What is the best business structure for Freelancers and self-employed professionals in Singapore?
5 minute read
Undoubtedly, the Great Resignation has changed the working landscape. Gone are the days when a 9-to-5 office job was the only available option. This is because many people are comfortable working as freelancers in Singapore. In fact, Singapore accounts for around 0.31 million self-employed people as of 2021. While self-employed and freelance professionals enjoy a flexible working style, they tend to forget some essential aspects.
One of them is choosing the right business structure.
Many freelancers in Singapore don’t consider choosing a legal structure for their businesses. In simple terms, choosing the right business structure will legally guide your daily operations. As a freelancer or self-employed professional in Singapore, the type of business structure you choose determines the level of risk, how much tax you will pay, liability to your personal assets, or how you raise investment.
Sole proprietorship, private limited company, limited liability partnership, and limited partnership are different business formations in Singapore. Wondering which is the right one for you?
This guide will provide a detailed comparison of sole proprietorship and private limited, factors to consider, legal and tax obligations, etc., to help you make the right choice. Let’s get started!
What is a sole proprietorship?
In a sole proprietorship, you own and run the business entity. It can be the simplest option for freelancers and self-employed professionals as it is less complicated.
Advantages of Sole Proprietorship for Freelancers and Self-employed Professionals
Here are some advantages of being a sole proprietor for your self-employed business.
- Simple to set up with the least paperwork.
- It is inexpensive to set up.
- You have full control over your business.
- Minimal tax compliance as a sole proprietor does not have to file annual returns.
Disadvantages of Sole Proprietorship for Freelancers and Self-employed Professionals
While the above benefits seem attractive for your freelance business, being a sole proprietor has cons, too.
- Unlimited liability with no separate business entity, wherein you will fully bear business expenses or debts incurred.
- A sole proprietor does not enjoy corporate tax or personal tax return benefits.
- Sole trading business entities will come to an end if the owner dies.
Steps to Register Sole Business Entity in Singapore
Registering sole trading business entities in Singapore is pretty straightforward.
Step 1: Choose a Name: Give a name to your freelance or self-employed business and register it with the Accounting and Corporate Regulatory Authority (ACRA). It is essential to have a unique name to avoid trademark complications. Our name check tool can help you assess the uniqueness of your business name.
Step 2: Provide an Address: When you register your business, you must provide a principal address where you will run the business. If you don’t have an office and will start from your home, you will have to apply for the Home Office Scheme with HDB.
Step 3: Assign a local authorised representative (only for sole proprietors living outside Singapore): If you’re living outside Singapore and want to become a sole proprietor, then you need to assign a local authorised representative but make sure;
- They are at least 18 years old.
- They should be a permanent resident in Singapore.
- They should have full legal capacity.
Step 4: Register with BizFile+: Sole proprietors have to register their business with BizFile+portal and pay registration fees. The registration and approval process will take between 14 days to 2 months.
If registration is troublesome, you can partner with professional service providers like Sleek to ensure proper registration and compliance.
Private Limited Company
What is a private limited company?
Let’s understand a private limited company–Singapore’s most popular business structure. A private limited company is a type of limited liability company (LLC), which is treated as a separate legal entity from its owners.
Advantages of a Private Limited Company for Freelancers and Self-employed Professionals
The private limited is the most flexible and scalable business structure in Singapore. This type of limited liability company for your self-employed or freelance business offers lucrative benefits.
- It enjoys a separate legal entity status.
- A limited liability company implies that the liability of members is limited to the amount of money each member has invested in the company.
- The company will pay for debts or losses, and not use members’ personal assets.
- Members of the private limited company can transfer their ownership.
- No tax is applicable on capital gains in Singapore.
Disadvantages of Private Limited Company for Freelancers and Self-employed Professionals
Understand the disadvantages of a private limited company before taking any decision.
- Private companies in Singapore have to meet rigid compliance requirements as laid down by the Companies Act and enforced by ACRA and IRAS.
- The registration of a private limited company is expensive.
Steps to Register a Private Limited Company in Singapore
If you want to choose a private limited company structure, learn how to register your freelance business in Singapore.
Step 1: Choose a company name: You must give your private limited company a name.
Step 2: Onboard one or more directors: Your company needs to have one or more directors of 18 years or above and are not disqualified from being a director in Singapore or elsewhere. It is mandatory to have at least one resident director who is a Singapore permanent resident, citizen, or an EntrePass visa holder.
Step 3: Have 1-50 shareholders: You must also have shareholders for your company. Shareholders can be individuals or corporations, and Singapore allows 100% foreign ownership of companies.
Step 4: Invest Paid-up Capital: You must uphold a minimum of S$1 paid-up capital when registering your private limited company in Singapore.
Step 5: Provide a registered address: Give a physical address for your company registration, which should be in Singapore.
Step 6: Appoint a Company Secretary: Appoint a company secretary for your private limited company who will guide directors and help the company stay compliant.
Step 7: Appoint an Auditor: You need to appoint an auditor for your company within three months of registration unless exempted from audit.
You can register your private limited company with Sleek without much of a hassle. Our experts at Sleek will prepare all documentation and start your business at S$275.
Legal and Tax Considerations
As a freelancer or self-employed professional, you should know the tax regulations of each business structure to stay compliant.
Business income is your personal income in a sole proprietorship, hence subject to personal income tax rates that are 0-22% in Singapore. You have to pay income tax only if the net annual trade income is more than S$6,000 or the yearly taxable revenue is more than S$22,000.
Private Limited Company
Private limited companies in Singapore have to pay corporate income tax, which is 17%. Singapore follows a single-tier corporate tax system, eliminating double taxation for shareholders. This means dividends paid are exempted from further taxation.
Many freelancers or self-employed professionals register their business as a private limited company, as Singapore offers attractive tax savings.
- No tax on capital gains, including the sale of fixed assets or foreign exchange gains on capital transactions.
- From 2020, newly registered private limited companies in Singapore will be exempted from 75% of the first S$100,000 profits earned for the first 3 years.
- Further, they earn a 50% tax exemption for a taxable income of up to S$100,000 per annum; anything over it will pay 17% corporate tax. This guide lets you know more about Singapore’s corporate tax.
For hassle-free and timely Income Tax return filing, get in touch with us.
Comparison between Sole Proprietorship and Private Limited Company
Here are the key differences between a private limited company and a sole proprietorship.
Private Limited Company
No separate legal status from its owners.
A company has a different legal status from its owners.
Full control of business decisions.
Control of business decisions is shared amongst directors.
Unlimited liability wherein potential assets of the owner are at risk.
The liability of members is limited to the amount of money each member has invested.
Income tax is paid from 0-22%.
Corporate tax is paid at flat 17%.
Factors to Consider when Choosing the Right Business Structure
Are you still confused about which business structure is the right one for you? Here are some factors you can consider when choosing between the two.
Personal Liability and Risks
As a self-employed business owner, you also need to weigh different levels of risks and liabilities. For example, you and your business entity are the same in a sole trading business, so you will be personally liable for losses and debts, putting your assets at risk. On the other hand, directors of a private limited are liable for losses to some extent but their personal assets will not be used to clear debts.
Every business structure needs investment as and when it grows. A sole proprietor may find it challenging to raise capital to grow a business and may have to use his personal assets as collateral. However, a private limited company can onboard new directors and pump more investment, whenever required with much ease.
Each business formation has a defined tax structure and its benefits. A private limited company in Singapore enjoys a wealth of tax savings compared to a sole business owner. A tax-saving business structure is always beneficial in the long run.
With formal documentation of ownership arrangement, private limited companies are considered more credible than sole proprietorships. Whereas, a sole trading firm’s credibility relies on the owner’s credibility. Hence, investors and banks offer loans and investments to structured business entities like private limited companies.
With Sleek’s help, register your business today and save time and money. Also, we ensure your books are always up-to-date, and taxes, management reports, and financial statements are ready and filed timely.
A private limited company is the best business structure for a freelancer or self-employed professional in Singapore. With a flexible business structure and business-friendly tax policies, freelancers and self-employed professionals in Singapore can grow with much ease in a private limited business formation. Moreover, Singapore is the 2nd most accessible place in the world to start a company as per World Bank’s Doing Business rankings.
Our one-stop-shop incorporation services can help you with the entire registration of your company. All you have to do is select the company name, choose the type of service, and fill out a form, and our Sleek team will take care of the rest. Get in touch with us.
Yes, it is essential to have a legal business structure in Singapore as it impacts your asset protection, tax, operational risks, and personal liabilities.
A private limited company is the most preferred choice of freelancers in Singapore as it offers attractive tax benefits. Besides, shareholders' liability is limited as it enjoys a distinct legal entity status.
Yes, they can change their business structure in the future. Our experts at Sleek can help with the shift and ensure a smooth transformation to the newly incorporated business structure.