How To Setup A Sole Proprietorship In Singapore

Once you decide to incorporate a new business in Singapore, the next step involves understanding various types of business structures, including sole proprietorships, private limited liability partnerships, and corporations.

A sole proprietorship is a business type wherein the business owner incorporates and operates their businesses independently with no separate legal entity, making the sole proprietorship the simplest and easiest form of business to set up and operate. Sole proprietors also personally file taxes and own 100% of business income and assets, highlighting that sole proprietorship is a business owned entirely by one individual.

Prior to registering for a sole proprietorship in Singapore, it is imperative to thoroughly assess the pros and cons associated with such business entities.

What is a Sole Proprietorship?

A sole proprietorship is best because business owned by one person without any partners or shareholders. Very small single-owned businesses often find sole proprietorships ideal form of business structure as it is not a separate legal distinction between the individual and the business. Unlike private limited liability companies, sole proprietorships do not safeguard personal assets from business activities, which clearly outlines one of the cons of sole proprietorship.

As a sole proprietor in Singapore, you will be personally liable for your business’s profits and losses, which is not ideal if your business is constantly making a loss and incurring liabilities frequently.

Advantages of a Sole Proprietorship in Singapore

There are several pros for owners of sole proprietorship either a Singapore citizen or a permanent

1. Easy incorporation process with minimal setup costs compared to other entities
2. Full control over your business as the owner of a sole proprietorship, including decision-making and retaining all profits.
3. Simple termination process, which is less time-consuming and less costly compared to other business structures.
4. Minimal compliance requirements, as there is no need to file annual returns and only a yearly membership renewal is necessary.

Disadvantages of a Sole Proprietorship in Singapore

Flipping the other side of the coin, here are some disadvantages of incorporating a sole proprietorship in Singapore that you should consider:

1. Personal liability: You and your business are not legally separate entities in a sole proprietorship, exposing you personally to all losses and liabilities.
2. Tax drawbacks: Sole proprietors do not benefit from tax reductions, incentives, or other advantages.
3. Lack of perpetual succession: The business does not have perpetual existence, which may pose challenges in long-term planning or continuity,
4. Limited capital: Business expansion may be challenging due to limitations on capital, as the business is solely reliant on your personal funds.

Challenges Foreigners Face When Forming a Sole Proprietorship in Singapore

After register as a sole proprietor, foreigners may encounter two significant challenges:

Difficulties in obtaining work visas

As a foreigner looking to start a business in Singapore, securing a valid working visa is essential. Opting for a sole proprietorship may restrict future expansion plans, affecting the ability to hire additional staff. Consequently, obtaining approval for an Employment pass or EntrePass becomes more challenging. Moreover, even if initial approval is granted, obtaining visa approval for future foreign employees can be a complex process. Foreigners without a valid working visa may also face obstacles when attempting to open a bank account or secure a lease in Singapore.

Difficulties in expansion and financing

Sole proprietorships often face hurdles in terms of expansion and recruiting new staff. This business structure may give the impression of a small enterprise, leading banks and suppliers to be hesitant in extending credit. Additionally, sole proprietors cannot offer stock options as incentives for hiring employees, which contrasts with the benefits a Singapore private limited company can provide, marking a significant disadvantage for many sole traders. Furthermore, raising capital from investors is challenging due to the limitation of a single owner controlling the business.

Documents Required to Incorporate a Sole Proprietorship

In order to register a sole proprietorship business in Singapore, the following documents and information are required by the Singapore government.

1. Proposed company name
2. Description of principal activities for the Singapore sole proprietorship registration
3. Local business address for the proposed business.
4. Copy of owner’s Singapore ID and registration number
5. Local residential address of sole proprietor
6. Local residential address of sole proprietor

How To Register a Sole Proprietorship in Singapore?

Step 1. Choose a name

Before you start a sole proprietorship, you will need to register and reserve your ideal company name.

Typically, ensuring all documents are accurately completed streamlines the registration of a sole proprietorship, making the process automated and efficient. It is usually completed within 1 day.

However, if the company name or business nature necessitates referral to another authority, the process may extend by a few weeks.

Certain businesses such as financial, media, and educational services may require referral to relevant authorities.

To increase the likelihood of name approval, it’s crucial to ensure that:

• is not identical or too similar to any existing local company or business names
• does not infringe any trademarks or copyright
• is not obscene or vulgar
• is not already reserved

Step 2. Choose a local business address

Providing a local address is an important part of the Singapore sole proprietorship registration process — this must be a physical address, not a P.O. Box address.

If you intend to work from home, you can use your home address as the main business address. You’ll need to apply to the Home Office Scheme and get approval before submitting your registration to ACRA. You will also need written permission from the Urban Redevelopment Authority (URA) or the Housing & Development Board (HDB) to use your home as an office.

You must submit your principal address even if you’re not working from home. ACRA will list both addresses on its website, so be aware that the address of your separate legal entity will be available to the public.

Step 3. Appoint a local authorised representative (for foreigners)

To set up a sole proprietorship or partnership in Singapore. You must be

• At least 18 years old
• A Singapore Citizen, Singapore Permanent Resident, or an eligible FIN holder

If you are currently self-employed, you must top up your Medisave account with the CPF Board before you register a business, become a new owner of an existing business, or renew your business registration.

Foreigners can register a sole-proprietorships in Singapore, but they must appoint an authorised representative who is a legal resident in Singapore if they reside outside of Singapore. A legal resident includes:

• Singapore citizens
• Permanent Residents
• Employment pass and EntrePass holders

Step 4. Register with ACRA’s BizFile+

Now you have gathered all the required information, it’s time to register your sole proprietorship online. You can do this through ACRA’s filing portal called BizFile+. You’ll need to log in and use SingPass. It will ask you to endorse your consent, which is needed before the business can be registered.

If there is no SingPass, the alternative is to appoint a registered filing agent like a law firm, accounting firm or corporate secretarial firm.

The annual cost to register for a sole proprietorship is S$100, or you can pay S$175 for three years. Renewal fees are S$30 thereafter.

Post-Incorporation Activities for Sole Proprietorships

After registering in Singapore, you will receive a Unique Entity Number (UEN) to use with government agencies.

Keep these details safe, as you may need them for filing taxes as a sole proprietor, ensuring you meet all financial obligations efficiently. For example:

• Opening a business bank account
• Signing an office lease
• Setting up a phone line

Sole proprietors don’t need to undergo annual audits or submit financial statements to ACRA. As the business owner, you must file an annual income return with IRAS, covering the revenue and profits of the sole proprietorship.

Tax for sole proprietorships is filed at a personal rate of 0% to 22%, as they’re not considered legal entities for tax purposes.

How Much Does it Cost To Register a Sole Proprietorship?

The cost of registering a sole proprietorship in Singapore includes several components:

• Business Name Reservation: To reserve a business name with the Accounting and Corporate Regulatory Authority (ACRA), there is a fee of S$15. This reserves the name for 120 days.
• Business Registration: The registration fee for a sole proprietorship is S$115. This fee is payable to ACRA when submitting the registration application.
• Local Address: Your sole proprietorship will need a local business address. The cost of renting or leasing a commercial space in Singapore can vary widely depending on location and size.
• Local Authorised Representative (for foreigners): If you are a foreigner without a valid Singapore residential address, you may need to engage a local representative. The terms of compensation or service fees for the representative can vary, and you should agree upon them directly with the representative.
• Additional Costs: Depending on your business activities, you may incur additional costs for licenses, permits, and insurance. These costs can vary widely depending on your specific industry and regulatory requirements.

How Do You Close a Sole Proprietorship in Singapore?

Closing a sole proprietorship involves a series of steps to legally wind up the existing business and fulfil any outstanding obligations. Here’s an overview:

• Notify ACRA: Inform ACRA of your intention to close the Singapore sole proprietorship. This can typically be done online through the BizFile+ portal. You will need to submit a request for the cessation of business activities.
• Clear debts and obligations: Ensure all debts, taxes, and obligations are settled before closing the business. This includes paying outstanding bills, taxes, and salaries of local and foreign employees, addressing the financial responsibilities and business expenses.
• Cancel licenses and permits: If your business holds any licenses or permits, cancel them with the relevant government agencies.
• Close bank account: Close the business bank account associated with the sole proprietorship.
• Dispose of assets: If you have business assets, such as equipment or inventory, decide whether to sell, transfer, or dispose of them as part of the closure process.
• Final tax returns: Complete and submit final tax returns, including the personal Income Tax Return for Sole Proprietorship.
  Deregistration: Once all obligations are met, submit a request for the deregistration of your sole proprietorship with ACRA.

The specific steps and requirements for closing a sole proprietorship may vary depending on individual circumstances and the nature of the business. Consulting with us is advisable to ensure a smooth closure and compliance with all regulatory requirements.