Tax Treatment between a Sole Proprietorship and a Company in Singapore
Taxation of Sole Proprietorship
- Sole Proprietorship is not considered a separate legal entity from the owner. The Business income is treated as the personal income of the owner.
- Personal Income Tax: The business profits of a sole proprietorship are taxed at the individual income tax rates of the owner. Singapore has a progressive personal income tax system, with rates ranging from 0% to 22%, depending on the individual’s total annual income.
- No Corporate Tax: Sole proprietorships do not pay corporate tax since they are not separate legal entities
- No Tax Filing for the Business: Sole proprietors report their business income on their personal tax returns (Form B) and file accordingly.
Taxation of Company
- Company is considered a separate legal entity from its owners (shareholders).
- Corporate Income Tax: Companies in Singapore are subject to a flat corporate tax rate. As of my last update in September 2021, the corporate tax rate is 17%. However, you should check the current rates as they may change over time.
- Partial Tax Exemption: Singapore offers partial tax exemptions to reduce the effective tax rate for smaller companies. The first S$75,000 of a company’s taxable income is eligible for a partial exemption, and the next S$75,000 is eligible for a partial exemption of 75%.
- Full Tax Exemption for Startups: Start-up companies may also qualify for full tax exemption on the first S$100,000 of chargeable income for their first three consecutive years of assessment.
- Separate Tax Filing: Companies in Singapore must file corporate tax returns separately from their owners’ personal tax returns
Tax payable for the first $200,000 of chargeable income For Sole Proprietorship and Company
| Entity |
Chargeable income |
Tax payable |
Overall tax rate |
| Sole proprietorship |
SGD 200,000 |
SGD 21,150 |
10.58% |
| Company |
SGD 200,000 |
SGD 12,750 |
6.38% |
In summary, the key difference in tax treatment between a sole proprietorship and a company in Singapore is that sole proprietors are personally liable for the business’s income tax, while companies are subject to a separate corporate income tax regime. The choice between these two business structures should be made based on various factors, including the size of the business, liability concerns, and tax considerations, among others. It’s important to consult with a tax advisor or legal professional to determine the best structure for your specific circumstances. Additionally, tax laws and rates may change over time, so it’s essential to stay updated with the latest tax regulations in Singapore.
Please contact us if you need more information, tax advisory services, or assistance with tax compliance for individuals and corporations.
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