A Freelancer’s Guide to Income Tax in Singapore

A freelancer's guide to income tax in Singapore

Freelancing can be liberating. But one of the most tedious tasks you’ll probably have to do is to manage and pay your own taxes. Get that right and you’ll feel like a million bucks — minus the amount you forked out for taxes, that is.

Paying your taxes as a freelancer is different from when you’re a company employee. Learning what you need to do throughout the year and during tax season is vital to avoid heartache and frustration with your taxes.

To help freelancers navigate the complicated world of taxes, we’ve written this guide so that you can seriously one-up your tax game next year.

Table of Contents:

  1. Definition of a freelancer: are you considered one?
  2. What taxes do freelancers pay?
  3. How much in taxes must you pay?
  4. Can you choose not to declare your income?
  5. How do you file income tax?
  6. How can you reduce your taxes?
  7. Would registering a company help with taxes?

Now, Who Is a Freelancer?

You’re a freelancer if you:

  • Are not contractually bound to a single corporate entity (either full-time or part-time)
  • Don’t own your own business
  • Have the flexibility to choose your own projects and timeframes
  • Usually have multiple clients

Most freelancers tend to be in the creative industry, but they also include gigs such as accountants, babysitters, food delivery riders, and more.

In Singapore, freelancers are part of the self-employed along with other groups like SME owners, taxi drivers, and hawkers.

As a freelancer, you’re responsible for your own taxes and insurance coverage. You’ll have to contribute to your own CPF too.

What Taxes Do Freelancers Pay?

Freelancers have to pay taxes for the business income they earned in a year. This is called your trade income and is taxed at the individual income tax rates.

You only need to pay taxes if you earn more than $20,000 per year (or about $1,667 a month).

How Much in Taxes Must I Pay?

Your tax rates depend on your tax residency. You’re treated as a tax resident for a particular Year of Assessment (YA) if you are:

  • A Singaporean citizen or Singapore Permanent Resident living in Singapore
  • A foreigner who has stayed/worked in Singapore (excluding the company’s director) for 183 days or more in the previous year.

Singapore has a progressive personal income tax rate. This means that the more you earn, the more tax you pay. Tax rates span between 2% to 22%.

Read also: Tax Haven or Tax Hell? Lowest & Highest Income Taxes in Asia

Head over to the IRAS website to download the Income Tax Calculator if you want to figure out how much you’ll have to pay. 

Can I Choose to Not Declare My Income?

As tempting as that might sound, not declaring your income is considered tax evasion. You could get fined up to three times the amount of tax undercharged. You can also be fined up to $10,000 and/or face a jail term of up to three years.

How to File Income Tax

1. Decide on your accounting period

As a freelancer, you’ll get to decide your own accounting period. This is usually a 12-month period of trade during which you’ll calculate your profits or losses. Most businesses set their accounting period at the end of December, but you can choose your accounting period to end on any date.

For example:
Accounting Period: 1 Jan 2021 to 31 Dec 2021 (For the Year of Assessment in 2022)

2. Prepare your documents ahead of time

Keep proper accounting records and store your client invoices and vendor payments systematically from the start. Your records must be supported with invoices, receipts, vouchers, and other documents.

If you’re an individual freelancer, you can store all your client invoices in one folder and separate receipts for deductible business expenses in another.

Those with digital businesses can use digital banks like Aspire to automatically sync and track business expenses with third-party accounting software.

3. Prepare your Statement of Accounts

At the end of the accounting period you chose, you’ll have to prepare a Statement of Accounts which comprises two parts:

  • Profit and Loss Accounts
  • Balance Sheet

Your Statement of Accounts will come in handy during your tax filing period. When you file your Income Tax Return, you will have to prepare either a 2-line statement or a 4-line statement.

4. Prepare 2-Line Statement or 4-Line Statement

  • If you’ve earned S$200,000 or less in income, you should report your accounts using a 2-line statement. This will consist of:
    • Line 1: Revenue (total amount you earned over the accounting period)
    • Line 2: Adjusted profit (revenue minus business expenses)
  • If you’ve earned more than S$200,000 in income, you should report your business using a 4-line statement.
    • Line 1: Revenue
    • Line 2: Gross Profit/Loss
    • Line 3: Allowable Business Expenses
    • Line 4: Adjusted Profit & Loss

To find your gross profit, simply subtract the cost of goods you have sold over the last accounting period from your revenue.

Gross Profit = Revenue − Cost Of Goods Sold

(Note: If you sell a service and not physical goods, then your cost of goods is zero.)

Your allowable business expenses are expenses incurred purely for business purposes. Personal expenses are not counted. Check the IRAS website for more information on what will and won’t be considered allowable business expenses.

The adjusted profit calculated is also known as your Net Trade Income. This is the amount of income that will be taxed.

5. File your taxes before the deadline and make payments

You’ll have to file your personal income taxes on the IRAS myTax Portal before April 15 of each year.

Remember, once you declare your Net Trade Income to IRAS during tax season, you will be required to contribute to your Medisave Account.

Read also: Freelancers & CPF Contributions: Are They Compulsory?

Most taxpayers pay via GIRO — a one-time payment. You can also choose to stagger your payment over 12 months with interest-free instalments if you cannot pay your tax in one lump sum.

Alternatively, you can pay via electronic modes such as AXS, internet banking, phone banking, mobile banking (PayLah and PayNow apps) and SAM, or head to a post office to pay using NETS.

What Can Freelancers Claim To Reduce Taxes?

Freelancers can claim from a long list of deductions to offset their tax payable. These include deductions for married couples, caregiver relief, dependant’s relief, CPF Relief and even upskilling course fees relief. View the complete list at IRAS.

Should Freelancers Register a Company for Tax Purposes?

If your freelancing gig has grown into a very profitable endeavour, it may be time to consider registering a Private Limited company.

By incorporating a Private Limited, your income earned will be taxed at the corporate tax rate instead of the individual tax rate. A private limited status also projects a more professional image to clients if you plan to bid on bigger projects.

May the Next Tax Season Be Ever in Your Favour

Being a freelancer is liberating, but you also have to be on the pulse. As a freelancer, there are many things you have to figure out by yourself, whether it’s filing for your income taxes, contributing to your CPF or getting insurance coverage. 

The good thing is that you are not alone. With this guide, you can navigate the next tax season more confidently.