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Did you know that Freelancers and Self-employed are taxed differently (Singapore tax)? During the Singapore tax season (that is coming), it can get increasingly frustrating for both freelancers and the self-employed if they are not clear about their tax obligations. This article will share the difference between freelancers and self-employed, and the methods of basic tax computation.
Bonus: We will also explore when a freelancer should incorporate a company in Singapore.
These 2 terms are often used interchangeably in Singapore, but they mean different things in one way or another. Perhaps the biggest difference between freelancers and self-employed individuals is the freedom in their roles. Generally, freelancers are always self-employed, but self-employed people aren’t always freelancers.
Who is a freelancer? Freelancers can be considered as someone who works for different companies with different sets of work, on a short term or contract basis, and they must fulfill their contractual obligations. A freelancer usually works for multiple clients and is not necessarily dedicated to one, he doesn’t always have the ability to choose what he works on. Freelancers are common in the creative sector.
Self-employed, on the other hand, may work on their own premises and sell their ideas. Self-employed people are loyal to their own business work, and to the customers that purchase their product or service. They earn a living by doing a business, profession, or vocation. They are also considered as sole-proprietors and partners in a partnership if they are registered with the Accounting and Corporate Regulatory Authority (ACRA).
Freelancers are obliged to pay taxes (for the business income they earned in a year. This will be considered as trade income, and it will be taxed at individual income tax rates.
You are required to pay income tax once your income exceeds $20,000 in a year. However, you are exempted from paying tax if you are earning less. This means that if you’re getting an average take-home pay of ~$1800/month, you will have to pay income taxes to IRAS.
However, tax rates may vary depending on your tax residency. You will be treated as a tax resident for a particular YA if you are:
Singaporean citizen or Singapore Permanent Resident residing in Singapore;
A foreigner who has stayed/worked in Singapore (excluding the director of a company) for 183 days or more in the previous year.
Here is an overview of the resident’s tax rate:
If it is all too complicated, you can head over to the IRAS website for Personal tax Calculator to calculate the amount of taxes you have to pay.
Paying tax in Singapore involves:
- Determining tax obligations.
- Deciding on the accounting period (January-December/July-June).
- Preparing a two or four-liner statement (as shown in the figure below).
- Filing income tax to IRAS.
Most businesses set their accounting period as the end of December, but as a freelancer, you get to decide on the accounting period. At the end of the accounting period, you must prepare a
1. Profit and Loss Accounts
2. Balance Sheet
By preparing your Statement of Accounts, the information will be useful for you to know whether your business is making a profit or a loss, it will help ease the process of your tax filing. Depending on the income earned, you are required to prepare a 2-line statement or a 4-line statement for filing of your Income Tax Return.
For income earned less than S$200,000, you should report your business using a 2-line statement:
1st Line – Revenue
2nd Line – Adjusted Profit For income earned more than S$200,000, you should report your business using a 4-line statement:
1st Line – Revenue
2nd Line – Gross Profit/Loss
3rd Line – Allowable Business Expenses
4th Line – Adjusted Profit & Loss
Kelly provides consultancy services and offers consultation to companies. He earned S$80,000 last year. His allowable business expense is about S$5,000. Using the 2-Line statement, this will be the calculation:
Natalie sells kids’ clothing. She earned S$500,000 last year. The cost of her goods is $150,000. Her allowable business expense is S$50,000. Since her income earned is more than S$200,000. She will report her tax by using a 4-Line statement.
Allowable Business Expenses
Often freelancers are not aware that claiming certain expenses helps in the reduction of their taxes. Certain deductions such as capital allowances, regular business expenses, medical expenses, R&D expenses. It refers to any business expenses that incur during the running of your business. However, do note that only
Some tax reliefs and rebates are targeted at certain groups of taxpayers to promote specific social and economic objectives:
General Reliefs Available to All Taxpayers
Additional Reliefs Available to Married/ Divorced/ Widowed Taxpayers
Available to Male and Female Taxpayers
Available to Female Taxpayers
Course Fees Relief
CPF Cash Top Up Relief*
CPF Relief*CPF / Provident Fund Relief: For Employees Only
CPF/ Provident Fund Relief: For Self-Employed/ Employee who is also Self Employed
CPF/ Provident Fund Relief: Compulsory and Voluntary Medisave Contribution
Earned Income Relief
Handicapped Brother/ Sister Relief
Life Insurance Relief
NSman (Self) Relief
Parent/ Handicapped Parent Relief (For maintenance of parents, grandparents & great-grandparents, including in-laws)
Supplementary Retirement Scheme (SRS) Relief
Applicable to Singapore Citizens and Singapore Permanent Residents (PRs) only.
NSman (Parent) Relief
Qualifying/ Handicapped Child Relief
Spouse/ Handicapped Spouse Relief
Foreign Domestic Worker Levy Relief
Grandparent Caregiver Relief
NSman (Wife) Relief
Working Mother’s Child Relief
To know more about the individual tax reliefs, you may refer to this comprehensive
Despite having the flexibility to choose different projects and clients, freelancers may want to set up a company as it helps to sustain the business on a long-run basis. If the company’s business has increased over time and you are planning to create systems and hire more help to complete the work, you may want to consider leveling up the company structure to private limited.
There are many advantages to incorporating a private limited company, such as the income earned will be taxed at a corporate tax rate, the business structure has a separate legal identity. A private limited status will help to create a professional image for the client and help in fundraising or bidding for more projects.
Read more on the benefits of setting up a company in Singapore:
If you are a freelancer and are thinking of incorporating your company, Lanturn can assist you with the administrative process. Lanturn can assist you to incorporate your company in Singapore, all you need to do is fill in our 5-minute incorporation tool and appoint us as your company secretary. We also have a number of company incorporation packages with different add-ons that you can pick and choose according to your business structures.
Incorporation in Singapore: What Do You Need and How Much?
Before beginning your business journey in Singapore, remember these guidelines and requirements for incorporation to create a solid foundation for your business.
Get started with our online incorporation
Beyond that, we also help small businesses with accounting and
The Benefits of Updated Bookkeeping and Accounting Record for Your Small Businesses
Accounting and bookkeeping for small businesses are as important for established corporations. Find out the benefits of outsourced bookkeeping in this article.
We have an online platform that allows you to manage your compliance deadlines, submit your invoices and accounts payable and communicate directly with our corporate secretary and accounting specialists. This means you can focus on your business while we take care of the rest.
If you’d like to discuss your incorporation requirements with someone,
Need a tip on what accounting system you can use for your expenses? Check our next blog:
Small Business Accounting: What Are the Best Accounting Systems Available Today?
With the myriad of accounting software in the market, choosing one that fits your needs can be difficult. Read this guide to help you decide on the right software.
Start the journey
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