In Singapore, the Accounting and Corporate Regulatory Authority (ACRA) defines a sole proprietorship as a business owned and operated by one person. Since no other parties are involved, the single owner will have total control over how the business affairs are handled and managed. A sole proprietorship is unlimited in liability and not deemed as a separate legal entity, resulting in unlimited liability for the owner.
WHY SET UP A SOLE PROPRIETORSHIP IN SINGAPORE?
If you have plans to start a sole proprietorship in Singapore, you may be wondering about the perks and benefits as compared to a Singapore private limited company. Below are some specific perks of opening a sole proprietorship business.
Lower setup fees
One of the benefits of setting up a sole proprietorship in Singapore is that the cost of setting up one is extremely low. There are only two mandatory government fees. The application fee for the sole proprietorship name and the application fee to register the sole proprietorship and its owner.
The application fee to propose your company name only costs S$15, while the fee for registering your company name and your name as the owner is fixed at S$100. In total, you only have to spend S$115 for the business setup. Owners can save money to fund another aspect of the business.
Ease of registration
A sole proprietorship registration process is easy and simple. You can complete the business registration and receive approval from the Accounting and Corporate Regulatory Authority (ACRA) in Singapore within one business day. This is subject to all required documents being submitted properly.
Fewer annual compliances
If you are the type of business owner who dreads having to fulfill a lot of obligatory annual compliances, then sole proprietorship is the right choice for you. Annually, you will be free from having to file and submit an annual return that requires company details, financial statements, etc. Owners are required to yearly submit the renewal of sole proprietorship business registration with a fee of S$30 annually.
Maximizing profit with zero profit sharing
As the business is owned by only one person, you can maximize all the profit from the business activities. This is because you do not have to pay dividends or shares to another owner as it is a sole-ownership business. Instead, the profit can be maximized to cover up any liability or debt incurred by the business.
Obtain absolute control of all business affairs
A sole proprietorship business is owned by only one individual. Thus, granting the authority to have absolute control of the business. All the managerial affairs, decisions on running the business, and the amount of capital you want to invest in your company are up to you as the absolute controller of the business. Those who prefer to work alone for their business tend to choose this type of entity suiting their work environment and business ethics.
HOW TO ESTABLISH A SOLE PROPRIETORSHIP IN SINGAPORE
Setting up a sole proprietorship business in Singapore is simple. An interested business owner who wishes to open a sole proprietorship may apply through an online application using ACRA’s online filing system, the BizFile+ application portal. The steps to register your sole proprietorship business are as follows:
Step 1: Reserve the business/company’s name
Firstly, create your business name. Your chosen business’s name must fulfill the ACRA’s Policy Statement on the Treatment of Business Names and Name Complaints. You can do a prior search on the BizFile+ portal to ensure that your chosen name is available.
The governmental fee to apply for a business name is fixed at S$15. Once the business name is successfully approved, the name will be automatically reserved for 120 days. During this reservation period, any other business owner that coincidentally registers their business with a similar name will not be successful as you have reserved the name.
Step 2: Register the company’s name and business activities
Once the name is approved, you can register the business with its approved name through the BizFile+ portal, and the duration to obtain the license may take 2 weeks up to 2 months, depending on the type of business activities. You are required to register your name, business name, business address, business activities, and other obligatory business information and documentation mandated in the application form.
If no additional approval and referral process is required, the sole proprietorship can be set up within the same day. The governmental fee of S$ 100 must be made along with the registration application. Notably, if you fail to register the business after 120 days, the name will no longer be reserved and will be accessible to the public.
ANNUAL COMPLIANCES AFTER SETTING UP A SOLE PROPRIETORSHIP BUSINESS?
Once you have finalized the registration process and successfully received the license for a sole proprietorship business, there are other obligatory compliances that you should consider and take note of.
Any business will require an official bank account. A sole proprietorship business is not exempted. The business bank accounts can be opened at any local, international, or foreign bank in Singapore. In addition, a sole proprietorship business can have multiple bank accounts for profit derived from different nations.
Thus, various accounts can be opened for a sole proprietorship business with options such as various bank accounts for each currency or a single bank account that can store multiple currencies. There are no specific regulations except that the business owner is obliged to be present during the opening of an account.
Below we summarized some of the must-have documents you will need for registering your business bank account.
- Copies of the owner’s Singaporean ID cards
- A recent printout of the sole proprietorship business profile issued by ACRA
- The minimum amount of deposit money in cash or check deposit (the amount and type varies from bank to bank)
- Completed bank account application form
Renewal of business registration
It is important to note that a sole proprietorship business registration is only good for one to three years from the first time registration. The business registration must be renewed before the expiration date. The expiration date for the registration is stipulated starting from the issuance date of the registration license. Failure to renew before the deadline indicates that you no longer wish to continue your business and stop business operations entirely.
Through the BizFile+ portal, a renewal application may be submitted 60 days before the registration date expires. The annual renewal charge for business registration is S$ 30 per year. Alternatively, you can extend your registration renewal for up to three years for a total of S$ 90. Renewal for another three years can only be permitted provided the following requirements are satisfied.
- You have fully paid all the CPF Board’s Medisave balance.
- You are under the regular payment plan for Medisave contributions (i.e., GIRO) and have a strong track record of on-time Medisave contributions for up to 24 months before the company registration renewal.
- You are not registered as self-employment with the CPF Board
You can follow the official Step-by-Step Guide ACRA Singapore for further guidance on renewing your sole proprietorship business registration in the BizFile+ portal.
Foreigners are not allowed to register Sole proprietorship in Singapore. Foreign investors can instead incorporate a Singapore private limited company.
Filing Income Tax to IRAS
Although a sole proprietorship business is not required to file for annual returns, as an owner, you are still obligated to file for your income tax to the Inland Revenue Authority of Singapore (IRAS). Every profit made by a sole proprietorship will be counted as the owner’s earnings.
As a result, based on the earnings, the owner will be taxed based on the overall business income. This filing for income tax is less complex and more straightforward than a corporate taxation regime such as a Private Limited Company.
WHAT ARE THE TAX REGULATIONS FOR MY SOLE PROPRIETORSHIP BUSINESS?
Types of Tax
The tax system that will be imposed on your sole proprietorship business is the individual income tax rate. This tax rate applies to your sole proprietor business due to its zero separation from legal identity. All the business income made from the business activities is subjected to taxation.
Therefore, you must bookkeep all your business activities, such as bank accounts, business expenses, purchases, and assets. Some of those records are essential in supporting eligible tax deductions for reducing your income tax payables.
The Rate for Individual Income Tax
The rate for Singapore’s individual income tax is dynamic. This means that the higher your chargeable income from the business, the higher your individual income tax will be. Residents and non-residents will be taxed differently for their individual income tax rates. IRAS also stated that the current highest personal income tax rate is 22%. However, the IRAS has made some changes to the top marginal personal income tax rate in effect from the Year of Assessment in 2024 onwards.
If you require further information regarding resident and non-resident personal income tax rates in Singapore, along with the latest amendment for the tax rate, you can visit the Individual Income Tax Rate webpage on IRAS’s official site.
Tax Incentives for Sole Proprietorship Business
Regrettably, there are not many income tax incentives for a sole proprietorship business. This is because a sole-proprietorship business is taxed at the personal income tax rate and not at the corporate tax rate. Nonetheless, you do not have to worry as a sole proprietorship business owner can occasionally receive personal income tax rebates depending on your residency status.
You can refer to the personal tax rebate webpage from the IRAS site to refer to the rate for the personal tax rebate.
In short, there are a lot of options for you to establish a business entity in Singapore.
Different type of business activities has different potential for development. If your business requires a larger and more established presence and funding, we advise you to consider a Pte Ltd company. Despite that, you should not be worried if you wish to expand your sole proprietorship.
This is because sole proprietorship status can be changed into a Private Limited company later on if you wish to do so under the specified guidelines.