If you are thinking of starting a small business in Singapore, you might want to consider a sole proprietorship as your business structure. A sole proprietorship is the simplest and most common form of business in Singapore, accounting for 75% of all registered businesses1.
However, before you decide to register a sole proprietorship, you should be aware of its advantages and disadvantages, as well as the requirements and procedures involved. In this article, we will cover the following topics:
- What is a sole proprietorship and who is it suitable for?
- How can foreigners set up a sole proprietorship in Singapore?
- What are the compliance requirements for a sole proprietorship in Singapore?
- Outsourcing the administration of your sole proprietorship
- How to renew the Letter of Consent to own a sole proprietorship?
- How are sole proprietors taxed in Singapore?
- How does a sole proprietorship compare with a private limited company?
What is a sole proprietorship and who is it suitable for?
A sole proprietorship is a business that belongs to one owner only, who is also known as the sole proprietor or sole trader. The sole proprietor has full control over the business and is entitled to all the profits.
However, the sole proprietor also bears all the risks and liabilities of the business, as there is no legal distinction between the business and the owner. This means that the sole proprietor’s personal assets can be seized by creditors or claimants if the business fails or faces lawsuits.
A sole proprietorship is suitable for entrepreneurs who want to start a small and low-risk business that can generate steady income. Some examples of businesses that can operate as sole proprietorships are freelancers, consultants, tutors, and online sellers.
A sole proprietorship is also easy and inexpensive to set up and maintain, as it has fewer administrative and reporting obligations than other types of business entities.
How can foreigners set up a sole proprietorship in Singapore?
Foreigners who wish to set up a sole proprietorship in Singapore need to meet the following eligibility criteria:
- They must appoint a local manager (called sole proprietor) who is at least 18 years old and is either a Singapore citizen, Permanent Resident, or holder of a ONE Pass. The local manager must be ordinarily resident in Singapore.
- Dependant Pass are also eligible to be the sole proprietor. They must obtain a Letter of Consent (LOC) from the Ministry of Manpower (MOM). The LOC is a document that allows foreigners to work in Singapore without an Employment Pass or EntrePass. The LOC is valid for up to 1 year and can be renewed upon expiry.
- Alternatively, a Dependant Pass holder can work as an employee under a Sole proprietorship (owned by a trusted partner).
To register a sole proprietorship in Singapore, foreigners need to follow these steps:
- Reserve a business name with the Accounting and Corporate Regulatory Authority (ACRA) through the BizFile+ portal. The name approval is usually done in a few hours only. To easily understand the process and requirements of reserving a business name, refer to this video.
- Select an Address for the business. The Registered Business address can be a personal address, while P.O. boxes are not allowed, it is possible to use a residential address if agreed upon the landlord and the Housing Development Board for HDB Housing. Service providers can also provide a registered business address.
- Pay the registration fee of SGD 115 to ACRA through the BizFile+ portal. The registration fee includes SGD 15 for the name reservation and SGD 100 for the registration of the business entity. The registration can be completed within 15 minutes if there are no errors or referrals.
- Apply for the LOC from the MOM. The LOC application usually takes a few weeks (about 4 weeks), depending on the completeness and accuracy of the information provided. The LOC application is free.
- Even though most business activities in Singapore do not require a licence, you can check the requirements prior to starting your business. For example, if the business involves food and beverage, health and wellness, or education and training, the business may need to apply for licenses from relevant Singapore authorities.
What are the compliance requirements for a sole proprietorship in Singapore?
A sole proprietorship in Singapore is subject to the following compliance requirements:
- It must renew its registration with ACRA every year or every three years, depending on the chosen renewal period. The renewal fee is SGD 30 per year or SGD 90 per 3 years. The renewal can be done online through the BizFile+ portal before the expiry date of the registration.
- They must have a local business address in Singapore where the business is conducted or where the business records are kept. The registered address can be the service providers’ registered address.
- It must keep proper accounting records and receipts for at least five years, and make them available for inspection by ACRA or the Inland Revenue Authority of Singapore (IRAS) upon request. The accounting records must show the revenues and expenses of the business, as well as the assets and liabilities of the sole proprietor.
- It must file an annual income tax return with IRAS in April each year. The sole proprietor must declare the net income or loss of the business, as well as any other sources of income, such as salary, rental, or dividends.
- Sole proprietorships might need to appoint a Data Protection Officer if they handle personal and/or sensitive data.
- Sole proprietorships do not need a separate Business / Bank account from the sole proprietor but may open one or several.
Outsourcing the administration of your sole proprietorship
Administrating a sole proprietorship consists of several legally required duties such as:
- Maintaining a registered address that is publicly accessible
- Safe keeping your corporate and bookkeeping documents
- Renewing the registration of the sole proprietorship
- Opening an account for the sole proprietorship if needed
- Preparing the statement of accounts of the sole proprietorship
- Preparaing the 2/4 line tax statement every year
In that aspect, you can receive assistance from a service provider which will handle all your sole proprietorship administration and offer some advice and experienced tips when you need to consult experts.
The administrative packages for sole proprietorships are also affordable and ensure of complete local compliance for your business.
How to renew the Letter of Consent to own a sole proprietorship?
A foreigner with a Dependant Pass who owns and manages a sole proprietorship in Singapore must renew the LOC before it expires, otherwise the business registration will be cancelled by ACRA.
To renew the LOC, the foreigner must keep in mind the following:
- The first Letter of Consent granted to a Dependant Pass holder is valid for a maximum of 1 year.
- If the Dependant Pass expires (because the EP or ONE pass to which is tied expires) then the LOC expires too.
- The LOC renewal requires the hiring of a Singaporean or Permanent Resident at least 3 months before the renewal date with a salary of at least SGD 1,600 (from July 1, 2024). The verification will be done through CPF contributions.
- The LOC hiring renewal requirement is necessary only for LOCs of Business Owners.
- LOCs to work as an employee do not require the hiring of a local employee.
Your service provider can also offer you assistance to assess eligibility, renewal and alternatives to the LOC to run your business.
How are sole proprietors taxed in Singapore?
A sole proprietor in Singapore is taxed on the net income or loss of the business, as well as any other sources of income, such as salary, rental, or dividends. The net income or loss of the business is calculated by deducting the allowable business expenses from the revenues of the sole proprietorship.
The allowable business expenses are those that are incurred wholly and exclusively for the purpose of the business, such as office rental, utilities, wages (the sole proprietor’s remuneration is excluded), advertising, etc.
The non-allowable business expenses are those that are not related to the business, such as personal expenses, salary of the sole proprietor, fines, penalties, donations, and entertainment.
The sole proprietor’s income is taxed at the progressive personal income tax rates, which range from 0% to 24%, depending on the income level. The sole proprietor can also claim personal reliefs and rebates, such as the earned income relief, the qualifying child relief, and the parent relief, to reduce the taxable income and the tax payable.
How does a sole proprietorship compare with a private limited company?
A private limited company is another common type of business entity in Singapore, which is suitable for entrepreneurs who want to scale up their business and attract investors. A private limited company is a separate legal entity from its owners, who are also known as shareholders.
The shareholders have limited liability for the debts and liabilities of the company, which means that their personal assets are protected. The company is managed by directors, who are appointed by the shareholders. It is also easier to hire employees with a company.
A private limited company has some advantages and disadvantages over a sole proprietorship, as shown in the table below:
| Comparison | Sole Proprietorship | Private Limited Company |
| Ease of setup | Easy and inexpensive | Requires more documents |
| Ownership | One owner only | One or more shareholders |
| Liability | Unlimited liability | Limited liability |
| Control | Full control | Shared among shareholders |
| Profit | Entitled to all profit | Shared among shareholders |
| Risk | High risk | Limited risk |
| Capital | No separate capital | More capital options |
| Tax | Personal income tax | Corporate income tax |
| Compliance | Fewer requirements | Additional requirements |
| Perpetuity | No perpetual succession | Perpetual succession |
A sole proprietorship and a private limited company have different features and implications for the business owner.
Sole proprietorships are better suited for individuals running a solo business with no plan to expand it, sell it or welcome investors.
A Company offers more flexibility and can also be run by an individual. With a limited liability and a more open ownership structure, it fits better growing ambitions and business ventures in all type of business activities.
