GST is 7%. GST must be paid directly to Singapore Customs at the time of the goods being imported into Singapore.
For goods and services that are exported outside Singapore, there is no GST. Those that are exempted from GST are financial services, the sale and lease of residential land, and companies that are solely involved in exporting goods and the provision of international services. Companies also have the choice of getting a GST registration voluntarily.
Income tax is a tax that is imposed on individuals and companies with respect to the profits and income earned for the financial year. The same corporate tax rate applies to local and foreign companies and is currently at a flat 17%.
The tax system used by Singapore is a one-tier corporate system, which means companies pay taxes based only on their profits.
What is Considered Taxable?
The types of goods that are considered taxable in e-commerce businesses are:
The Inland Revenue Authority of Singapore (IRAS) may question whether income has already been taxed if the company is based abroad and shows no proof of tax paid there. The control and management of all the business activities that take place in Singapore are based on tax.
A place such as an office or a branch located in Singapore is referred to as a permanent establishment. Income from any electronic transaction that occurs at such a branch will be taxable.
In the e-commerce business, the company’s website server plays an important role. Transactions that take place will be taxable, but If it is used to upload product information and handle customer inquiries and other such communication purposes, then they will not be taxed.
Permanent residents of Singapore are considered taxable individuals. Any foreigner who resides in Singapore for more than 183 days must pay tax.
Filing of GST Returns
It is compulsory to apply for GST returns, and this is done by submitting GST F5 tax returns to IRAS. Submission of GST returns to IRAS should be made within one month from the end of the accounting period. The form must be filled up using figures in Singapore currency, and if the foreign currency was received during electronic transactions, then these numbers must also be reported in the form. Keep in mind that the standard accounting period for businesses is each quarter of a year.
When handling accounting tasks, an e-commerce business has many aspects to take into consideration. In areas such as sales tax, inventory tracking, purchase refunds and small expense records, potential errors may occur.
Undoubtedly your company will become successful as long as you understand the kinds of accounting standards that must be followed and the key principles involved. And if you feel it’s not something you can spend too much time on, it’s highly recommended to engage an accounting and taxation consultant for your business.