If you want to open a business, you must choose a strategy that will help you achieve your goal. You can go two ways: become either an individual entrepreneur or open a private organization with limited liability. This decision will determine the taxes that you are forced to pay, and also your obligations to government agencies depend on this decision. Here is our little Osome guide on making the right choice.
What is a Private Limited Company?
A private firm (Pte Ltd or LLC) is a company limited in certain powers. This is the most common choice for individuals who decide to open a business in Singapore. From 1 to 20 individual shareholders, but not companies, can participate in such a structure. Your company will represent a legal entity that is separate from its founders, thereby limiting your liability. This means that debts, risks and liabilities are all attributed to the company, not you.
What is is a Sole Proprietorship in Singapore?
An individual entrepreneur is a businessman who owns a business alone and acts on his own behalf. Basically, the business and the person are one so the IE personally faces all the risks. The advantage is that it is very easy to start such a business and to manage it without much paperwork.
What is the best option for a foreigner?
Foreigners are advised to open limited liability companies (LLCs). According to Singapore law, a foreigner can own 100% of shares, no local shareholders are needed. The only locals you’ll need are the nominee director and the company secretary.
Taxes for private entrepreneurs and companies
A private company pays the corporate tax capped at 17% and is eligible for tax exemptions. The sole proprietor pays the personal income tax ranging from 0% to 22%. The more modest the earnings of an individual entrepreneur are, the lower his tax rate is.
Tax breaks for private limited companies
The state program SUTE (The Start-Up Tax Exemption) provides the tax cuts for the first 3 years after registering the company. For 2019-2020, the following tax rates will be relevant:
· 4.25% for the first 100,000 $.
· 8.5% for the next 100,000 $.
When the first 3 years are through, the company has the right to receive a partial tax exemption (PTE) in the amount of:
· 4.25% for the first $ 10,000 USD.
· 8.5% on the next $ 190,000 USD.
Requirements to meet when starting a business in Singapore
To start working as an individual entrepreneur, you just need to make a request to the Office of Accounting and Corporate Regulation of Singapore (ACRA). If you want to open a private limited company, you need to submit information about your directors and shareholders, the address, and the company name. The rest can be managed by your filing agent.
Private companies have more responsibilities. You will need to hire a company secretary who will submit annual reports to ACRA. As an individual entrepreneur, then you only need to update your status in ACRA every year.
Nuances in the activities of private entrepreneurs and companies
Of course, attracting investors and taking loans is much easier if you own a limited liability company. This type of business can be inherited or sold. The business of a private entrepreneur can neither be sold nor inherited.
Visit Osome blog for more interesting articles on company incorporation in Singapore.