Knowing the tax liabilities as an online business owner is one of the challenges encountered when running any form of online business. Most of the time, the transactions that happen in online businesses are multi-jurisdictional and in most cases involve several parties.

As a real or potential owner of an online business in Singapore, it is advisable to know the know-how of the tax issues. Singapore is one of those countries with incentives and liberal regimes imposed to the business owners. The online shops have two major principal taxes that are discussed in the subsequent paragraphs.

Income tax

The concerns that arise in the application of the income tax on any online business transactions are as follows:

The source of taxation: A territorial basis of taxation is what Singapore complies with. It states that tax is imposed on any income derived in or from Singapore and the income received in Singapore from outside Singapore. It becomes a challenge when handling online business because of the borderless transactions that do happen on this platform. However, the determination of tax is based on the place where the contract abides, where the capital is invested, where the labour is employed.

Tax residency: Companies are subjected to tax residency in Singapore if the operations are done within Singapore. A person is a Singapore resident if he or she is a Singapore citizen, has acquired a Permanent residence or is a foreigner who has been in the country doing business for more than 183 days. An online merchant who is not a Singapore tax resident will therefore not be subjected to income tax derived from transactions with the customers in Singapore and vice versa.

Income classification: Income classification is one of the issues related to online business taxation. Based on the tax authority of Singapore, the license fee that is paid during the supply of software is considered royalty income thus attracts withholding tax if the payments have been made by a customer who is a resident of Singapore.

Goods and services tax

Well known as Value added tax in most of the countries across the globe. Goods and Services Tax (GST) refers to the consumption tax that is levied on the supply of goods and services indirectly within Singapore. This tax is usually passed on to the consumer and not the company, however, a company needs to register for GST in order to charge this kind of tax.

Tax is one way in which the government gets its revenue. It is, therefore, a mandatory obligation that any business owner needs to comply with.