Sole Proprietorship in Singapore: Eligibility, Registration and Tax Implications

A sole proprietorship is the simplest form of business entity in Singapore. In this form, a single individual or corporate entity owns and operates the business. Unlike a company, it is not a separate legal entity, meaning the owner and the business are legally the same. The sole proprietor has full control over the industry but also bears unlimited personal liability for all debts and obligations.

Sole proprietorships are ideal for entrepreneurs who want to start a business quickly, at a low cost, and with minimal compliance requirements. 

What is Sole Proprietorship?

Accounting and Corporate Regulatory Authority (ACRA) has defined a sole proprietorship as a business owned and managed solely by one person without involving business partners. It can be an individual, a company, or an LLP (Limited Liability Partnership). 

Characteristics of a Sole Proprietorship

• Single Ownership and Control: The business is owned and managed by one individual who makes all decisions and retains all profits.
• Not a Separate Legal Entity: The owner and the business are the same, meaning the business cannot own property, sue, or be sued in its own name.
• Unlimited Liability: The owner is personally liable for all debts and losses of the business.
• Taxation as Personal Income: Profits are taxed at the owner's personal income tax rate rather than corporate tax rates.
• Minimal Compliance Requirements: No requirement for audits or filing annual financial statements with regulators.
• No Perpetual Succession: The business ceases if the owner dies or decides to stop operations.

Eligibility and Requirements to Incorporate Sole Proprietorship

To register a sole proprietorship in Singapore, the following conditions must be met:

• Minimum Age: The owner must be at least 18 years old.
• Residency Status: The owner must be a Singapore Citizen, Permanent Resident (PR), or an eligible FIN holder.
• Foreigners: Foreigners who wish to set up a sole proprietorship must appoint a locally resident authorized representative and may require a Letter of Consent from the Ministry of Manpower (MOM).
• Medisave Contributions: Singapore Citizens and PRs must ensure that their CPF Medisave contributions are up to date before registration or renewal. More details can be found on the CPF Board website.
• Business Name: The proposed business name must be approved by the Accounting and Corporate Regulatory Authority (ACRA).
• Registered Address: The business must have a local registered address in Singapore (no P.O. Boxes allowed).

Compliance Requirements for a Sole Proprietorship 

A business owner needs to comply with the following:

• Singapore law requires sole proprietorships to keep accounts clearly showing their business income and expenses for proper accounting. 
• They are exempt from the annual audit and do not need to make financial reports to ACRA.
• They need to report their annual income return to the IRAS detailing revenues and profits realised by the sole proprietorship.
• Records and accounts must be maintained for a period not less than five years.
• General meetings, company secretaries, share allotment, etc., are not a requirement for a sole proprietorship to hold. Yet all official correspondences and invoices have to clearly show the sole proprietorship registration details, including a registered name and business number.

How to Register Sole Proprietorship in Singapore?

Registering a sole proprietorship in Singapore involves the following steps:

1. Submit the proposed business name for approval through ACRA's BizFile+ portal. (Name application fee: SGD 15; once approved, the name is reserved for 120 days.)
2. After name approval, proceed with business registration via BizFile+. (Registration fee: SGD 100 for one year or SGD 175 for three years.)
3. Submit Required documents (owner's identification, residential address, business description, and registered address)

Note: Foreigners must appoint a resident manager.

4. Ensure Medisave contributions are up to date, as this is required for business registration.
5. ACRA will issue a Business Profile as the official certificate of registration upon successful submission.

For step-by-step registration guidance, refer to GoBusiness Singapore.

Documents Required for Sole Proprietorship Registration in Singapore

To register your sole proprietorship in Singapore, you need the following documents:

• The proposed business name that is ACRA-approved 
• Description of principal activities
• Physical address (P.O. Boxes not allowed)
• Copy of owner’s Singapore ID: NRIC or relevant identification for Singapore residents.
• Local residential address of the owner
• Letter of consent from local authorised representative (for foreigners) and their proof of identity
• Written permission from URA or HDB if using a home address or home office.

Tax Implications on Sole Proprietorship in Singapore

• Personal Income Tax: A sole proprietorship’s profits are taxed at the owner’s personal income tax rate, ranging from 0% to 24% for high-income individuals. More details can be found on IRAS.
• No Corporate Tax Benefits: Unlike companies, sole proprietorships do not enjoy tax exemptions or incentives available under the corporate tax system.
• Goods and Services Tax (GST): If the business’s annual taxable turnover exceeds SGD 1 million, GST registration is mandatory. Businesses under this threshold can opt for voluntary registration.

Benefits of Sole Proprietorship

Here are some advantages of sole proprietorship in Singapore

• Easy and Low-Cost Setup: Simple registration with minimal paperwork and low fees.
• Full Control and Flexibility: Owner makes all business decisions.
• Minimal Compliance Requirements: No corporate filings, AGMs, or audit requirements.
• Direct Profits: All profits belong to the owner without needing to distribute them.

Drawbacks

While sole proprietorships are extremely feasible, they do have some disadvantages. Here are some of them

• Unlimited Liability: The owner's personal assets are at risk if the business incurs debts.
• No Legal Separation: The business is not separate from the owner, limiting growth potential.
• Limited Financing Options: Sole proprietors may find it harder to secure business loans compared to companies.
• Higher Tax Rates for High Incomes: Personal income tax rates can be higher than corporate tax rates.
• Lack of Perpetual Succession: The business ceases upon the owner's death or cessation.

Comparison with Other Business Structures

For more details on business structures, refer to ACRA’s Guide on Business Entities.

Government Resources related to Sole Proprietorship

For official guidelines and registration:

• ACRA - Sole Proprietorships & Partnerships
• BizFile+ - Business Registration Portal
• GoBusiness Singapore
• IRAS - Tax for Sole Proprietors
• CPF Board - Medisave Contributions