Self-employed persons are treated differently from employees when it comes to taxes. For instance, a self-employed person can claim trade losses against his trade income whereas an employee is not entitled to such claims.

Therefore, it is important to know if you are employed or self-employed for the purpose of tax.

On this page:

Contract "of" or "for" service

You are employed or an employee if you perform work under a contract of service where you work under the control of your employer.

You are self-employed when you perform work for others (e.g. provide a service) under 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 the provision of professional or personal services.

Self-employed person includes sole-proprietor or a partner in a partnership, but does not include director or shareholder of a private limited or limited company.

Self-employment income should be reported in the ‘Trade, Business, Profession or Vocation’  section of your Income Tax Return.

Partners in a partnership

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

Partners who are self-employed should report their share of profit/loss and remuneration (salary, bonus, CPF, and other benefits) from the partnership in the 'Trade, Business, Profession, or Vocation' section > 'Partnership Income' of the Individual Income Tax Return (Form B/ B1).

Partners under employment contracts

There could be some cases where ACRA-registered partners are engaged under an employment contract with the partnership.

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 will only receive remuneration (salary, bonus, CPF and other benefits) for the work they performed for the partnership.

In such cases, they are considered as employees of the partnership even though they have the title / designation of a 'partner'.

Reporting of remuneration of partners engaged under employment contracts in the Form P

The precedent partner should:

  • declare the remuneration of these partners as an ‘Allowable Business Expenses’ in the partnership Income Tax Return (Form P);
  • report their remuneration in the Form IR8A by 1 March; and
  • transmit their employment income to IRAS electronically if the partnership is under the Auto-Inclusion Scheme (AIS) for Employment Income. 
The precedent partner of the partnership should not report the remuneration of such partners in the section ‘Partnership Allocation’ > ‘Partner’s Salary, Bonus & CPF’ of the Form P. 

Reporting of remuneration by individual partners engaged under employment contracts in their Form B/ B1

The individual partners should declare their remuneration received from the partnership in the 'Employment' section of their individual Income Tax Return (Form B/ B1) between 1 March and 18 April.

However, if the partnership is participating in the Auto-Inclusion Scheme (AIS) and will transmit employment income information to IRAS electronically, you do not need to declare your employment income in the Form B/ B1. You only need to verify and ensure that your employment income is correctly auto-included in your Form B/ B1 and clarify with your employer if otherwise. You can check if your organisation is in the AIS for Employment Income via the Search AIS organisation digital service.

Factors in determining status

#1: Exposure to financial risk and ability to realise profit/loss

Employee

Self-employed

  • You are not financially liable for any losses of your payer's (i.e. your employer's) business resulting from any breach of obligations of the contract between your payer and its clients.
  • You are not responsible for the 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 your 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 expenses, regardless whether the business is being carried out and whether you derived any revenue from the work performed.
  • You have capital investment in the business.
  • You can negotiate the price or unilaterally set the price for the provision of your goods or services.
  • You can manage expenses to maximise your net earnings.

#2: Payment received

Employee

Self-employed

  • 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 such as lawyers are paid on an hourly basis.

#3: Level of control

Employee

Self-employed

  • 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 relationship between you and the payer (i.e. your employer) 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 is usually provided on how to perform your work.
  • 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

Employee

Self-employed

  • You need to obtain permission from the payer (i.e. your employer) 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

Employee

Self-employed

  • The payer (i.e. your employer) 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

Employee

Self-employed

  • You are entitled to benefits that are normally only offered to employees.

    Example:
    • Employer's contribution to CPF;
    • Medical and vacation leave;
    • Medical reimbursement; and
    • 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 workers.

Examples of self-employed persons

  • Baby-sitter*
  • Commission agent (e.g. insurance agent, real estate agent)
  • Direct seller
  • Freelancer (e.g. delivery rider, consultant, book keeper, graphic designer, private tutors*, live commerce streamers, social media influencers, sportsperson)
  • Hawker
  • Owner of a business that buys and sells goods and/or services
  • Owner of an online business
  • Owner of your own practice (e.g. accountant, architect, doctor, lawyer)
  • Taxi driver / Private-hire car driver

* Generally, allowances received from carrying out family support roles (including cooking, cleaning, pet-sitting, gardening) for family members and monies received from hobby or pastime are not considered as business or self-employment income; and hence, not taxable. However, it will be taxable if the activities are performed repeatedly or habitually in exchange for monetary or non-monetary benefits.

Examples of such non-taxable income includes:

  • Token of appreciation monies received by grandparents for caring for their own grandchildren;
  • Monies received for reimbursing the costs (e.g. transport trips, stationeries, printing materials) incurred in providing tuition to one's nieces or nephews (unless the individual is already in the business of providing tuition centre service); and
  • Sales proceed derived from the disposal of second-hand or used products, where the products acquired are primarily for personal enjoyment and not for resale at a profit. (For more details, please refer to Tax guide for online sellers and service providers)

Multiple jobs / engagements

When you work for more than one payer concurrently, you 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.

Example of a person who is both an employee and self-employed

You are employed as a sales manager under an employment contract with an organisation. You have also set up an online business to actively market and sell household products.

In this case, you are both an employee (i.e. sales manager) and a self-employed (i.e. online seller).

The remuneration you received as sales manager is to be reported as  ‘Employment’ income, while the profits you earned from your online business is to be reported as self-employment income under ‘Trade, Business, Profession or Vocation’ in your Form B/B1.

Both your employment and trade income will be aggregated and subject to Individual Income Tax rate.

Transitioning to self-employment

Whether you are retiring, leaving employment, or starting a side business, your self-employment status is determined by the nature of your business activities. Your self-employment income must be declared under the “Trade, Business, Profession or Vocation” section of your Income Tax Return. 

When does transitioning occur? 

You may be transitioning to self-employment when you:

  • Start your own business after leaving employment (e.g. setting up your online retail business, becoming a social media influencer)
  • Begin providing independent services after retirement (e.g. providing independent consultancy services, becoming a private hire car/ taxi driver)
  • Convert your hobby or skill into a business venture (e.g. turning your baking hobby into a home-based bakery business, offering photography services)

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