What Do Self Employed People Pay In Taxes

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If you earn any income in Singapore that exceeds the individual tax allowance threshold of S$22,000 per year, you are likely liable to pay some form of Singapore income tax. Whether you are a local or foreign employee or self-employed and engage in any independent activity, it is important to familiarize yourself with Singapore’s income tax regulations as set out by the Inland Revenue Authority of Singapore (IRAS). The last thing you wanted was tax inquiries from the IRAS during tax season due to ignorance or carelessness.

What Do Self Employed People Pay In Taxes

In this guide, we provide a comprehensive summary of tax-related matters and taxation in Singapore that individuals should be aware of.

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Personal tax is different for employed and self-employed individuals in Singapore according to the tax regulations set by IRAS. It is important to know where you lie. So which one are you?

Your tax residency status plays a key role in determining whether a Singapore resident is eligible to pay income tax.

In general, your tax residence is determined by your period of stay and the number of days you are underemployed in Singapore.

Weekends and public holidays are usually taken into account when calculating your employment days in Singapore. Also included is temporary absence from Singapore for travel such as holidays, vacations or business trips.

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Exempt from tax on foreign source income or individual income brought into Singapore on or after 1 January 2007 if not received through Singapore partnerships.

You stayed or worked in Singapore from 3 May 2021 to 6 November 2021, which is a total of 187 days. For the assessment year 2022, you will be treated as a tax resident.

Between 4 December 2019 and 9 June 2020, you stayed or worked in Singapore for a long period of time, up to 187 days. As part of the administrative concession, you will be treated as a tax resident for 2 years. You remain a tax resident for the assessment year 2020 and 2021. so both 27 and 160 days add up to 187 days.

You have stayed or worked in Singapore for 3 years, even if you were in Singapore for less than 183 days in the first and third years. You will be a tax resident for all 3 years of the administrative concession. Let’s say you worked or lived in Singapore from 4 December 2019 to 9 June 2021. You will be tax resident in the 2020, 2021 and 2022 assessment years.

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Non-tax residents refer to individuals who have resided and worked in Singapore for less than 183 days. A non-resident individual must lodge an income tax return by completing Form M and failure to do so would incur a late payment penalty from IRAS. Business owners who run their business in Singapore remotely or travel frequently in and out of the city fall into this group. Outsourcing to a professional tax preparation service provider would often be a convenient option.

Non-residents employed in Singapore for less than 60 days are exempt from unemployment income tax, meaning your short-term employment is tax-free. However, if you are a Singapore company director, professional or public entertainer, you are not included in this category. If you are away from Singapore for matters related to your employment, you are still subject to resident tax rates, meaning that your total income, including that earned for employment outside Singapore, is taxable.

I) Suppose you work and stay in Singapore on a short-term basis for 60 days or less per year:

Ii) Suppose you stay and work in Singapore for a short period of time because you have traveled abroad extensively on business trips related to your employment in Singapore, the income you earn, including services rendered on your overseas trips, is taxable in entirely.

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If you are a tax non-resident and work 61-182 days a year in Singapore, you are not entitled to income tax relief. Your employment income will be taxed at a non-resident rate of 15% or a progressive resident rate, whichever is higher. Please note that 24% tax still applies on the director’s fee.

The determination of the tax resident status of individuals or companies has important consequences. As a rule of thumb, if you travel frequently, you may want to time your trip and plan accordingly. For companies, obtaining tax resident status would also open up benefits such as start-up exemptions or other benefits granted under various double taxation agreements.

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The table below gives a quick look at how much tax you can expect to pay as a tax resident compared to a non-tax resident, at rates from 2017 onwards:

As you can infer, tax residency brings a huge advantage in lower taxes for most low- and middle-income earners. In general, if your personal income does not exceed the threshold of S$320,000 to S$400,000, local tax residency status could save you a decent amount of tax. If you are a frequent traveler, you may want to keep a record of the number of days you have spent in Singapore.

The calculations above are based on the tax resident rates below, if you’re interested in some numbers.

Tax Do’s (and Don’ts!) For Contingent Workers

Singapore’s tax system offers various reliefs and allowances that are key to reducing your taxable income and maximizing your tax benefits. Here are some of the key areas covered:

CPF relief for employees: Contributions to your own or Central Family Fund (CPF) accounts are eligible for tax relief. This is an important aspect of tax savings for working individuals.

Rental Deductions: You can deduct expenses such as property tax, mortgage interest, maintenance and utility costs from your rental income. This includes expenses incurred solely for the purpose of generating rental income and for the duration of the tenancy. In addition, estimated rental costs of 15% of the gross rent can be claimed for residential properties.

Donations: Donations to approved public institutions (IPC) are entitled to a 250% tax deduction. This means that for every S$1 donated, S$2.50 can be deducted from your taxable income.

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Course exemption: You can claim up to S$5,500 per year for fees paid for courses, seminars or conferences that upgrade professional skills or add professional qualifications.

Life Insurance: If your CPF contribution is less than S$5,000, you can claim relief for life insurance premiums paid. This relief is particularly beneficial for those with lower CPF contributions.

Parents/Disabled Parents’ Allowance: If you are supporting dependent parents, grandparents or mother-in-law, you may be eligible for Parental Allowance ranging from S$5,500 to S$14,000 depending on living conditions and the number of dependents.

Tax clearance is the process whereby as a non-Singaporean employee (eg Singapore PR, EP holders, PEP holders, S Pass holders) you settle all taxes due before the end of your employment contract or when you decide to work for another employer and lastly in cases where you intend to leave Singapore for a period of more than 3 months. Your employer is responsible for making sure you pay all taxes owed before you leave.

How Self Employment Tax Works

For example – when you leave your current employer, your employer would notify IRAS in time to calculate your tax liability up to your last day of work. You will need to settle any tax liabilities you owe before you leave Singapore or move to a new job.

Normally, the employer will complete form IR21, which will be submitted to IRAS for tax clearance. The employer will also withhold payment of any monies due to you from the date of termination (including salary, bonus, overtime pay etc.) in order to account for taxes payable to IRAS.

After submitting form IR21, IRAS would determine your tax liability by looking at the income you earned in the year of departure and the income from the previous year that was not assessed. We would then send your employer a tax confirmation instruction which would remit the amount of tax to IRAS. In cases where the money withheld exceeds the amount to be paid as stated in the tax returns directive, the employer will release the balance to you.

Remember that foreigners who intend to leave the country will only be able to leave once all tax obligations have been settled. If your taxes are not settled, you will be barred from leaving Singapore, in which case you will need a release letter

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