Singapore tax Guide for Freelancers and Self-Employed Persons

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.

 

Who Are Considered As Freelancers or Self-Employed?

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 contract 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).

 

Singapore Tax – What Taxes Do Freelancers Pay?

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 $22,000 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: 

https://www.iras.gov.sg/irashome/Quick-Links/Tax-Rates/Individual-Income-Tax-Rates/

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. 

(https://www.iras.gov.sg/irashome/Quick-Links/Calculators/)

 

How to file income tax? 

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 Statement of Accounts which comprises:

  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: 

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: 

4-Line Statement

1st Line – Revenue

2nd Line – Gross Profit/Loss

3rd Line – Allowable Business Expenses

4th Line – Adjusted Profit & Loss

Example: 

Kelly provides consultancy services and offers consultation to companies. He earned S$80,000 last year. His allowable business expense is about $5,000. Using the 2-Line statement, this will be the calculation:

Revenue $80,000
Adjusted profit $75,000

 

Natalie sells kids’ clothing. She earned S$500,000 last year. The cost of her goods is $150,000. Her allowable business expense is $50,000. Since her income earned is more than S$200,000. She will report her tax by using a 4-Line statement.

Revenue                                     S$500,000

Gross Profit/Loss                        S$150,000

Allowable Business Expenses    S$50,000

Adjusted profit                             S$300,00

 


How can Freelancers reduce the amount of Income Taxes to pay?

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 allowable business expenses may be deducted against your income.

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 list.

 


When Should Freelancers Level Up the Company Structure to Private Limited?

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: What are the benefits of setting up a company in Singapore?

 

Next Steps

 

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.

Get started with our online incorporation here.

Beyond that, we also help small businesses with accounting and bookkeeping services. We can even help you with opening a corporate bank account if you need it! 

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, just reach out!

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