Employees are treated differently from the self-employed when it comes to taxes. For instance, self-employed person can claim trade losses against his trade income whereas employee is not entitled to such claims.
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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 providing professional or personal services.

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

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 and 'Partnership' sub-section in the personal income tax return.

Partners under Employment Contracts

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 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. Partner engaged under an employment contract with the partnership should report income from the partnership in the ' Employment' section in the personal income tax return.

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 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 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 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

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 like 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 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

Employee

Self-employed
  • 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

Employee

Self-employed
  • 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

Employee

Self-employed

  • You are entitled to 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 workers.

Multiple Jobs / Multiple 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.

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

Examples of Self-Employed Persons

  • Baby-sitter*
  • Commission agent (e.g. insurance agent, real estate agent)
  • Direct seller
  • Freelancer (e.g. you receive fees for providing services as a delivery rider, consultant, book keeper, graphic designer)
  • 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 an 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-hire car 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)

* Allowances received for carrying out family support roles (including cooking, cleaning, pet-sitting, gardening) for family members which are not payment for services rendered and not with the intention to make profit are generally not considered as self-employment income.

e.g. Token of appreciation monies received by grandparents for caring for their own grandchildren, monies received by an individual for reimbursing the costs (e.g. transport trips, stationeries, printing materials) incurred in giving tuition to his/her nieces or nephews unless the individual is already in the business of providing tuition centre service.