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For sole-proprietors/self-employed (freelancers, commission agents, taxi drivers,hawkers...)

Different tax treatment
Employee or self-employed 
Are partners considered employees or self-employed?
Factors to determine whether you are an employee or a self-employed
Examples of self-employed 

Different tax treatment

You need to know whether you are an employee or a self-employed, as the tax treatment for an employee can differ from that for a self-employed.

For example, income derived by a self-employed is assessable as trade income and he can claim trade losses against his trade income. An employee cannot claim losses and capital allowances against his employment income.

Employee or self-employed

In most cases, you would know whether you are an employee or a self-employed. The contract you have signed with the other party may indicate the type of relationship between you and the payer.

Generally, there is an employer-employee relationship if you have entered into a contract of service under which you work under the control of someone (your employer).

On the other hand, for a self-employed, there is a business relationship if you have entered into a contract for service. As a self-employed with your own business,  you work for yourself and you are in the position to realise a business profit or loss. Your income is derived from the buying and selling of goods, or from providing professional or personal services. 

A self-employed may be a sole-proprietor or a partner in a partnership.

Are partners considered employees or self-employed?

Partners who are registered with the Accounting and Corporate Regulatory Authority (ACRA) are generally regarded as self-employed persons.

If you are a partner who is self-employed, you should report your share of profit/loss and remuneration (salary, bonus, CPF, and other benefits) from the partnership in the 'Trade, Business, Profession, or Vocation' section and 'Partnership' sub-section in your income tax return.

There could be some cases where ACRA-registered partners are engaged under an employment contract with the partnership. In such cases, the partners generally do not assume the liabilities of the partnership and do not have a share in the profit/loss of the partnership. They are considered as employees of the partnership even though they have the title of ‘partner’. The precedent partner of the partnership should not allocate the income of such partners in the partnership tax return Form P.

If you are a partner engaged under an employment contract with the partnership, you should report income from the partnership in the 'Employment' section in your income tax return.

Factors to determine whether you are an employee or a self-employed

The following are some factors that can help you determine your status.

 Factors Employee  Self-employed
1 Exposure to financial risk and ability to realise a profit or loss
  • You are not financially liable for any losses of the payer’s business resulting from any breach of obligations of the contract between your payer and its clients.
  • You are not responsible for operating expenses of the payer’s business.
  • You have no capital investment in the payer’s business.
  • You are normally not in the position to realise a business profit or loss.

  • You are financially liable if the obligations of the contract are not fulfilled.
  • You pay the hired helpers.
  • You may perform a substantial amount of work from your own workspace (i.e. premises that are not provided by the payer), hence you incur expenses relating to the operation of the place (e.g. rental cost and utility bills).
  • You incur on-going business fixed costs regardless of whether work is currently being performed or not.
  • You have capital investment in the business.
  • You can negotiate the price or unilaterally set the price for your goods or services.
  • You can manage expenses to maximise your net earnings.
2 Payment received
  • You are paid a regular (fixed hourly/ weekly/ monthly) wage.
  • You get overtime pay or bonus payment.
  • You may receive a commission payment in addition to your regular wage.

  • You are paid a fee on a per-job basis. You have the right to negotiate with the payer the exact amount you would be paid for.

Note: Some self-employed like lawyers are paid on an hourly basis.

3 Level of control
  • You take instructions from another person who directs you as to how, when and where the work is to be carried out. The overall work environment between you and the payer is one of subordination.
  • The payer can move you from task to task and determine the method to be used to do your work.
  • Your working hours are specified.
  • You are usually not allowed to sub-contract your work to another person (i.e. you do not hire and pay another person to do your work).
  • Training on how to do your work is usually provided.
  • You may provide suggestions to the payer but the payer has the final word.
  • You do not have anyone overseeing you.
  • You control your own hours of work in fulfilling the job obligations.
  • You can accept or refuse work from the payer.
  • You may not have to perform the services personally. You are free to hire other people to do the work you have agreed to undertake at your own expense. The payer typically has no control over whom you hire.
4 Flexibility to provide the same services to more than one person/ business at the same time
  • You need to obtain permission from the payer if you wish to do work for other payers.

Note: Some employees can work for more than one employer at any one time.

  • You can provide the same services to more than one person/ business at the same time.
  • You advertise and maintain a visible business location. You are available to work in the relevant market.
5 Provision of the necessary tools, equipment and machinery required
  • The payer supplies most of the tools and equipment required by you to do your work. The payer is also responsible for repair, maintenance and insurance costs.
  • The payer retains the right of use over the tools and equipment provided to you.
  • You are responsible for the costs of repair, insurance and maintenance to the tools, equipment and machinery.
  • You typically make significant investments in the tools and equipment required to do the work, and therefore retain a right over the use of the assets.
6 CPF contributions and other benefits
  • You are entitled benefits that are normally only offered to employees.
  • For example, employer’s contribution to CPF, medical and vacation leave, medical reimbursement, group accident and health insurance, etc.
  • You do not receive any protection or benefits from the payer.
  • You provide your own medical and insurance coverage. You are required to contribute to your own CPF Medisave account.
  • You are required to pay employer’s CPF contribution to your helpers.

 

If you work for more than one payer concurrently, you would have to determine your status using the above factors for each job or engagement you do. You can be an employee and a self-employed at the same time.

For example, you may be an employee of an organisation, and is also engaged in direct selling or running of an online business. In this case, the income from the direct selling or online business is a trade income as you are a self-employed with regard to that business. Both employment and trade income are taxable. 

Examples of self-employed

  • Baby-sitter
  • Commission agent (e.g. insurance agent, real estate agent)
  • Direct seller
  • Freelancer (e.g. you receive fees for providing services as a deejay, singer, dancer, fitness instructor, consultant)
  • Hawker (you are the owner of a hawker business or a food stall)
  • Owner of a business that buys and sells goods and/ or services
  • Owner of a online business (i.e. you buy and sell goods or provide services through the Internet)
  • Owner of your own practice (e.g. accountant, architect, doctor, lawyer)
  • Taxi driver
  • Private tuition teacher (you look for your own students by yourself or through agencies and do not receive a salary from a tuition centre)

 

Last Updated on 10 December 2014


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