Sole-proprietors and partnersGenerally, sole-proprietors and partners registered with the Accounting and Corporate Regulatory Authority (ACRA) are self-employed. You are also considered a self-employed person if you earn a living by carrying on a trade, business, profession or vocation.
Examples of self-employed persons
- Commission agent (e.g. insurance agent, real estate agent)
- Direct seller
- Freelancer, i.e. you receive fees for providing services as a delivery rider, consultant, book keeper, graphic designer, fitness instructor
- Hawker, i.e. 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)
- Private-hire car driver/ Taxi driver
- Private tuition teacher, i.e. you are not employed by any tuition centres and you get your students through referrals
Summary of filing obligations for sole-proprietors, precedent partners and individual partners
|Sole-proprietors||Precedent partners||Individual partners|
|Type of form to report business income||Form B/B1||Form P||Form B/B1|
Where to report business income
|Sole-proprietors should enter their income under "Sole-Proprietorship" > "Trade, Business, Profession or Vocation".|
The precedent partner should file Form P and inform the partners of their share of the business income. Thereafter, each partner should enter their share of business income into their Form B/B1 when filing their individual tax returns as income under "Partnership" > "Trade, Business, Profession or Vocation".
e-Filing of Form P will be available from 1 Feb. If a partnership e-Files the Form P by 28 Feb 2023, the partnership allocation will be pre-filled in the respective partners' Form B/B1. With this pre-filling initiative, the precedent partner need not separately inform the respective partners of their share of the partnership income and the individual partners can enjoy the convenience of having their tax return pre-filled.
The individual partner should enter their share of the business income under "Partnership" > "Trade, Business, Profession or Vocation".
However, if the precedent partner of the partnership e-Files the Form P by 28 Feb 2023, the partnership allocation will be pre-filled in the respective partners' Form B/B1.
|How business income is taxed|
Business income is taxable at individual personal income tax rates.
|Partnership income is only taxed in the hands of the individual partner at his personal income tax rates.||The share of profit or loss allocated to each partner will be taxed under each individual partner's name at his personal income tax rates.|
Calculating the Adjusted Profit/Loss
Use this formula to arrive at the Adjusted Profit/Loss for reporting to IRAS:
|Less: Cost of goods sold||(XX)|
|Less: Allowable Business Deduction||(XX)|
This is the total receipts of your business which may be:
- bills paid or unpaid sent to customers
- payments or fees received for services provided
- sales proceeds from goods sold
- the selling price of goods or materials used - but not for business purposes (for example, goods are taken from your stock for your personal use)
Revenue is the total gross income received from your business.
Allowable Business Expenses
Preparing the statement for reporting Adjusted Profit/Loss for sole-proprietorship
The revenue threshold for reporting of 2-Line Statement i.e. Revenue and Adjusted Profit/Loss, is increased from $100,000 to $200,000 from YA 2021 for sole-proprietorships. The raising of the revenue threshold from $100,000 to $200,000 for the filing of 2-Line Statement for sole-proprietorships is part of IRAS’ continuous efforts to simplify tax filing for small businesses.
IRAS requires business income to be reported using a 2-Line or 4-Line Statement. You should use the 4-Line Statement when your revenue is more than $200,000.
You should report your business income using the 2-Line Statement when your revenue is $200,000 or less ($100,000 or less for YA 2020 and before).
|Second line||Adjusted Profit/Loss||$____________|
Example 1: 2-Line Statement of a tuition teacher
Tina, a tuition teacher, earns $40,000 a year giving tuition. As her revenue is not more than $200,000, she only needs to report her income using the 2-Line Statement. In this case, her net earnings as a tuition teacher will be $30,000 (assuming her expenses is $10,000).
|Adjusted Profit||$ 30,000|
You should report your business income using the 4-Line Statement when your revenue is more than $200,000 (more than $100,000 for YA 2020 and before).
|Second line||Gross Profit/Loss||$_______________|
|Third line||Allowable Business Expenses||$_______________|
|Fourth line||Adjusted Profit/Loss||$_______________|
Example 2: 4-Line Statement of seller of mobile phones
Gerald buys and sells mobile phones. He sold $300,000 of mobile phone last year. The cost of goods sold was $120,000 and his allowable business expense is $20,000. Gerald should use the 4-Line Statement to report his business income.
|Less: Cost of goods sold||$ 120,000|
|Gross Profit||$ 180,000|
|Allowable Business Expenses||$ 20,000|
|Adjusted Profit||$ 160,000|
$200,000 or less
|Revenue more than $200,000 and less than $500,000||Revenue $500,000 or more|
|Prepare statement of accounts and keep proper records of your business transactions||Yes||Yes||Yes|
Report 2-Line Statement:
Report 4-Line Statement:
|Submit certified statement of accounts and Computation of Adjusted Profit / Loss (XLS,30.4KB)||-||-||Yes|
For more information, please refer to Preparing statement of accounts.Please note that you must apply for GST registration if the total taxable revenue of all your sole-proprietorship businesses and income derived from your trade, profession or vocation have exceeded $1 million at the end of the calendar year, or is expected to exceed $1 million in the next 12 months. For more details, please refer to Do I need to register for GST.
Preparing the statement for reporting Adjusted Profit/Loss for partnership
With effect from YA 2022, the 2-Line Statement is extended to partnerships with revenue of $200,000 or less as part of IRAS’ continuous efforts to simplify tax filing for small businesses.
You have to report the partnership income in the Form P using the 2-Line Statement when your revenue is $200,000 or less from YA 2022.
|Second line||Adjusted Profit/Loss||$_________________|
You have to report the partnership income in the Form P using the 4-Line Statement when your revenue is more than $200,000 from YA 2022.
For YA 2021 and before, the partnership income is to be reported in the Form P using the 4-Line Statement regardless of the amount of revenue earned.
|Second line||Gross Profit/Loss||$______________|
|Third line||Allowable Business Expenses||$______________|
|Fourth line||Adjusted Profit/Loss||$______________|
Calculating and reporting the Divisible Profit/Loss for partnership
Calculating Divisible Profit/Loss
Divisible Profit/Loss is the adjusted profit/loss minus partners' salaries, allowances, bonuses, CPF contributions, interest on capital and any other expenses paid on behalf of all the partners.
Use this formula to arrive at divisible profit for reporting to IRAS.
|Adjusted Profit / (Loss)||XX|
|Less: Partners' Salaries||(XX)|
|Less: Partners' Allowances||(XX)|
|Less: Partners' Bonuses||(XX)|
|Less: Partners' CPF contributions||(XX)|
|Less: Partners' Share of interest on capital||(XX)|
|Less: Expenses paid on behalf of partners||(XX)|
Please note that you must register for GST if the total taxable revenue of all your partnership businesses with the same composition of partners (excluding Limited Liability Partnership) has exceeded $1 million at the end of the calendar year, or is expected to exceed $1 million in the next 12 months. For more details, please refer to Do I need to register for GST.
Example: Distribution of Divisible Profit/Loss between two partners
AB Partnership is made up of Partner A and Partner B. It was agreed between Partner A and Partner B that a yearly salary of $26,000 and $24,800 will be paid to them respectively and the basis of sharing of divisible profit is 60:40.
For the year ended 31 Dec 2020, the partnership made a profit of $34,000 (after deducting partners' salaries). Partner A and Partner B have decided to retain the profit in the partnership for business use. The income for A and B will be as follows:
|Partner A||Partner B||Total|
|Basis of sharing||60%||40%||100%|
Salary for year ended 31 Dec 2020
|Divisible profit on a Total Profit of $34,000 (60:40)|
(60% x $34,000)
(40% x $34,000)
Total Adjusted Profit (Salary + Divisible profit)
Partner A and Partner B's share of partnership income is $46,400 and $38,400 respectively. The income will be taxed under each individual partner's names even though the divisible profit of $34,000 was retained in the partnership account.
Reporting Divisible Profit/Loss
The precedent partner reports the income earned and business expenses annually to IRAS using Form P. You can use this sample working sheet (XLS, 35KB) as a guide.
After the precedent partner has filed the Form P, the precedent partner must inform the other self-employed partner of their share of profit or loss which they will declare as their business income in Form B/B1.
The precedent partner can refer to the Responsibilities of precedent partners for more details.