Understanding the Nuance of Tax Invoices in Singapore

What is an invoice?

An invoice is a legally binding document that you issue to your buyers to collect payment for any product or service that you have sold to them. It contains various details such as the product or service code, the cost of the item sold, invoice receipt number, business name and address, customer name, and billing address, among other things.

While every business doesn't need to issue an invoice, it is advisable to do so. Aspire's invoice management software can be used to issue different kinds of invoices to your customers. 

Types of invoices

There are two main kinds of invoices a business should know about – standard or retail invoices and tax invoices.

A standard invoice is an invoice that a business issues to its end customers. It doesn’t contain any details about tax. A tax invoice, on the other hand, is given to another vendor or entity with Goods and Services Tax details. In addition to the price of goods and services, it also includes the amount of tax that the customer must pay. 

Tax invoice meaning

Tax invoice means a legally binding document of sale issued to a registered purchaser at the time of sale. They are essential for tax purposes such as filing taxes and getting input credit.

Tax invoices are usually made in triplicate – one is issued to the buyer while you keep two copies. One of these copies will have to be submitted to the relevant government authority when filing taxes.

Difference between a tax invoice and a standard invoice

When trying to understand the difference between a tax invoice meaning and a standard invoice meaning, the first thing to look at is their definitions. A tax invoice is issued to a vendor with a Goods and Services Tax (GST) number. Tax authorities recognize it for filing taxes and claiming tax refunds. A standard invoice is issued to customers directly to record the sale of a product or a service.

Some of the other differences between the two types of invoices are:

GST number

A tax invoice and a standard invoice have mostly the same contents, such as the name of the buyer and seller, the billing address of the buyer and seller, the receipt number, etc. An additional detail that the tax invoice includes is the GST number. You may also issue a separate GST invoice along with the tax invoice.

Number of copies

A tax invoice is issued in triplicate. One copy is given to the buyer, and two copies are for you to hold. One of these copies has to be submitted to tax authorities at the time of filing taxes. A standard invoice is issued in duplicate – one to the buyer and one for you.

Purpose

The primary purpose of a tax invoice is to avail of tax credit or tax relief. On the other hand, a standard or retail invoice is issued to keep track of the goods and services sold. It can also help with accounting and internal recordkeeping.

GST registration

A tax invoice only needs to be issued if both the buyer and the seller have registered GST numbers. A standard invoice is given to a customer who may not have a GST number.

Understanding how a tax invoice is different from a receipt

Sellers and vendors issue invoices and receipts to customers. A receipt is a confirmation slip issued to a customer that the goods and services have been received and payment for the same has been made. It acts as proof of ownership. A tax invoice is an official document that requests payment and outlines the tax due on a sale. Receipts are much less detailed than a standard or tax invoice. Aspire's invoice management software can be used to issue regular as well as tax invoices for different business sales.

What does a tax invoice contain?

A tax invoice template should contain the following:

• Date of invoice issue
• The invoice number
• Name of the buyer
• Billing address of the buyer
• Name of the seller
• Billing address of the seller
• The relevant tax identification number
• The description of the items
• Quantity
• Price per item
• GST charged on each item
• The amount of tax charged
• Total cost, including the tax or GST
• Signature of the relevant signatory

What is Goods and Services Tax (GST), and why is it included in a tax invoice

Goods and Services Tax (GST) is a consumption tax or an indirect tax that the Inland Revenue Authority of Singapore (IRAS) levies on selling goods and services. It is also collected on the import of goods. GST is an indirect tax expressed as a percentage of the sale price of the commodity or service. The current GST rate in Singapore is 7%.

If you are a GST-registered company, you will need to issue a GST tax invoice. You act as a collecting agent on behalf of the IRAS. When paying your business taxes, you will need to pay the GST amount to the government.

As a GST registered company dealing with another GST registered company, you must issue a tax invoice with GST. A GST invoice makes it easier for you to track the taxes you have collected and pay the government authorities.

Calculating GST on tax invoices

Now that you have a fair overview of an invoice, a tax invoice meaning and how it differs from a receipt, let's take a look at how to calculate a GST invoice.

There are two ways to calculate the GST amount on your tax invoice:

1. You could apply 7% GST to the value of each item and then add all the GST components
2. You could directly compute 7% on the total price of all goods and services sold

For example, let's assume you are a paper manufacturer. You make the following sale to another company:

• Five reams of A4 70Gsm copier paper at the rate of S$20 per ream
• 10 reams of A4 all-purpose premium quality paper at the rate of S$17.59 per ream
• Seven reams of A4 digital premium quality paper at the rate of $34.80 per ream

If you follow the initial GST invoicing method of computing GST on each item, then the calculation would be as follows:

As mentioned, you could also calculate GST on the total sales amount. The calculation would be as follows:

As you can see, there is a possibility that the GST invoice amount may vary under both circumstances due to rounding off. However, both methods are acceptable. The only condition is that you should use the methods consistently.

Tax invoice template

A tax invoice must have all the components required to qualify as a legal document. It must also provide details on zero-tax products, services, exempt goods, or other supplies. Here is a sample invoice from the IRAS website:

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When should you issue a tax invoice?

If you are a GST registered company dealing with customers who are also GST registered, you must issue a tax invoice. As per IRAS rules and guidelines, you must send the GST tax invoice within 30 days of making a sale. Your customers will use your GST invoice as proof to claim input tax.

If your customer is not GST registered, and you are, you will still need to issue a GST tax invoice as proof for the GST that you have collected and must pay to the government. 

However, you do not have to issue a tax invoice in certain circumstances. If you are dealing with zero-rated products, such as the export of goods or international services, you do not need to issue a tax or GST invoice. Certain goods are exempt from GST, such as the sale and lease of residential properties or financial services.

If you are a business that is not registered with the IRAS and does not have a valid GST number, but your customers are registered, you can issue invoices without tax details to your customers. Simply mentioning that the goods or services are priced excluding GST will suffice.

Why should you issue a tax invoice?

You must issue tax or GST invoices to your customers if you are a GST registered company. It can help a registered vendor claim input credit while filing taxes. Tax invoices can help you determine the right time period for claiming the input tax. Even if you are a very small business, issuing a tax invoice can help you in the following ways:

Maintaining records

The primary advantage of issuing an invoice is keeping a legal record of any sale you have made. This makes it possible to keep track of who had bought the item, when you sold it, the price at which you sold it, etc. It is also easy to resolve disputes if you have these details on hand.

Tracking payments

Since an invoice contains details about the items sold and the corresponding price, it makes it easy for your accounting department to track payments. You can also use invoices to understand how much money you have received and how much is still owed to you.

Legal proof

An invoice is legal proof of sale that you have made to customers. In case of any dispute, they can be used to defend yourself. They are also valid documents to protect your business from fraudulent lawsuits.

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Filing taxes

Keeping a record of all invoices also helps with tax filing as you can determine exactly how much you have sold and the amount of tax you have to pay.

Formulating marketing strategies 

Invoices can help you understand buying patterns, trends in sales, your most popular products, peak buying times, etc. Basically, you can understand customer behaviour with the help of invoices. Using this, you can frame better marketing strategies.

What is a simplified tax invoice?

A simplified tax invoice is a less detailed tax invoice that you can issue if your sale amount is less than S$1,000.

In a simplified tax invoice, you will only need to provide the following details:

• Your business's name
• Your business's billing address
• Your GST registration number
• An invoice number
• Description of the product or service sold
• Total amount payable, plus GST

You can also use a sales voucher or a debit note instead of a simplified tax invoice as long as it contains all the necessary details.

Final word

As a Singapore business that is GST registered, you need to send a tax invoice or a GST tax invoice to your customers for all standard-rated supplies. You do not need to send a tax invoice on zero-rated goods and services, exempt products or other deemed supplies that are not taxed under GST.

A tax invoice is just as crucial for your business as it is for your customer. You should hold on to your tax invoices for at least five years.

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You can use Aspire's invoice management software to produce different kinds of invoices for your business. With features such as automatic reconciliation, tax compliance, auto-reminders for clients and automated cashflow insights, there's so much you can do with invoices generated via Aspire. It is the ideal invoice management software you need to make life easy for your accounting department and business in general.