Which‌ ‌Business‌ ‌Should‌ ‌I‌ ‌choose‌ ‌as‌ ‌a‌ ‌ Freelancer?‌

Meaning of Freelancers

There are different authorities in Singapore that define the meaning of freelancers in Singapore. Any individual who is self-employed is considered as a freelancer for tax purposes. Such individuals compute and pay their own tax. The above definition is provided by the Inland Revenue Authority of Singapore (IRAS).

The Ministry of Manpower, Singapore (MOM) has provided a conclusive meaning of the term freelancer as any individual working on their own accord and not having any form of employees under them. In fact, in Singapore, more than 40% of individuals work as freelancers and makeup in the self-employed field.

So from the above, it can be understood that freelance individuals take up consulting contracts with companies. However, there are many freelance individuals who take up work on their own. As a freelancer in Singapore, you are not under any company or employer. You have more flexibility in implementing work.

Criteria for Freelance Workers in Singapore

There are no specific criteria for freelance individuals in Singapore. However, the following criteria have to be complied with:

• Singapore Resident
• Employment Pass Holder
• Payment of Tax
• Medisave Account
• Sole Proprietorship
• Private Limited Company

Singapore Resident- In order to carry out freelancing work in Singapore, you require to be a resident of Singapore. Any resident permit card would allow you to carry out freelance work in Singapore.

Employment Pass Holder- If you are a foreign worker, then you would be eligible to carry out freelancing activities. However, you have to be sponsored by your employer under the employment pass system. You can also have an S pass to carry out freelancing activities in Singapore. An Entrepass would not be allowed to carry out freelancing activities as this form of the pass is provided to entrepreneurs. A dependent pass holder would also not be allowed to carry out freelancing work.

Payment of Tax- The IRAS has provided a concise meaning of the term freelancers. Hence freelancers have to compute and file their own tax returns.

Medisave Account- As a freelancer you have to make contributions to your Medisave account.

Sole Proprietorship- Since the work carried out by a freelancer is on an individual basis, you may think of starting your own firm. You would have complete control of the company. By establishing a sole proprietorship you can gain a reputation for the work. However, you have to pay more taxes to the government of Singapore for this form of entity. Currently, the tax levied for sole pro

Private Limited Company- You may even want to consider incorporating a private limited company in Singapore. However, there are several compliances that have to be followed when you register your company in Singapore. All compliances have to be filed with the ACRA (Accounting and Corporate Regulatory Authority of Singapore) and the IRAS.  Along with this, there are several other requirements which you have to comply with.

The basic requirements for you to be a freelancer in Singapore areas above. However, if you want some form of protection for your business and assets, then you may go one step further in forming an entity for your freelance work. You may have thought about which entity to utilize for your work. There are different forms of entities to choose from in Singapore. However, the most utilized types of business include sole proprietorships and private limited companies. Let us understand the advantages and disadvantages of each business.

Registering as a Sole Proprietorship for Freelance Work

A sole trader or a sole proprietorship manages the business individually. There are fewer compliance requirements for starting a sole trader business. You can be your own boss, execute projects for your clients and not be under any employer.

Advantages of Sole Proprietorship for Freelance Work

Own Boss- Freelancing comprises of working on your own accord. You can set deadlines and achieve them. There are no constraints of working under an employer. You can also take up contract work for several clients in Singapore. Through this, you can gain their confidence and increase your reputation.

Less Compliance- When you incorporate a sole proprietorship in Singapore, there are hardly any compliances with authorities such as the ACRA and the IRAS.

Disadvantages of Sole Proprietorship for Freelance Work

No Limited Liability- By choosing a sole proprietorship business, your liability is unlimited. This means that creditors can claim your personal assets if you owe them some debts. The liability of your business is unlimited.

Tax- The amount of tax levied on a sole proprietorship business is more when compared to a private limited company. When you register your private limited company, you would only be paying corporate tax at 17% per annum. However, as a sole trader, the tax paid by you is 22%.

No Incentives and Benefits- The government of Singapore has brought out different schemes and benefits for private limited companies. Such benefits are not available for sole proprietorship businesses.

No Separate Legal Entity- As mentioned earlier the liability of the sole trader is unlimited. In comparison to this, the liability of the company is limited. Shareholders and directors of the company are free from any liabilities. The company can sue any individual or be sued.

Succession- On the death of the sole trader, the business would come to an end. However, for a private limited company, there is no such thing as a company coming to an end on the death of the members.

Advantages of Private Limited Company for Freelance Work

Limited Liability and Separate Legal Entity- As a freelancer, you do not want any form of liabilities on your hands. You can incorporate a private limited company and transfer all the liability to the company. Due to this, you would be shielded from any form of liability.

Recognition- When you incorporate a private limited company in Singapore, you have to file an application with the ACRA. Once your application is accepted, you would receive a certificate of incorporation for your company. You secure some form of recognition from this.

Less Corporate Tax- A private limited company in Singapore has to pay less corporate tax. The annual tax paid by a company is 17%.

Exemptions and Government Incentives- When you incorporate your company in Singapore as a start-up, then you can receive different types of exemption. The Start-up SG Scheme in Singapore provides you with different forms of benefits for your business.

Reputation- When you register your company with the ACRA, you can conduct business in Singapore. A private company is one of the best entities utilized in Singapore for conducting business. You can attract more amount of foreign investors for funding your business.

Tax Incentives- Any form of qualifying private start-ups would be allowed tax exemption for the first three years. From the year 2020, around SG$ 1, 25,000 is exempted from the first SG$ 200,000 taxable income. Such exemptions are not allowed for sole proprietorships and they are taxed at a higher rate.

Disadvantages of Sole Proprietorship for Freelance Work

More Compliances- When you register your private limited company for freelance work, they you are bound by several compliances. Some include appointing an auditor, filing annual returns, the appointment of a company secretary. While some compliances have to be carried out annually, there are several one-time compliances.  These compliances are not required when you have a sole proprietorship.

Appointment of Executives- You have to appoint executives for carrying out the operations of a private limited company in Singapore. For example, you require one shareholder and one resident director for running the company.

More Cost- Running a private limited company for freelancing work is costly. Especially if you have skilled executives for running the business, your operating costs would be high.

Which Business Should I Choose for Freelancing?

From the above, it is understood that it is better to have an entity under you for freelancing work. If you want fewer burdens, then choosing a sole proprietorship business is your best option. However, your liability would be unlimited. If you have taken several loans and collateral, your personal assets are at stake.

If you opt for a private limited company for freelancing work, then you would not be liable. You are shielded as the company has a separate legal entity. Your business is also reputed as it files required compliances with the ACRA. You can also secure quick investments and funding for a private limited company.  However, you have to file mandatory compliances as required by the ACRA and other authorities.

While both the business entities have their own pros and cons, it would be suitable for you to choose a private limited company, if you do not want any future liabilities.

Conclusion

Singapore is the land of business opportunities. Over the years, freelancing has increased. If you want to freelance, then there are different sectors offering projects for freelancers. However, it would be ideal to choose a relevant business structure for freelancing.

If you are interested in obtaining more information on registering your business for freelancing, then you can contact us for a free consultation.