Small enterprises registered as sole proprietorships are quite common in Singapore, as the city-state is full of skilled individuals and professionals who after working in large companies decide to start their own businesses. When taking into consideration that Singapore has one of the most prepared and educated work forces in Southeast Asia, it is no surprise the number of sole traders deciding to work on their own is increasing.
Creating a sole proprietorship is easy, however one must also consider the tax obligations he or she has no matter the business carried out. Sole traders are imposed the income tax in Singapore, but they must also comply with other accounting requirements. Our Singapore company formation consultants can explain the taxation system applicable to companies registered here.
The first thing to do related to the taxation of a Singapore sole trader is to assess whether he or she must pay the income tax as an employee or as a separate entity. It is useful to know that the Inland Revenue Authority of Singapore (IRAS) established that a sole trader works under a contract for service and not an employment contract.
The taxation of sole proprietorships will take into account only the incomes generated by the business ventures of the individuals carrying them out. For this purpose, they must decide on the accounting period and keep accounts and records on these activities just like any other company in Singapore.
The accounts and records kept throughout the financial period must be filed with the IRAS just as in the case of companies. Together with them, the Singapore sole proprietor must also file a balance sheet and the trading and profit loss accounts based on which the taxes are computed.
By March 15th of the following year, sole proprietorships must file their tax returns and pay the amounts calculated by the IRAS. The income tax which must be paid by Singapore sole proprietorships is applied at a rate ranging from 2% to 22%, depending on the earnings.
Sole traders may also change company types once their businesses grow and our Singapore company formation agents can assist with this process.
You can also contact us if you need assistance in setting up a sole proprietorship in Singapore.