Singapore's strategic location and competitive income tax rates make it one of the least complex locations in Asia to build a business. However, no matter how business-friendly it may seem, business owners in the city-state face challenges, too.
One of the hurdles to seamless business operations in Singapore is its territorial tax system. Individuals dreaming of establishing a start-up or running their limited liability partnership should learn how to file tax for a sole proprietorship in Singapore as part of their journey.
Sole proprietors or self-employed persons work without the control of employers. Compared to employees, self-employed individuals have more risks to realise profits and losses, according to the Inland Revenue Authority of Singapore (IRAS). Thus, it is essential to understand your business structure before filing your taxes to know your obligations early on.
1. Understand if your earnings are taxable.
Self-employed individuals or entrepreneurs should register with Singapore's Accounting and Corporate Regulatory Authority (ACRA) and report their earnings or file an income tax return as business income, not as a salary. Activities repeatedly conducted in an organised manner, online or offline, are considered taxable whether paid full time or part-time, as long as you are compensated for your services.
Here are some examples of Singapore Sole Proprietorship that are taxable:
- Beauty and wellness operators
- Property agents
- Insurance agents
- Entertainers and entertainment organisers
- Gig workers
- Hawkers
- Lawyers
- Maid agencies
- Medical practitioners
- Religious practitioners
- Sharing economy players
- Bloggers and YouTubers, and other social media influencers
2. Know when to file your tax.
Whether you received a letter, form, or any notification from IRAS or not, you need to start filing your tax income if:
- Your total annual net trade income is over $6,000, or
- Your taxable yearly revenue, including your net trade income, is over $22,000
Regardless of the types of business, if you meet these conditions above, you can file a tax return income from March 1 to April 18 of each year by logging into myTax Portal.
3. Keep business records.
Keeping your business records will help you start a seamless tax filing process. Learning how to file tax for a sole proprietorship in Singapore begins with keeping essential business records. Systematic financial record keeping allows you to keep track of receipts and invoices, which will help reap the benefits of eligible tax deductions from the IRAS.
Business records are important for IRAS to ascertain your income and reimbursable or allowable business expenses and grant rebates or deductions on your tax payables. Examples of business records you should keep include bank accounts, purchases, revenues, expenses, stocks, and assets.
3.1 What is simple record-keeping?
Simplified record-keeping was introduced to help small businesses keep track of their earnings and expenses. This goes beyond filing invoices, expense claims reports, and receipts. The IRAS accepts simplified record-keeping for income tax filing along with the following conditions:
- You have annual returns of not more than $200,000 for the last two financial years.
- Your business assets do not exceed $100,000 at the end of the latest financial year.
- Your business does not belong to the investment holding or property development category.
- Your business is a partnership or sole proprietorship that is not registered for Goods and Services Tax (GST).
IRAS will require you to submit simplified record-keeping for income tax return purposes if your sole proprietorship business meets the requirements above. However, you will still need to keep all documents submitted to IRAS when required.
3.2 What business records to keep?
Learning how to file tax for a sole proprietorship in Singapore starts with knowing which business records to keep for tax filing. These include:
- Daily Revenue Record
- Daily Purchases Record - This details the date of purchase, name of the supplier, description of goods and services, the amount payable, and mode of payment.
- Monthly Record of All Business Expenses - Details of this report include the date when you incurred the expense, description of the cost, the amount payable, mode of payment, and the name to which the amount is owed.
- Details of Daily Transport Expenses
- Particulars of Monthly Staff Remuneration Expenses
- Statement of Account
- Balance Sheet
3.3 What are allowable expenses and the types of records to keep?
Allowable expenses are non-taxable expenses incurred to complete a business operation and are considered essential business costs qualified for a tax deduction.
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Allowable Business Expense
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Types of Records to Keep
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Details to be Included in Your Record Keeping
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Travelling expenses
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Receipts or other travel documents including flight tickets, meals, and accommodation
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Date, destination, mode of transport, name, and designation of a person incurring it, the reason for expenditure, amount, and duration
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Public transport expenses
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Taxi receipts and other proofs of using the public transport system daily to run your business
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Date, the purpose of the trip, destination, mode of transportation, name, and designation of a person incurring it, and amount
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Monthly entertainment expenses
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Receipts and invoices for the entertainment, including credit card statements
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Date, place of entertainment, names, and designations of persons entertained, purpose, and amount
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Staff remuneration like salaries, bonuses, allowances, and commissions
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Remuneration schedules and payment vouchers. Take note that the wages of business owners are considered disallowable expenses.
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Employee name, designation, identification number, remuneration, Employer Central Provident Fund (CPF), Skills Development Levy (SDL), and Foreign Worker Levy (FWL)
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Telephone charges
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Bills from SingTel, StarHub, M1, and other service providers
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Simple record-keeping should include a list of allowable business expenses to facilitate tax deductions. Business expenses are claimable tax deductions. Track, organise and keep your receipts through Spenmo. This automated payments reconciliation platform lets small business owners close their books faster month-on-month accurately.
4. Prepare the requirements for filing.
Filing tax for a sole proprietorship in Singapore requires you to fulfil and submit forms and information. A sole proprietor shall accomplish and submit FormB/B1 to IRAS no later than April 15 under "Sole-Proprietorship"> "Trade, Business, Profession or Vocation".
4.1 Calculate your adjusted profit and loss
IRAS would require the following extracted from your statement of accounts: Revenue less cost of goods sold, gross profit less allowable business deduction and adjusted profit and loss.
- Revenue refers to your business's total gross income or annual returns. It may be composed of the total receipts that reflect the paid and unpaid bills by the customers, sales proceeds from goods sold and the selling prices of materials used.
- Gross profit is the difference between the revenue and the costs of goods sold. A service business may declare its gross profit the same as the revenue.
- Allowable business expenses can be incentives and are incurred exclusively for the operation of your business, which should not cover private and capital expenses.
- Adjusted profit/loss refers to the amount after deducting allowable business expenses from gross profit and loss.
For sole proprietors with annual returns less than $200,000, you should prepare a 2-line statement:
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First Line
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Revenue
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$_________
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Second Line
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Adjusted Profit
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$_________
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For sole proprietors with annual returns over $200,000, you should prepare a 4-line statement:
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First line
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Revenue
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$_______________
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Second line
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Gross Profit
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$_______________
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Third line
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Allowable Business Expenses
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$_______________
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Fourth line
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Adjusted Profit/Loss
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$_______________
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5. E-File your Tax with IRAS
If you are filing your tax return for the first time, you may not know that the first step to filing tax for a sole proprietorship in Singapore is writing to IRAS to activate your myTax Portal account. Once your account is activated, follow these steps:
- Prepare your Singapore Personal Access (Singpass) and nominate a password to access almost all government accounts.
- Prepare the forms and other information required, including your dependents' information and business registration.
- Login to myTaxPortal.
- Verify all the details, including your business name, address and structure.
- Declare all other sources of income which can be summed up as your personal income tax.
- Update existing tax reliefs.
Frequently Asked Questions