A carbon credit means —
(a) a certificate representing an amount of greenhouse gas emissions reduction or removal, generated from any project or programme, and includes a certificate representing the avoidance of an amount of such emissions;
(b) a right to emit any greenhouse gas; or
(c) a means to satisfy any tax or regulatory obligation arising from the emission of any greenhouse gas,
and includes a carbon credit issued by the National Environment Agency (NEA) for businesses to meet their carbon tax obligations in Singapore.
Carbon credits are issued/ verified by government registries or independent standards/registries such as Verra, Gold Standard, Climate Action Reserve and American Carbon Registry. Each verified carbon credit would be issued with a unique serial number; hence it is not an unallocated commodity for the purpose of GST.
Supply of Carbon Credits From 23 Nov 2022
The issuance, transfer or sale of any carbon credit (or any digital representation of a carbon credit), including those issued by the NEA, is treated as neither a supply of goods nor a supply of services i.e., an excluded transaction. GST is not chargeable on the consideration received for the issuance, transfer or sale. A digital representation of a carbon credit includes a digital image of a carbon credit created using blockchain technology.
Supply of Carbon Credits Before 23 Nov 2022
The issuance of carbon credits by the NEA (including the crediting of any carbon credit by the NEA into any registry account under the Carbon Pricing Act 2018) is an excluded transaction for which GST is not chargeable.
The issuance, transfer or sale of any other carbon credit (or any digital representation of the carbon credit) in return for a consideration is a taxable supply of services. The supply is standard-rated if made to a local person, or zero-rated under section 21(3)(j) of the GST Act if made to an overseas person belonging outside Singapore. For information on belonging status and zero-rated supplies of services, please refer to Providing International Services.
Supply of Related Services
The supply of services relating to carbon credits such as carbon exchange services, brokering services and legal services is standard-rated unless it qualifies for zero-rating under section 21(3) of the GST Act (no change before or after 23 Nov 2022).
For more information, please refer to Providing International Services.
Purchase of Carbon Credits
Before 23 Nov 2022, carbon credits purchased from overseas exchanges or suppliers constitutes a supply of taxable services to you and fall within the scope of imported digital services, which may be subject to GST under the reverse charge or overseas vendor registration regime. For more information, please refer to GST on Imported Services.
From 23 Nov 2022, as the issuance, transfer or sale of any carbon credit is an excluded transaction and will not be regarded as a supply, carbon credits purchased from overseas exchanges or suppliers fall outside the scope of imported services and are not subject to GST.
Claiming Input Tax
If you incur GST on the purchase of carbon credits (including any GST paid on related service fees incurred in the course of the purchase), you should claim the input tax incurred as follows:
(a) Where the carbon credits are resold by you before 23 Nov 2022
Input tax incurred is directly attributable to the taxable supply of carbon credits, hence claimable in full.
(b) Where the carbon credits are held for resale by you on or after 23 Nov 2022
Input tax incurred on the purchase (e.g. carbon exchange fees) is directly attributable to the excluded transaction, hence not claimable.
However, in order not to disadvantage businesses that have already incurred GST on purchases made before 23 Nov 2022 with the intention to make taxable supplies, Ministerial remission under section 89(2) of the GST Act has been granted to allow full input tax incurred on such carbon credits purchased before 23 Nov 2022 but are only sold on or after 23 Nov 2022.
(c) Where the carbon credits are for your own business use to offset carbon emissions (no change before or after 23 Nov 2022)
Input tax is claimable on such expenses if it meets the conditions for claiming input tax.
If you purchase carbon credits to offset your carbon emissions for compliance purposes (e.g. to comply with regulatory requirements or carbon emission industry standards, or to comply with sustainability reporting requirements imposed by the Singapore Exchange for a listed company), the expenses are considered as being incurred for business purposes. This is because you are expected to comply with sustainability requirements or standards, including the purchases of carbon credits to set-off your carbon emissions.
If you purchase carbon credits to voluntarily reduce the carbon footprint of your business, we will also regard such expenses as having a close nexus to your business activities and incurred for business purposes. Doing so directly benefits your business as the carbon credits are utilised by you to reduce the carbon emissions generated from your business operations and improves your business standing as an environmentally responsible business.
In view of the above, any GST incurred on the purchase of carbon credits* and the related service fees such as carbon exchange fees, brokering charges and legal fees to offset carbon emissions by your business is claimable as residual input tax. You should apportion the residual input tax according to the input tax recovery formula applicable to you.
* Relevant for purchases of non-NEA carbon credits prior to 23 Nov 2022
I have claimed residual input tax incurred on carbon credits purchased to offset carbon emissions by my business. Subsequently, I found that I have excess carbon credits and sold them in Dec 2023. Do I need to repay the input tax claimed previously?
I purchased carbon credits through a broker and incurred GST on the brokering fee in the prescribed accounting period ended 31 Dec 2023. As I intend to resell the carbon credits, I did not claim the GST incurred. Subsequently in the prescribed accounting period ended 30 Sep 2024, I used the carbon credits to offset the carbon emissions by my business instead of selling the carbon credits. Can I claim back the GST incurred on the brokering fee?
No, you cannot claim back the GST incurred on the brokering fee.