When starting your own business as a freelancer, perhaps your first thought is to register your company as a Sole Proprietorship. After all, that is what the structure is made for, right? Freelancers who work alone and wish to keep the administrative side of their business as uncomplicated as possible. However, registering under a Private Limited Company in some cases can be a better alternative.
Registering your business as a sole proprietorship makes the filing of taxes a lot easier. The amount of taxes needed to be paid is assessed in the owner’s individual tax return. As a Private Limited Company, taxes will be a more complicated process because there are more requirements. To learn more about the procedure, here is the link to the official IRAS website.
The most prominent difference if you register your business as a Private Limited Company (PLC), is that your profits will be taxed at the corporate tax rate of 17%. The progressive individual income tax rate can go up to 22%. Thus, it might be more profitable to file taxes under the entity of a PLC.
As a registered company in Singapore, there is more financial support available to you from the government as compared to a sole proprietorship.
For example, to qualify for the ACE Startups Grant by SPRING Singapore, the requirement is to be registered as a PLC. This is regardless of whether you are a freelancer or not. The amount that could be funded is up to $30,000. Registering as a sole proprietorship, you would not qualify for such aid granted by the government to help entrepreneurs.
Furthermore, there is a tax exemption scheme for Private Limited Companies that are just starting. Under this scheme, qualifying companies being assessed in the Year of Assessment till 2019 will not pay tax on their first $100,000 of profit. For the subsequent $200,000, only half of that amount will be subjected to tax. This will be the case for the first 3 years of tax assessment. Not only that, there are also plenty of other tax incentives that PLCs enjoy. However, registered as a Sole Proprietorship, they will have to pay income tax unlike the PLC’s in that time frame.
Liabilities and Identity
A freelancer registered as a sole proprietorship in Singapore is held personally liable for all losses and debts incurred. A sole proprietorship is owned by the sole proprietor and has no separate legal identity of its own.
On the other hand, a Private Limited Company in Singapore is a separate legal entity. This separates the company from its shareholders, employees, and directors. The shareholder, in this case, is not personally liable for company debts and losses. The liability of the shareholder only extends to their investment in the company.
As a sole proprietor, their personal assets, like a house, will not be protected against losses and debts incurred. As a PLC, personal assets will be protected against company debts which is a huge advantage and safety net.
In order to decide on the best choice, it is important to also know that many companies will not choose to work with a Sole Proprietorship. If your potential clients require that you register your business as a Private Limited Company, it would be best to comply with them.
For freelancers looking for a simpler approach to their business, a Sole Proprietorship will be the best choice for them. They would then be able to focus solely on getting work and delivering on the service.
A common path for freelancers may be to start off as a sole proprietorship and then transition to a PLC. When the business has grown to a certain extent, then they should focus on converting to a PLC in Singapore for lower taxes, ease of doing business, and liability protection.
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