Independent Contractor Set Up in Singapore: Everything You Need to Know

Time to break away from the 9-5 corporate job? If you’re looking into venturing towards the independent contractor life, Singapore offers an excellent environment to establish yourself. This dynamic Asian city-state consistently ranks high in the Ease of Doing Business index and is currently home to approximately 190,000 fellow contractors, constituting around 9% of the country’s workforce.

Before you can join the independent contractor community, however, you’ll need to understand several things including the process of registering a business in Singapore, managing invoices and payments from global clients, and drafting compliant contracts. Below, we cover the following steps to help you navigate your journey as an independent contractor, while also pointing out potential risks and liabilities you should be aware of.

How does Singaporean law define an independent contractor?

An independent contractor in Singapore refers to a service provider or seller who offers their products or services for compensation to another party. Unlike employees, independent contractors are categorised separately and typically do not receive the same benefits such as paid leave, sick days, or minimum wage. Conversely, contractors enjoy greater autonomy and flexibility in their work arrangements.

In Singapore, the Employment Act makes a distinction between contracts of service and contracts for service. According to these definitions, you are typically classified as a contractor if you:

  • Undertake work for multiple companies,
  • Establish your own rates and define the scope of your services,
  • Provide your own tools or equipment,
  • Operate independently from any specific company or its internal operations (e.g., not having an internal email address),
  • Can delegate or subcontract tasks,
  • Work without direct supervision or control.

Proper classification is crucial when working with clients to avoid penalties and fines, and to ensure compliance with tax obligations.

Read also: Guide to Hiring in Singapore

Setting Up Your Business as an Independent Contractor in Singapore

Before embarking on your journey as an independent contractor in Singapore, the first step is to establish a formal business structure. The most popular choice for solo entrepreneurs is the sole proprietorship structure due to its simplicity and ease of setup. Under this model, you have complete control over the business. However, it’s important to note that there is no legal distinction between you (the owner) and the business, meaning you are personally liable for all debts and obligations.

If you seek greater legal protection, plan to collaborate with partners, or anticipate significant revenue, you may consider incorporating a company or forming a partnership. If you’re uncertain which structure suits your business best, consulting with a registered solicitor or accountant is advisable.

For those opting for the sole proprietorship model, registering your business with the Accounting and Corporate Regulatory Authority (ACRA) is essential. Before proceeding with registration, you must choose and register a business name that complies with ACRA guidelines and specify your business activities.

The registration process can be conveniently completed online via the BizFile portal. Depending on your business activities, approval, and issuance of your Unique Entity Number (UEN) can be obtained in as little as 15 minutes. If your business activities fall under regulated sectors (e.g., medicine, law, food handling), you may also need to obtain relevant permits or licenses from the respective local authorities.

How can you receive payments as an independent contractor?

As an independent contractor, managing your invoices and payment collection falls within your responsibility. However, this can be a tedious and time-consuming process of billing each client individually and accommodating various payment preferences.

Common methods for collecting payments include:

  • Bank transfers
  • Direct deposits
  • Paper checks
  • Money orders
  • Virtual wallets
  • Digital transfer services such as PayPal and Wise

Each method has its advantages and drawbacks. For example, bank and digital transfers are typically quick but may incur substantial service fees. Furthermore, if you have clients outside Singapore, navigating international payment collections can add complexity to the process.

Read also: Top 5 Things to Know About Singapore Working Hours & Overtime Pay

What are the tax obligations for independent contractors in Singapore?

As an independent contractor in Singapore, you are responsible for managing and fulfilling your tax obligations, including social security contributions. The advantage of operating as a sole proprietor is that you pay personal income tax based on your business profits using your personal tax number. This means you do not need to complete separate corporate tax returns or pay additional corporate taxes.

Singapore employs a progressive income tax rate system, ranging from 0% to 22% (24% starting in 2024), depending on your income level. If your annual profit exceeds S$6,000 (approximately $4,500), you are required to make monthly health insurance contributions ranging from 6% to 8% (capped at S$5,760). Other social insurance contributions are voluntary, and you may qualify for tax relief on these payments. You can also claim tax deductions for various business expenses incurred “wholly and exclusively in the production of your business income.”

Tax returns must be filed by April 15 (or April 18 if filed online), with payment due within one month after assessment. It’s important to note that self-employed individuals are under increased scrutiny by the Inland Revenue Authority of Singapore (IRAS), focusing on timely filing, accurate claims of business expenses, and potential tax avoidance. Therefore, consulting with a qualified accountant or tax specialist is recommended when preparing and filing your tax return.

How does VAT for an independent contractor work in Singapore?

In Singapore, VAT is referred to as the goods and services tax (GST). As a sole proprietor, you are required to register for GST and levy GST on your clients if your annual taxable income surpasses S$1 million (approximately $740,000). This can be conveniently done online via the IRAS website.

The standard GST rate in Singapore currently stands at 8%, with plans to increase to 9% by 2024.

What are the liability considerations for independent contractors in Singapore?

As a sole proprietor, you bear personal responsibility for financial and tax obligations, implying that your personal assets may be used to settle business debts if necessary. To manage this risk, many independent contractors opt to invest in liability insurance.

Additionally, it is crucial to safeguard yourself when creating and endorsing contracts with clients. Our legal specialists can furnish you with comprehensive contract templates that comply with regulations for both Singaporean and international clientele.

Read also: Key Highlights for Businesses and HR Leaders from Singapore Budget 2024

What are the risks associated with misclassifying contractors in Singapore?

Companies may intentionally misclassify contractors to avoid legal obligations, or misclassification can occur unintentionally. Regardless of the intent, misclassification can lead to penalties and fines for both the contractor and the client.

As an independent contractor, collaborating with clients is common practise to prevent misclassification. It’s important to clearly define your role and responsibilities with them and regularly review the working arrangements.

Becoming an independent contractor in Singapore offers the freedom to work on your terms, but managing administrative tasks like payroll, CPF contribution, employer tax liability and other paperwork can be a distraction from your core work of serving clients and delivering exceptional results. By entrusting your HR tasks to a dedicated HR outsourcing and payroll outsourcing provider like ours in Singapore, you can concentrate more on revenue-generating activities and optimizing your workforce. Reach out to us today to discover how we can assist you further!

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