Sole Proprietorship

A sole proprietorship is the simplest but the riskiest type of business form in Singapore. From a legal perspective, sole proprietorship is not a separately incorporated entity and therefore the owner and the business are one and the same. The owner personally owns all assets and liabilities of the business. There is no protection of personal assets from business risks and liabilities. As the sole proprietor of a business, you have unlimited liability, meaning that if your business can’t pay all its liabilities, the creditors to whom your business owes money can come after your personal assets. Many entrepreneurs are usually unaware of this enormous financial risk. If the business is sued or can’t pay its bills, the owner is personally responsible for the business’s liabilities.We consider this a serious drawback and hence do not recommend sole proprietorship to inspiring entrepreneurs.

Private Limited Company

A private limited company is a company in which the shares are held by less than 50 persons and are not available to general public. Most privately incorporated businesses in Singapore are registered as private limited companies. A private limited company’s name in Singapore usually ends with Private Limited or Pte Ltd. The shareholders of a private limited company can either be individuals or corporate entities or both.

A private limited company is the most advanced, flexible, and scalable type of business incorporation in Singapore. It’s also the most preferred type of Singapore business entity for serious entrepreneurs (as opposed to sole proprietorship or limited liability partnership).

Advantages of a Private Limited Company are: 

1. Separate Legal Entity : A private limited company has its own legal identity, separate from its shareholders and its directors. It can acquire assets, go into debt, enter into contracts, sue or be sued in its own name.
2. Limited Liability: The liability of the members to contribute to the debts of the company is limited to the amount that they each agreed to contribute as capital to the company.
3. Perpetual Succession: The company’s existence does not depend on the continued membership of any of its members. Ease of transfer of shares or changes in shareholders ensures that company continues to exist even in the event of death, resignation, or insolvency of shareholders or directors.
4. Ease of raising capital: You can raise capital for expansion or other purposes by bringing in new shareholders or issuing more shares to existing shareholders. Investors are more likely to purchase shares in a company where there usually is a separation between personal and business assets. Also, most banks prefer to lend money to limited companies.
5. Credible Image: As an incorporated business entity, it commands a better image than a sole proprietorship or a partnership firm, and investors will be more willing to become part of the company as it demonstrates a vision to grow and expand. As a Pte Ltd company, your business will be taken more seriously by your potential clients, suppliers, bankers, and other professionals you will be dealing with.
6. Easier transfer of Ownership: Ownership of a company may be transferred, either wholly or partially, without disrupting operations or the need for complex legal documentation. This can be done through the selling of all or part of its total shares, or through the issue of new shares to additional investors.
7. Tax Benefits and Incentives: A Singapore private limited company is a very efficient tax entity. The effective corporate tax rate for Singapore Companies for profits up to SGD 300,000 is below 9% and capped at 17% for profits above SGD 300,000. Furthermore, there is no capital gains tax. Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends can be distributed to shareholders tax free.

Partnership

The partnership type of business structure attempts to address the limited-expansion constraint faced by a sole proprietorship by allowing two or more people to establish and co-own a business. A partnership firm has no legal existence separate from its partners. It comes to an end with death, insolvency, incapacity or the retirement of a partner. Further, any unsatisfied or discontent partner can also give notice at any time for the dissolution of the partnership. A partnership type of business structure may make sense only in very limited number of situations. We generally don’t recommend this type of business structure to business owners.

Partnerships in Singapore can be of three types:

General Partnership

A general partnership is not a very attractive way to structure a business in Singapore because a) like a sole proprietorship, partners are personally liable for the debts and liabilities of the business; b) each partner can be held responsible for the actions of another partner.

Limited Partnership

The concept of limited partnership is an alternative to the general partnership type of business form in Singapore. It introduces the concept of a limited partner in addition to a general partner. The liabilities of limited partners are limited to their investment in the partnership (capital or property). However, such partners are unable to participate in the management of the business in a limited partnership. In a nutshell, even a limited partnership in Singapore is not a very attractive vehicle for setting up a business for most people.

Limited Liability Partnership (LLP)

Among the three types of partnership business entities, LLP is the most recent and most advanced business incorporation structure. It combines the features of partnerships and companies. LLP was introduced in Singapore in 2005 through enactment of Limited Liability Partnership Act. Registering an LLP gives owners the flexibility of operating as a partnership while enjoying many of the benefits that come with a corporate body like a private limited company.

A LLP is primarily meant for carrying a profession (e.g. accountants, law firms, architects, etc.) where two or more professionals would like to build a joint practice in a common field. The owners must enter into detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement. Partners in a limited liability partnership areusually responsible for cultivating their own clients based on the partner’s specific area of focus. A LLP must have at least two partners at all times. An LLP is not suited for a business that carries a trade.

Corporate Tax

Business income is taxed at a flat corporate tax rate of 17 percent. New Start up Companies (exempted private limited *) pay zero tax on the first S$100,000 of chargeable income (profit) for the first three consecutive years. A further 50 percent exemption is given on the next S$200,000 of chargeable income. From the fourth year onwards, you will still benefit from about 50 percent tax exemption on the first S$300,000 of chargeable income. Kindly remind that Investment holding companies which setup on 26 February 2013 and after derive only passive incomes such as dividend and interest income, while the real estate industry typically incorporates a new company for each new property development has no longer can enjoy the start-up tax exemption mentioned above. These companies will be given partial tax exemption only.* Your Company must have at least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company throughout the financial period in order to enjoy the Tax exemption scheme for new start-up companies mentioned above

Capital gains are not subject to tax in Singapore. For instance, if a trading company sells office property, the profit on the sale is not subject to tax.

Singapore-resident companies can issue exempt dividends, i.e. shareholders are not taxed on such dividend income.

Double taxation agreements are agreements signed between countries. They help Singapore-resident companies avoid paying taxes twice on the same income.

You have to pay your taxes within one month of receiving a Notice of Assessment. For taxes arising from estimated chargeable income (ECI), you can either pay the taxes at once or by monthly instalments using GIRO. You should pay your taxes promptly or you may have to pay penalty fees. If you disagree 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 one month of the Notice of Assessment even if you object to the assessment.

Capital gains are not subject to tax in Singapore. For instance, if a trading company sells office property, the profit on the sale is not subject to tax.

Singapore-resident companies can issue exempt dividends, i.e. shareholders are not taxed on such dividend income.

Double taxation agreements are agreements signed between countries. They help Singapore-resident companies avoid paying taxes twice on the same income.

You have to pay your taxes within one month of receiving a Notice of Assessment. For taxes arising from estimated chargeable income (ECI), you can either pay the taxes at once or by monthly installments using GIRO. You should pay your taxes promptly or you may have to pay penalty fees. If you disagree 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 one month of the Notice of Assessment even if you object to the assessment.

Personal Tax

Sole-proprietors are considered “self-employed”. The business income is treated as part of your total personal income and taxed at personal income tax rates.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.

Taxes are charged progressively (0 percent – 20 percent) on your chargeable income. Chargeable income is your business/trade income plus any other personal income, minus all deductions, reliefs and rebates. Please refer to Income tax rates?for details about the tax rate.

For non-resident individuals, your employment income is taxed at 15 percent or the resident rate, whichever gives rise to a higher tax amount. Additionally, director’s fees, consultation fees and all other income that you received will be taxed at 20 percent from YA 2005 forward.

Foreign Income

Foreign-sourced dividends, foreign branch profits and foreign-sourced service income remitted into Singapore on or after 1 June 2003 by a Singapore resident company will be tax exempt if:

• the headline tax rate of the foreign country from which income is received is at least 15 percent in the year the income is received, and
• the foreign income had been subjected to tax in the foreign country from which it was received.

Generally, income derived by a company is only taxable in Singapore if it is accrued in or derived from Singapore (i.e. sourced in Singapore) or is income received in Singapore from outside Singapore. Whether or not a company trading/service income is considered Singapore-sourced is a question of fact. Where it is confirmed that the trading/service income is foreign-sourced, it would not be subject to tax in Singapore if it is not remitted to Singapore.
A foreign-sourced income is considered to be received in Singapore when the income is:
a. remitted to, transmitted or brought into Singapore; or
b. applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; or
c. applied to purchase any movable property, which is brought into Singapore.

As a conclusion, your Company’s foreign source income will not be subjected to Company income tax if it is not remitted into Singapore.

You can consider to utilise the foreign source income funding for other purposes like
1) Loan to the foreign related company
2) Settle overseas supplier
3) Buying of overseas property
For foreign income received by an individual in Singapore, it was tax exempted always.

Goods and Services Tax (GST) Information You Must Know

GST is a tax on goods and services purchased or consumed locally. It is compulsory for businesses to come forward to register for GST when their turnover exceeds $1mil per year. Businesses that do not exceed $1mil in turnover may register for GST voluntarily.Here is a quick overview of GST and how it affects your business. It is not meant to be an in-depth guide to GST:

• GST is a tax charged on the goods and services produced in Singapore and on the importation of goods into Singapore. The current rate is 7 percent.
• Your business must be registered to collect GST if your annual turnover exceeds or is likely to exceed S$1 million from the sale of taxable goods and services.
• You can apply for exemption from GST registration if most of your goods or services are exported or supplied internationally (“zero-rated supplies”).

Withholding Tax

Withholding tax is a tax on payments made to non-residents including employees, business partners and overseas agents. Here is a quick overview of withholding tax and how it affects your business:When you make payments of a specified nature to a non-resident, you must withhold a certain percentage of that payment as “withholding tax“.

For management fees, technical and other service fees paid to a non-resident company, the withholding tax rate is the same as the corporate tax rate. The current corporate tax rate is 17 percent. For payments made to non-resident individuals, tax is to be withheld at 20 percent of the gross payment.
For time charter fees, voyage charter fees and bareboat charter fees, the withholding tax rate is 1 percent to 3 percent.

For other types of payments, the withholding tax rate is 10 percent or 15 percent.
Where a double tax agreement is applicable, the rates specified in the agreements of the respective countries apply.
For director fee paid to the Non-resident Board Director, the Company will need to withhold the tax of 20%.
However, if you are the Company Executive director and receive monthly salary, the salary is not subject to withholding tax. (Subject to personal income tax at year end)

For tax purposes, an executive director is defined as:
– holds the job title of director e.g. marketing director or managing director and
– is involved in the daily running of the business operations