Do you provide services such as graphic design or accounting as a freelancer? Are you a hawker, or a taxi or Grab car driver? Have a side hustle selling your handicrafts online?
If you answered yes to any of the questions above, you qualify as a self-employed person in Singapore. While there are definite perks to being your own boss, one tricky matter to contend with is the filing of income tax.
Employees can usually rely on their company to report their income to the Inland Revenue Authority of Singapore (IRAS). The self-employed, on the other hand, are to file their own returns during tax season (1 March to 18 April this year).
What’s more, the filing of their income tax is directly related to the amount they need to contribute to their Central Provident Fund (CPF) accounts.
Here’s a guide to how to file your income tax and top up your CPF as a Self-Employed Person (SEP).
Who qualifies as a Self-Employed Person
The main determinant of whether you are a SEP, is the type of contracts you engage in. If you have a signed a contract “of” service for an employer/company, then you’re considered an employee.
However, if you have signed a contract “for” service that you’ll render to others, you’re considered as self-employed.
The difference is subtle, we know. Just think of it like this – for the former, you’re in service to your employer; you’re accountable to them for how you spend your time at work. For the latter, you’re only paid for the work done.
You can also produce a profit or loss from your work – you’re able to make or lose money from what you do.
As a SEP, you could be a freelancer, or the sole proprietor or partner for a business. You could also be concurrently employed and self-employed, if you run a business as well as work for someone else.
Besides those previously mentioned, examples of self-employed individuals can include insurance agents, real estate agents, private tuition teachers and those who own their practices as a doctor, lawyer, architect, etc.
Steps to file your income tax returns as a Self-Employed Person
Do all SEPs need to file their returns? What if you’re running a side business that doesn’t make much profit?
Only those with a net profit of more than S$6,000 from their self-employment, or a total income of more than S$22,000, need to file their income tax.
If you qualify on either of these counts, follow the steps below to sort out your returns.
Firstly, you’ll need to decide on the period for which you’ll report your business income. This is usually a 12-month period, and can start and end on a date of your choosing. For simplicity’s sake, many businesses choose a period that ends on 31 December of every year.
Secondly, using your chosen period, you’ll prepare your Statement of Accounts. This reflects how much income you’ve made, business expenses and profit. If you’re unfamiliar with drawing up such a statement, IRAS has provided samples for you to refer to. You’ll need to submit your Statement of Accounts if you’ve earned a revenue of S$500,000 or more.
Next, based on the figures in your Statement of Accounts, you’ll prepare the 2-line or 4-line statement for filing your income tax return. This is the most crucial step as you’ll be submitting this information to IRAS.
The 4-line statement consists of your Revenue, Gross Profit, Allowable Business Expenses, and Adjusted Profit. You’ll need to submit this if you pull a revenue of more than S$200,000.
You’ll only need to submit the 2-line statement, which is a simplified version that states Revenue and Adjusted Profit, if your revenue is S$200,000 and below.
Here’s a brief explanation of what these terms mean:
The total receipts received by your business. These may include paid or unpaid bills/invoices sent to customers, payments received for services, and sales from goods sold.
Your revenue minus the cost of goods sold. If you provide a service, your gross profit will equal your revenue.
Allowable Business Expenses
What you spend in order to earn your income. These must be related to your business. Capital expenses (spending on fixed assets such as IT equipment or machinery) are not counted. Allowable expenses include what you pay your employees and contribute to their CPF accounts, accountancy fees, advertising, stationery and maintenance of equipment and vehicles.
Your gross profit minus allowable business expenses will give you your adjusted profit.
Tip: make sure you keep records and supporting documents for five years, as IRAS may request them for verification. These can be stored manually (e.g., photocopies of receipts), or digitally. If you keep digital copies of your invoices and documents, you needn’t hold onto the physical versions.
Claimable tax relief as a Self-Employed Person
You’ll also be able to claim tax relief for contributions towards your CPF made in the preceding year. The tax relief is capped at the lower of 37% of your net trade income assessed, or the CPF relief cap of S$37,740.
You can additionally benefit from other applicable tax relief schemes, up to the personal income tax relief cap of S$80,000. These include Earned Income Relief, Spouse / Handicapped Spouse Relief, Foreign Domestic Levy Relief and Working Mother’s Child Relief.
Contributing to CPF as a Self-Employed Person
It is compulsory for Singapore Citizens and Permanent Residents who are self-employed, and who have a net trade income of more than S$6,000, to contribute to their MediSave Accounts. IRAS will notify you of how much you need to top up, based on the income you declared when filing your taxes.
The contribution rates according to income and age are set out below.
|Age as of 1 January 2022|
|Yearly net trade income||Below 35||35 to below 45||45 to below 50|
50 and above
|Above S$6,000 to S$12,000||4%||4.50%||5%||5.25%|
|Above S$12,000 to S$18,000||4%–8%||4.5%–9%||5%–10%|
You can also use CPF’s MediSave contribution calculator to determine how much you’ll need to contribute.
It’s optional for you to top up your other accounts (i.e., Ordinary Account and Special Account), but if you do so, your funds will be allocated across the three accounts according to the prevailing CPF contribution rates. You can estimate how much would go to each account using CPF’s allocation calculator.
A bonus of CPF top ups, whether mandatory or voluntary, is the tax relief that you’ll be able to claim on them the following year.
If you provide services to government agencies, you’ll be enrolled in the Contribute-As-You-Earn scheme, which automatically transfers the required contribution to your MediSave Account.
Filing your taxes and settling your CPF might seem tricky if you’re self-employed. But as long as you keep your accounts in order over the year, you should easily be able to extract the necessary information to submit to IRAS.
Following that, you’ll just need to ensure that you make your mandatory MediSave contribution once you receive your notice from IRAS. You can also top up your other CPF accounts if that suits your needs, or if you want to claim the tax relief the following year.