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Complexities of GCT Input Taxes on Imported Services

A GCT input tax is tax paid by a taxpayer of the purchase of taxable supplies in the course of furtherance of a taxable activity by the said registered taxpayer. Generally, the registered taxpayer is allowed to claim the input tax as a credit against output taxes collected in the supply of a taxable activity save and except for certain restrictions under the GCT Act. The treatment of input taxes on the importation of goods are normally straight forward, however, as it relates to the importation of services, the application is more complicated.

The Act suggests that anything supplied for a consideration that is not a supply of good is a supply of service, which can be quite nebulous, however, this will be deferred for another discussion. However, on the importation of a good, custom authorities has the authority to levy GCT input taxes on its arrival into the island. The case of service is quite different. As a it relates to services given that the supplier of the said service may not be a resident in the island at the time of supply, the situation become very complicated. Hence, according to the GCT Act, the place of supply generally becomes highly important. Reason being, if the supply of service is made within the island, but the supplier of the said service is not a resident of the island or was not on the island at the time of supply, then the supply is an importation of service. In such a case, the treatment of the GCT input taxes generally depends on whether or not the recipient or the importer of the said service is a registered or an unregistered taxpayer.

Registered Taxpayer

GCT input tax charged on the importation of services within the island is quite counterintuitive. In that, the registered taxpayer is required to account for the GCT output tax on the payment of services acquired from the overseas supplier of the said service. As a registered taxpayer, if the service was acquired in the course or furtherance of a taxable activity, then the registered taxpayer maybe allowed to simultaneously claim a matching input tax on the said return, account for the taxes as both output and input tax within the same period resulting in a nil effect. However, there might be occasions where the resident taxpayer may not be allowed to claim the full output taxes as an input tax credit on the acquisition of an imported service if there is no connectivity between the services acquired and the taxable supplies made by the said resident taxpayer. In addition, if the registered taxpayer is a supplier of taxable and exempt supplies, the input taxes may be prorated among the said taxable and exempt supplies of the activity. Note that, the taxpayer will not be allowed a credit for the portion prorated among the exempt activity.

Unregistered Taxpayer

On the other hand, an unregistered taxable under the GCT Act is not required to file a GCT return displaying his/her taxable supplies. However, if the said resident purchaser has made imported purchases during any taxable period from an overseas supplier of the said services, then he is required to file a miscellaneous GCT form reporting the imported services acquired and account for the GCT output taxes on the services purchased. The unregistered resident purchaser of the service is not permitted to claim input tax credit on the services bought to offset any output taxes that he/she is expected to pay.

The treatment of GCT input taxes on imported services is generally termed ‘GCT reverse charge’ and which can be quite onerous. Consequently, it is advised that where such situation arises, do not hesitate to contact your tax adviser or expert to assist with mitigating the possible risk of a GCT exposure.

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