Singapore is one of the most strict countries in the world. It’s known for implementing its laws very seriously and every Singaporean takes laws very seriously. During Covid-19, a lot of Singaporeans got laid off. Restaurants and many retail outlets shut down. New graduates couldn’t find jobs or go for interviews either and as a result, many accounting graduates started freelancing.
But is it legal to operate as a freelance accountant in Singapore? Do you have to start a business in Singapore to provide accounting services under your own personal name and brand? This was a hot topic years ago with private tuition teachers not filing their income and paying income taxes and we’ll be talking about this today. (This applies to freelance accountants who do accounting training on the side too!)
And unfortunately, company incorporation isn’t a commonly known topic and isn’t something taught in school. So many people and freelancers may be unknowingly breaking the law without even realising it! There are company incorporation consultants but freelancers won’t look for them unless they’re aware of the laws in the first place!
What type of freelancing work do most people in Singapore do?
Freelancing simply refers to providing your services to companies or individuals on a contract or project basis. Freelancers are typically paid on hourly or project milestones instead of a monthly salary.
Freelancing has become more popular in Singapore in recent years due to the high cost of living. For example, many teachers offer private lessons (which is considered as freelance tutoring in the eyes of the government). Many people also offer freelance web development, accounting, accounting training and virtual assistant services to companies within or outside of Singapore.
Does the Singaporean government require freelancers to report their income?
First and foremost, does the Singaporean government treat freelance work as a part-time or full-time job? According to the IRAS, all freelancers must report their accumulated income from all freelance work as “self-employed income” in your individual tax return.
This means that Singaporeans working as freelancers must pay tax like any part-time or full-time workers and will be treated as one in the eyes of the government. This includes paying CPF (Central Provident Fund).
Since freelancers are considered as self-employed people in the eyes of the government, it is compulsory to make contributions to your Medisave CPF account (if your net income is greater than $6,000 SGD). You will be sent a “Notice of Contribution” telling you how much you must contribute into your Medisave account after you’ve been assessed on your Net Trade Income (NTI). (Your NTI is shown on your tax bill.)
In short, this means that freelance accountants don’t need to go through the company incorporation process and don’t need a legal entity to provide freelance or accounting services!
Freelance accountants don’t need to start a business
So since freelance accountants are considered self-employed people, they don’t need to start a business or legal entity like a sole proprietor or private limited company. However, they do need to report their income and track all income and expenses. Since freelance accountants have to submit their income and expenses (relating to freelance services rendered), they will need to have bank statements and documents showing such income and expenses since this may be requested by the IRAS.
Ironically, freelance accountants who fail to do their own accounting may face serious consequences, especially if caught understating their NTI.
And if you’re not interested in doing your own accounting, it may be difficult to find another accountant or accounting firm to do your accounting for your own since you aren’t a company. (Accounting firms typically only look to offer accounting services to incorporate legal entities like sole proprietorships and private limited companies.)
Okay but should a freelance accountant set up a company?
There are many benefits to incorporating a private limited company. For one, you will have limited liability which means that any losses that happen within your business will not affect you or your family personally. Your losses are kept within the legal entity.
Also, it will be easier to expand since a private limited company allows you to have up to 50 partners whereas working without a legal entity or under a sole proprietorship doesn’t allow any partners. As a freelance accountant, you may be an expert in bookkeeping but not an expert in marketing and sales. So you won’t be able to specialise on your skillset and may struggle with doing business due to the lack of a partner who’s an expert in marketing.
Finally, a private limited company is usually seen as more professional. This can help with onboarding new clients and doing sales. This can also help in getting a loan from the bank. You can still operate exactly as you’re doing under a private limited company but it will make it easier to gain capital and hire employees to expand in the future. More freelancers usually end up starting their own business anyway so it may be a smarter move to incorporate a company from the get go.
Written by Jin from Wiz Consultancy.
