Income Tax for Sole-Proprietors
Sole-proprietors are considered "self-employed" – i.e. you do not pay yourself any
wages. The business income is treated as part of your total personal income and
taxed at personal income tax rates.
This guide is not meant to be a comprehensive guide on income tax. It only covers
the tax obligations for sole-proprietors.
- Tax Rates And Exemptions
- Deductions, Relief And Rebates
- Medisave And Income Tax
- Filing Your Tax Return
- Payment Of Taxes
- Where Can I Get Help?
Taxable Income
• Any income that is "accrued" or received in Singapore by a person or business
is subject to income tax.
• In essence, it means that if your customer pays you for a product in Singapore
or you receive money from your overseas sales in Singapore, the money is
subject to tax.
• Taxable income includes income from your business, salary from employment,
interest earned on your deposits and rental income.
Capital Gains
• Capital gains are not subject to tax.
• For instance, if you buy and sell shares at a profit, the profit is not subject to
tax. However, the dividends that you earn from the shares are income and
subject to tax.
• As your business income forms part of your personal income, the two are
calculated together when you file your tax returns.
• Your business income is reported separately (Form B or B1) and added to all
your other personal income. The total is then subject to personal income taxes.
• The tax rates for Year of Assessment 2005 are shown in the table below.
Taxes are charged progressively (0% - 22%) on your chargeable income.
The chargeable income is your business / trade income plus any other
personal income, minus all deductions, reliefs and rebates.
Tax Rates for Year of Assessment 2005
Chargeable Income Rate Gross Tax
(S$) (%) Payable (S$)
On the first 20,000 0 0
On the next 10,000 4 400
On the first 30,000 400
On the next 10,000 6 600
On the first 40,000 1,000
On the next 40,000 9 3,600
On the first 80,000 4,600
On the next 80,000 15 12,000
On the first 160,000 16,600
On the next 160,000 19 30,400
On the first 320,000 47,000
On the next 320,000 22
• IRAS has announced that the tax rate will be lowered to 0% - 21% for Year
of Assessment 2006 and further reduced to 0% - 20% for Year of
Assessment 2007.
Deductions, Reliefs And Rebates
Your chargeable income ( the portion that is subject to taxes ) is your total
income minus any deductions and reliefs. You can also utilise tax rebates to
reduce your taxes.
Business-Related Deductions
• Allowable Business Expenses
You can deduct any expenses that are incurred solely for the purposes of
generating income for your business. Items such as rent, wages paid to
employees and expenses on stationery and supplies are all considered
"allowable business expenses".
See: Tips on claiming for expenses
• Capital Allowances
You can claim capital allowances on plant and machinery that you have
purchased for your business.
See: Tips on claiming for capital allowances
• Unutilised Losses And Capital Allowances
Losses and capital allowance can be used to offset your total chargeable
income. Any part of the losses or capital allowance not fully used to
offset income in the financial year is termed as "unutilised".
o You can also carry forward unutilised losses and capital allowances
to offset income made in the next financial year.
o With effect from Year of Assessment 2006, you can also carry back
unutilised losses and capital allowances of up to S$100,000 in the
current year to offset the income made in the preceding year.
See: Losses and capital allowances
Personal Donations, Reliefs And Rebates
• As your trade income forms part of your personal income, you can also
use personal reliefs and donations to reduce your taxes.
• You can claim deductions for donations made to certain charitable
organisations.
See: Donations
• You can claim tax reliefs. There are various types of tax reliefs such as
course fees, child, wife/handicapped spouse, etc.
See: Tax reliefs
• You can claim tax rebates such as the Parenthood Tax Rebate.
Compulsory Medisave
• All self-employed persons who are Singapore Citizens or Permanent
Residents must contribute to their Medisave as long as their net trade
income exceeds S$6,000 per year.
• Net trade income is your business income minus all allowable business
expenses, capital allowances and trade losses.
Calculation Of Medisave Contribution
• The amount of Medisave you contribute is a percentage of your
total business trade income subject to a maximum cap.
Age As At Year 2005 Year 2006 Year 2007
1st Jan
Below 35 6% 6% 6%
(max. S$3,600) (max. S$3,240) (max. S$3,240)
35 to below 45 7% 7% 7%
(max. S$4,200) (max. S$3,780) (max. S$3,780)
45 and above 8% 8% 8%
(max. S$4,800) (max. S$4,320) (max. S$4,320)
How And When To Contribute To Medisave
• After you file your income tax, IRAS will send you a Notice of
Computation ( NOC ) which states clearly how much you have to
contribute.
• You can make your contributions directly to the Central Provident
Fund (CPF).
Relief For Medisave Contributions
• You can claim relief for your Medisave contributions and voluntary
contributions subject to a fixed cap.
For More Information
• IRAS: Medisave and the self-employed
• CPF: Check your outstanding Medisave liabilities
• CPF: FAQs on Medisave and the self-employed
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How Do I Pay Taxes?
• You need to file a tax return (Form B or B1). Based on your tax return,
the Inland Revenue Authority of Singapore (IRAS) will assess how
much tax you need to pay.
• IRAS will then send you a Notice of Assessment and Statement of
Account.
• You can submit your tax return by:
o E-Filing online at myTaxPortal; or
o Filling up Form B and mailing it back to IRAS
See: Getting and submitting your income tax form
When Do I File My Tax Return?
• You need to file your tax return by 15 April every year. You should be
filing your trade income for the previous year.
• Example: In 2005, you should be filing a return on business income for
year 2004.
• If you fail to file your tax return by 15 April, you will have committed an
offence under the Income Tax Act.
See: Penalties for late or non-filing of income tax forms
How Do I Report My Business Income?
• You report your business income using Form B or B1. On the form,
you will need to report:
- turnover
- gross profit / loss
- allowable business expenses
- adjusted profit / loss
There are some exceptions and additional requirements you should be
aware of:
• If your turnover is less than S$100,000, you need only report Turnover
and Adjusted profit/loss.
• If your turnover is more than S$500,000, you have to submit a certified
statement of accounts together with Form B or B1.
See: Reporting your income
Can You Help Me Calculate My Taxes?
You can use the Working sheet for the self-employed (EXCEL) to calculate
the amount of income tax you need to pay.
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Payment of Taxes
When Do I Pay My Taxes?
• You have to pay your taxes within 1 month of receiving the Notice of
of Assessment and Statement of Account.
• You can pay off all your taxes at one go or by monthly instalments
using GIRO. You should pay your taxes promptly or you may have to
pay penalty fees.
See: Making payments and claiming refunds
What If I Do Not Agree With The Tax Assessment?
• If you don not agree with the tax assessment, you can write to IRAS
and state the reasons why you feel the tax assessment is incorrect.
• Please note that you must still pay your taxes within 1 month of the
Notice of Assessment even if you object to the assessment.
See: Objecting to your assessments
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Where Can I Get Help?
• Visit these websites and web resources for more in-depth information
on sole-proprietor income tax or consult with your accountant.
o IRAS website for the self-employed
o Frequently Asked Questions on income tax
o Download all tax forms
• You can also contact IRAS:
o Local Toll-Free: 1800 356 8611
o International: (65) 6356 8611
o Fax: (65) 6351 4358
o Email addresses of IRAS officers in charge
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