Current Areas of Audits

Missing Trader Fraud Arrangements

Missing Trader Fraud is a fraudulent scheme used by syndicates to defraud the government. Singapore does not condone and takes a serious view on Missing Trader Fraud arrangements, as they pose a serious threat to public revenue. 

IRAS identifies Missing Trader Fraud arrangements to be one of the key compliance risks areas among taxpayers and conducts extensive audit checks and investigation on businesses and individuals involved in such fraudulent arrangements.

Consequences of Being Involved in a Missing Trader Fraud

If you are involved in such an arrangement:

1. You will be subject to detailed audit and investigation.
2. You will be notified by the Comptroller that the payment of GST refunds (if any) is withheld if the Comptroller reasonably suspects that the refunds relate to any input tax on any supply made to you which was a part of a Missing Trader Fraud arrangement.
3. You will be denied of the input tax on your purported purchases on the grounds that the claims did not meet the requirement under sections 19 and 20 of the GST Act; or under the Knowledge Principle.
4. You will have to pay penalties and/or a surcharge of 10% on the amount of input tax claims denied on the grounds that you should have known that your purchases were part of a Missing Trader Fraud arrangement.
5. You will be liable to an imprisonment of up to 10 years and/or fine of up to $500,000 upon conviction, if you are found to be the MTF masterminds, co-conspirators and syndicate members who participate in MTF arrangements under section 62C of the GST Act.
6. You will be liable to an imprisonment of up to 12 months and/or fine of up to $50,000 upon conviction, if you are a current or former sole-proprietor, partner or director of business entities that are used in MTF arrangements under section 62C of the GST Act.

To avoid the above consequences and to protect yourselves, you should be alert and are strongly encouraged to conduct proper due diligence of business deals and scrutinise the legitimacy of your purchases more carefully to avoid being drawn into Missing Trader Fraud.

Please refer to our webpage on Audits and Investigation on Missing Trader Fraud Arrangements and e-Tax guide "GST: Guide on Due Diligence Checks to Avoid Being Involved in Missing Trader Fraud (663KB, PDF)" for more information on MTF, including what you need to do to avoid being drawn into a MTF arrangement, as well as how you can report any malpractices to IRAS.

Businesses making low-value GST refund claims

As part of IRAS’ risk-based compliance approach, we have embarked on an audit programme focusing on GST-registered businesses that have claimed low-value GST refunds to ensure that they are compliant with GST rules and that their refund claims are legitimate. 

As part of the audit on these businesses, IRAS performs the following checks:

(a)    Visiting the business premises to verify the business operation and activities and to review their documents and records;

(b)    Interviewing the key personnel(s) to understand the business arrangements and transactions; and/or

(c)    Requiring businesses to review their past GST returns submitted and disclose any errors found.

Common errors uncovered

Some errors that we have uncovered in the course of our audits include:

a) Dormant businesses making input tax claims in the absence of taxable supplies.

b) Input tax claims not supported by tax invoices / import permits addressed to the businesses or simplified tax invoices.

c) Input tax claims made on disallowed expenses e.g., motor car expenses, medical expenses.

d)  Input tax claims made on private expenses (e.g. food & beverages expenses for family, utilities or maintenance fees  for residential properties). GST-registered businesses should note that even if you operate your business from home,  you are not allowed to claim input tax on expenses related to housing expenses as they are considered personal in nature. 

e)  Zero-rated supplies on export of goods not supported by proper export documents.

You may refer to Conditions for claiming input tax and Errors commonly made by businesses on IRAS website for more information.

What you should do 

Review your records to ensure that your refund claims satisfy the conditions for claiming input tax and you did not make errors similar to those errors commonly made by businesses. If you detect errors in the course of your review, you should voluntarily disclose the error to IRAS to qualify for reduced penalties. 

Consequences of errors

Businesses who are found to submit an incorrect return may be penalised for up to 2 times the amount of tax undercharged and may be liable to a fine and imprisonment term.

Sale of Non-Residential Property

IRAS audits businesses that sell non-residential properties. GST-registered businesses that sell business assets, including non-residential properties, are required to charge and account for GST based on the consideration received on the sale of such properties. 

What to look out for when selling properties

When to account for GST

1. Option fee and deposit

Where an option fee or deposit is received, you must account for GST on the option fee and deposit at the earlier of:

a. When payment is received;

b. When an invoice for the option fee or deposit is issued

2. Remaining sum

Businesses should account for GST on the remaining sum at the earliest of:

a. When the invoice is issued; or

b. When payment is received; or

c. When the title of the property is transferred upon legal completion; or

d. When the property is handed over or made available to the buyer. 

Common GST mistakes made on sale of non-residential properties

i) Omission of GST from GST returns

Some GST-registered businesses fail to charge GST on the sale of non-residential properties. Others might have charged GST but omitted to account for the GST in their GST returns due to oversight.

Businesses must charge and account for GST where they sell non-residential properties that are part of their business assets.

ii) Late accounting of GST on the receipt of option fee

For sale of property, a GST-registered business would normally receive an option fee from the purchaser, followed by a deposit when the option is exercised by the purchaser. The balance payment would be received only upon the completion of the sale.

Some GST-registered businesses account for GST on the option fee only when the option is exercised or when the sale is completed. This is incorrect.

The GST-registered business should account for GST on the option fee at the earlier of when the fee is received or when the invoice for the option fee is issued.

iii) Transfer of property that did not involve any monetary consideration (e.g. in-specie distribution)

Some GST-registered businesses did not account for GST on the transfer of properties where no consideration is received.

A GST-registered business has to account for GST on the transfer of the property even when no consideration is received, if it had previously claimed input tax on the purchase of property.

iv) Sale of property owned by sole-proprietors and partnerships

Some GST-registered sole-proprietors and partnerships did not charge and account for GST on the sale of their non-residential properties, as they did not regard the properties as part of their business assets. 

GST-registered sole-proprietorships and partnerships have to charge and account for GST on the sale of the non-residential properties in the following circumstances:

a. Where the property held is a business asset, for example, if the property had been used and was recognised as a business asset in the accounts, or if input tax had been claimed on the purchase of the property; or

b. Where the sole-proprietor or partners are conducting a business in the leasing or sale of properties, i.e., they satisfy the business test set out in Paragraph 6.3 and 8.1 to 8.4 of the e-Tax guide “GST: Guide for Property Owners and Property Holding Companies”.  

What you should do

Review your records if you have sold any non-residential property and ensure that you have accounted for the GST correctly.  If errors are detected in the course of your review, you should voluntarily disclose the error to IRAS to qualify for reduced penalties. 

Consequences of errors

Businesses who are found to submit an incorrect return may be penalized for up to 2 times the amount of tax undercharged and may be liable to a fine and imprisonment term.

Under-declaration of Supplies

IRAS is currently auditing GST-registered sole-proprietors who have not accounted for the correct amount of supplies and output tax in their GST returns.

What to look out for

As a GST-registered sole-proprietor, you may have the misconception that only one of your sole-proprietorship businesses is subject to GST. You may also assume that any other fees you receive outside of your sole-proprietorship business is not subject to GST or that the properties you own are personal assets.

As GST registration is made under your name, you have to charge and account for GST on all of the following:

(a)   Taxable turnover of all your sole-proprietorship businesses;

(b)   Sale and lease of non-residential properties or sale and lease of furniture and fittings in residential properties, if you are involved in the business of selling or leasing properties; and

(c)   Any other taxable turnover derived from your trade, profession, or vocation carried on as a self-employed person.

Under-declaration of supplies and output tax in your GST returns could be due to:

• Omission or under-reporting of sales from one or more businesses (i.e. failure to include the taxable turnover from all your sole-proprietorship businesses for GST reporting) 
• Omission or under-reporting of taxable turnover from any other trade, business, profession or vocation carried on as a self-employed person (e.g. failure to include the income you earned as a taxi and private hire car driver, hawker, commission income as a property agent, insurance agent, multi-level marketing agent, and/or freelancer such as fitness instructor or bookkeeper, or an accountant with own business practice, etc.)
  
• Omission or under-reporting of output tax on the sale and lease of non-residential properties, or lease of furniture and fittings in residential properties, where the properties held are business assets or the sole-proprietor is conducting a business in the leasing or sale of properties i.e., they satisfy the business test set out in Paragraph 6.3 and 8.1 to 8.4 of the e-Tax guide “GST: Guide for Property Owners and Property Holding Companies”.
• Omission or under-reporting of proceeds from disposal of assets, of which input tax was claimed on the purchase.

What you should do

GST-registered sole-proprietors should review all your income streams and GST returns to ensure that you have accounted for GST on all taxable supplies. If errors (including under-declaration of supplies) are detected during your review, you are encouraged to voluntarily disclose the errors to us. By doing so, you may enjoy a reduction/ waiver of penalties under the IRAS’ Voluntary Disclosure Programme.

Consequences of errors

Businesses who are found to submit an incorrect return (including under-declaration of supplies) may be penalized for up to 2 times the amount of tax undercharged and may be liable to a fine and imprisonment term.