GST Treatment on Fringe Benefits

On 16 May 2016, the Inland Revenue Authority of Singapore (IRAS) released an e-Tax guide “GST: Fringe Benefits”, which took effect immediately to clarify IRAS’s position on when are fringe benefits regarded as being “for the purpose of business” such that the related GST input tax will be claimable by GST-registered businesses.  A 2nd edition of the guide, published on 6 January 2017, provided further operative guidance and clarifications. 

Previous rule 

Prior to 16 May 2016, goods and services acquired and provided by the business entity as fringe benefits (e.g. mobile phone plans, memberships with a professional body and educational course) to its employees were generally considered to be for business purposes, and the related GST input tax was largely recoverable with limited exceptions (as specified in regulations 26 and 27 of the GST (General) Regulations). 

New rule

With effect from 16 May 2016, fringe benefits are being regarded as being “for the purpose of business” only if there is a close nexus to business activities (“Close Nexus Test”). Mere capability to provide business benefits (e.g. improved staff morale) is insufficient justification to meet the Close Nexus Test. 

To meet the Close Nexus Test, IRAS must be satisfied that the fringe benefits:- 
1)  Are necessary for the proper operation of the business;
2)  Directly maintain or promote the efficiency of business operations;
3)  Primarily promote staff interaction;
4)  Encourage upgrading of employees’ skills and knowledge that is relevant to the business;
5)  Recognise employees’ contribution towards the business; or
6)  Promote corporate identity.

Fringe benefits that are given only to sole proprietors, partners of a partnership, company directors, or connected persons, would not satisfy the Close Nexus Test, unless the fringe benefits pertain to fees for courses that are relevant to the business. Further, businesses making supplies that are partly exempt and partly taxable can only claim the apportioned GST input tax in respect of the latter.

Accounting for deemed GST output tax

The requirement to account for GST output tax on fringe benefits remains unchanged, i.e. businesses may be required to account for GST output tax on fringe benefits provided to employees if they have claimed the corresponding GST input taxes, with limited exceptions (e.g. goods costing below $200 and free services provided by the business to its employees).  


With the new GST rules on fringe benefits, businesses need to review employee fringe benefits to effectively integrate the changes when preparing GST returns.