Goods and Services Tax (GST) Treatment on Fringe Benefits Provided to Employees

Introduction

It is common for employers to provide fringe benefits to employees as part of its employees' attraction or retention strategy. Fringe benefits are non-wage benefits provided by employers to their employees. These benefits are given to employees as part of their overall remuneration packages and can take the form of either goods or services from a GST perspective, dependent on the nature of the fringe benefits provided.

There are several GST considerations arising from fringe benefits provided by employers to their employees. Specifically, the following key factors should be considered by employer when providing these benefits to employees:

Whether the employer is allowed to claim GST input tax incurred on fringe benefits provided to the employees.
Whether the employer is required to account for GST output tax when the fringe benefits are given at a subsidised price or free to the employees.
If GST output tax is to be accounted for, what is the taxable value of the fringe benefits provided to the employees.

As GST on fringe benefits is a commonly overlooked issue which could lead to inadvertent GST errors made in the filing of the GST returns, this article focuses on the GST treatment for goods and services provided by a GST-registered employer to its employees in the form of fringe benefits.

Input Tax Recovery on Fringe Benefits

As a general rule of thumb, GST-registered employers can claim input tax incurred on fringe benefits given to employees, provided that these fringe benefits are incurred for the purpose of their business. However, since all fringe benefits contain elements of personal consumption, the IRAS will only consider the fringe benefits as incurred for the purposes of the business only if they have a close nexus to the employer's business activities.

Essentially, there are six (6) conditions that a GST registered employer have to meet in order to claim input tax for GST charged on goods and services provided to the employees in the form of fringe benefits. The six conditions are summarised below.

No.	Conditions
1	The employer is GST-registered.
2	The goods or services must have been supplied to the GST-registered employer. To satisfy this condition, the Comptroller will treat the supply as contractually made to the employer if the tax invoice is issued by the supplier to the employer. If the invoice is addressed to the employee, the employer may claim the GST input tax provided that the employee is acting as an agent in receiving the supply of goods or services.
3	The goods or services are used or to be used for the purpose of the employer's business. To satisfy the condition of "for the purposes of business", the provision of fringe benefits must have a close nexus to the employer's business activities. The IRAS will generally regard the fringe benefits as having a close nexus to the business activities if the fringe benefits meet any of the following six (6) indicators: The fringe benefits are necessary for the proper operations of the business; The fringe benefits directly maintain or promote the efficiency of the employer's business operations; The fringe benefits primarily promote staff interaction; The fringe benefits encourage the upgrading of the employee’s skills and knowledge relevant to the business; The fringe benefits are given in recognition of the contribution of the employees towards the business; or The fringe benefits promote corporate identity.
4	The goods or services must be used for the making of taxable supplies (i.e. standard-rated or zero-rated supplies) or out-of-scope supplies which would be taxable supplies if made in Singapore. However, if the employer makes partly exempt and partly taxable supplies, such expenses are generally considered as residual in nature and the employer would have to apportion the input tax incurred.
5	The input tax claims are not disallowed under Regulations 26 and 27 of the GST (General) Regulations; and
6	The employer has taken reasonable steps to ascertain and conclude that the goods or services were not part of a Missing Trader Fraud arrangement and the conclusion is one that a reasonable person would have made.

All the statements above must hold true in order for the GST input tax claims on fringe benefits to apply.

In addition, where the goods or services are given to only specific persons who owns the business (e.g., sole-proprietors, partners or directors), the Comptroller will generally regard these benefits as incurred for their personal consumption and GST input tax not claimable under such situation.

Accounting for Output Tax

Generally, GST-registered employers which have claimed input tax on the acquisition of fringe benefits are required to account for output tax on the fringe benefits provided to the employees. However, there are certain situations where exceptions may apply to which GST output tax is not required to be accounted on the fringe benefits as outlined below.

The GST-registered employer has provided free services to employees.
The GST-registered employer has given business goods in the form of gifts to the employees and the employer chooses not to claim input tax on the purchase or import of the gift.
The GST-registered employer has given business goods to employees for their temporary use and the provision of the business goods has a close nexus to the employer's business activities. The IRAS has provided certain indicators that may be used to determine whether there is a close nexus to the employer’s business activities.
The GST-registered employer has catered food or beverage free to the employees.
The GST-registered employer has provided accommodation in a hotel, inn, boarding house or similar establishment free to the employees.

Taxable Value of Fringe Benefits

Next, it is crucial for a GST-registered employer to determine the value of the taxable fringe benefits once it has ascertained that the fringe benefits provided to the employees attract GST. This is to ensure that the value of the GST output tax is correctly accounted for when the employer files its GST returns to the IRAS.

Where the employer has provided fringe benefits to the employees at a subsidised or discounted price, the value of the supply on which output tax is to be accounted for should be the subsidised price or discounted price.

However, if the fringe benefits are provided free to the employees, the taxable value should be ascertained using the guidelines below:

Nature of Fringe Benefits	Value of Taxable Supply
Business goods (new or used) are given free to employees.	The value of supply on which the output tax is accountable would be the amount that the GST registered employer would pay if the GST registered employer were to purchase identical goods, taking into account the age and condition of the goods which are given free; or If the value of (i) cannot be determined, the value of supply will be the amount that the GST registered employer would pay if the employer were to purchase similar goods, taking into account the age and condition of the goods which are given free; or if both (i) and (ii) cannot be determined, then the value of supply would be the cost of producing the goods at the time they are given free.
Business goods used by employees for private purposes.	The value of supply on which output tax is to be accounted for should be the full cost to the GST-registered employer in letting the employee use the goods for free. (The IRAS has provided guidelines on how to ascertain the full cost).

Common Fringe Benefits Provided by Employers

Below is a summary of the GST treatment on some common fringe benefits provided to employees*:

Nature of Fringe Benefits	Is GST input tax Claimable by the Employer?	Does the Employer have to Account for GST Output Tax?
Mobile phone	As a concession, input tax incurred on the purchase of the mobile phone and phone expenses (such as calls and subscription plan) can be claimed in full provided that the employee gives a written undertaking that the phone will be used solely for the purpose of the employer’s business. The written undertaking must be made available to the IRAS upon request.	No, unless: 1. Input tax has been claimed; and 2. The cost of the mobile phone given away to the employee is more than S$200 (exclusive of GST amount).
Calls and subscription plan	Input tax can only be recovered on business calls. If your employee makes both business and personal calls, only the business portion is allowed. Similarly, input tax incurred on a mobile data plan is claimable only to the extent that the plan is used for business purpose. Proxy using the number of workdays over the period billed (e.g. 4/7) or other reasonable proxies can be used to apportion the expense where the plan is used for both work and private purposes.	No.
Motor car purchase, rental of motor car and running expenses (e.g. petrol, parking, repair, maintenance, chauffeuring and insurance)	No. Input tax blocked under regulation 27.	No.
Motor vehicle purchase, rental of motor vehicle and running expenses for vehicles other than motor cars (e.g., vans, lorries, and motorcycles) The vehicles are used for your business activities (e.g., for deliveries of goods to your customers). They are also provided for your employee’s personal use free of charge.	Yes.	No, provided the personal use by the employee is incidental to carrying out his or her job duties. For example, the employee is allowed to drive the vehicle home after carrying out deliveries for the workday/week.
Clothing and accessories (e.g., shoes, belts, bags, and eyewear) Grooming-related products and services	Generally, no. However, the exceptions are when: (a) Uniforms and protective clothing required to be worn for work purposes; (b) The employer is in the business of selling the products worn by his employees; or (c) The employer’s business requires employees to look attractive or project a uniform image when serving customers.	No, unless: 1. Input tax has been claimed as an exception; and 2. The cost of the good given away exceeds S$200.
Gifts:		No, unless: Gift is a good (i.e., not a service); Input tax has been claimed; and The cost of the good exceeds S$200
Special occasions such as employee’s birthday, welcome gift, farewell gift and get-well gift for the employee; wedding of the employee, birth of the employee’s child and bereavement of the employee or an immediate family member of the employee.	Yes.
Festive seasons such as Chinese New Year, Hari Raya, Deepavali and Christmas.	Yes.
Awards or prizes given in recognition of your employee’s work efforts and contributions.	Yes.
During company events e.g., dinner and dance, family day, company retreats,	Yes.
All other circumstances.	Generally, no.
Food/Beverage provided for Employees:
At any staff canteen/cafeteria.	Yes.	No.
At your office premises (e.g. pantry and food deliveries).	Yes.	No.
Working overtime.	Yes.	No.
At the airport before and after business trips.	Yes.	No.
At company functions, events or meetings (e.g. annual dinner & dance, entertaining clients, and business meetings).	Yes.	No.
All other circumstances.	Generally, no.	No.
Subscription fee for recreational/sporting clubs, including joining fee, membership fee and transfer fee.	No. Blocked under regulation 26.	No.
Entrance and subscription fee to professional bodies where the membership is relevant to an employee’s job.	Yes.	No.
Credit card subscription (corporate card).	Yes, input tax can be recovered on the portion of subscription fee for corporate purchases.	No.
Preparation of employee’s income tax returns.	No.	No.

*The information in the table above was extracted from IRAS' e-Tax Guide titled “GST: Fringe Benefits (Sixth Edition)”.

Conclusion

As there are various GST implications associated with the provision of fringe benefits to the employees, it is crucial that the human resources and finance personnel within the employer’s organisation work closely together to ensure that the correct GST treatment on fringe benefits are applied and properly accounted for in the GST returns. Failure to comply with these reporting requirements can lead to penalties and / or fines being imposed on the employer. Employers should proactively seek clarification with its tax advisor or IRAS, when in doubt of the GST treatment on certain fringe benefits, to manage its GST risk.

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