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.
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 section ‘Trade, Business, Profession or Vocation’ 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 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.
Reporting of remuneration by individual partners engaged under employment contracts in their Form B/B1
Factors in determining status
#1: Exposure to financial risk and ability to realise profit/loss
#2: Payment received
#3: Level of control
#4: Flexibility to provide the same services to more than one person / business at the same time
#5: Provision of the necessary tools, equipment and machinery required
#6: CPF contributions and other benefits
Examples of self-employed persons
- 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)
- 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)