Main Issue
One of the main issues as a self-employed it’s the high personal income tax rate, especially in Australia.
Australia has one of the highest personal income tax rates, with the highest tax bracket at 45%, so almost half of your income gets taxed before you even get to spending it.
Solution
One of the ways to legally reduce your tax burden is to register a company and to use that company to hire yourself as an employee.
Generally corporations are taxed at a much lower rate compared to personal income tax.
Option #1: Setting up a company in Australia
The table below shows a simplified comparison between Australia personal income tax, Australia corporate tax
| Estimated Income | Australia Personal Income Tax | Australia Corporate Income Tax | |
| $0 to $18,200 | 0% ($0) | 25% ($4,550) | |
| $18,201 to $45,000 |
First $18,200 ($0) $18,201 to $45,000 ($4,288) Estimated Tax Payable: AUD$4,288 |
25% at $45,000 ($11,250) Estimated Tax Payable: AUD$11,250 |
Personal Tax is lower |
| $45,001 to $135,000 |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $135,000 at 30% ($27,000) Estimated Tax Payable: AUD$31,288 |
25% at $135,000 ($33,750) Estimated Tax Payable: AUD$33,750 |
Personal Tax is lower |
| $135,001 to $190,000 |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $135,000 at 30% ($27,000) $135,001 to $190,000 at 37% ($20,350) Estimated Tax Payable: AUD$51,638 |
25% at $190,000 ($45,500) Estimated Tax Payable: AUD$47,500 |
Corporate Tax is lower You save AUD$4,138* |
| $190,001 and over |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $135,000 at 30% ($27,000) $135,001 to $190,000 at 37% ($20,350) $190,001 to assuming 1 million at 45% ($364,500) Estimated Tax Payable: AUD$416,138 |
25% at $1,000,000 ($250,000) Estimated Tax Payable: AUD$250,000 |
Corporate Tax is lower You save AUD$166,138* |
*Savings are estimates based on the difference between the personal and corporate income tax and don’t factor in fees of setting up a corporation or using business expenses to reduce taxable income.
Option #2: Setting up a company in Singapore
The table below shows a simplified comparison between Australia personal income tax, Australia corporate tax vs Singapore corporate tax
| Estimated Income | Australia Personal Income Tax | Australia Corporate Income Tax | Singapore Corporate Income Tax | |
| $0 to $18,200 | 0% ($0) | 25% ($4,550) | 17% ($3,094) | |
| $18,201 to $45,000 |
First $18,200 ($0) $18,201 to $45,000 ($4,288) Estimated Tax Payable: AUD$4,288 |
25% at $45,000 ($11,250) Estimated Tax Payable: AUD$11,250 |
17% at $45,000 ($7,650) Estimated Tax Payable: AUD$7,650 |
Australia Personal Tax is lower |
| $45,001 to $135,000 |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $135,000 at 30% ($27,000) Estimated Tax Payable: AUD$31,288 |
25% at $135,000 ($33,750) Estimated Tax Payable: AUD$33,750 |
17% at $135,000 ($22,950) Estimated Tax Payable: AUD$22,950 |
Singapore Corporate Tax is lower You save AUD$8,338* |
| $135,001 to $190,000 |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $135,000 at 30% ($27,000) $135,001 to $190,000 at 37% ($20,350) Estimated Tax Payable: AUD$51,638 |
25% at $190,000 ($45,500) Estimated Tax Payable: AUD$47,500 |
17% at $190,000 ($32,300) Estimated Tax Payable: AUD$32,300 |
Singapore Corporate Tax is lower You save AUD$19,338* |
| $190,001 and over |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $135,000 at 30% ($27,000) $135,001 to $190,000 at 37% ($20,350) $190,001 to assuming 1 million at 45% ($364,500) Estimated Tax Payable: AUD$416,138 |
25% at $1,000,000 ($250,000) Estimated Tax Payable: AUD$250,000 |
17% at $1,000,000 ($170,000) Estimated Tax Payable: AUD$170,000 |
Singapore Corporate Tax is lower You save AUD$246,138* |
*Savings are estimates based on the difference between the personal and corporate income tax and don’t factor in fees of setting up a corporation or using business expenses to reduce taxable income.
Benefits
Legally lower your payable tax even more
Due to Singapore’s even lower corporate income tax rate you could pay even less taxes and have more money for yourself.
Able to spend pre-tax dollars on company expenses
Flying somewhere for your business? Buying some equipment for your business? Having a business meeting in a restaurant? Getting a car for your business? Paying for marketing and advertising for your business? All of these and more could be used to reduce your taxes as long as you can prove these are used for your business.
For a full detailed list, kindly find it at IRAS.gov.sg
The table below shows a simplified comparison between taxation for a business trip for self employed person and a between someone who has a company registered in Singapore
| Australia Personal Income Tax | Singapore Corporate Income Tax | Singapore Corporate Income Tax | |
| Revenue: $100,000 AUD | Revenue: $100,000 AUD | Revenue: $100,000 AUD | Revenue: $100,000 AUD |
|
Business Trip Expenses:
$10,000 AUD in total |
Unable to deduct business expense | Did not deduct business expenses | Able to reduce up to $10,000 AUD in taxable income |
| Estimated Taxable Revenue | $100,000 AUD | $100,000 AUD | $90,000 AUD |
| Tax Rate |
First $18,200 at 0% ($0) $18,201 to $45,000 at 16% ($4,288) $45,001 to $100,000 at 30% ($16,500) Estimated Tax Payable: AUD$20,788 |
17% at $100,000 ($17,000) Estimated Tax Payable: AUD$17,000* |
17% at $90,000 ($15,300) Estimated Tax Payable: AUD$15,300* |
*Estimated tax payable are estimates and don’t factor in fees of setting up a corporation or using business expenses to reduce taxable income
Easy to transfer profits out of Singapore
With a strong and trustable banking system, it’s easy to transfer the money out of Singapore. All it takes is a few clicks on your mobile app and it’s on its way to your destination.
Strong currency
Singapore dollars is currently one of the top currencies in the world, appreciating against many other currencies including Australian dollars, this means that by keeping your profits in Singapore dollars your profits are likely to be better protected against inflation.
SGD appreciated 27% against the AUD from May 2004 to to May 2024.
Drawbacks
While there are many benefits, there are drawbacks too.
Challenging to withdraw business earnings for your own expenses
If you need a large sum of money urgently, it’s more challenging to withdraw and use it even though you are the director/CEO.
As the business is a separate entity from you, you would essentially need to borrow the money from the business and return it at a later date. Compared to if you had all the money sitting in your own bank account and can use it at any time.
Needing to separate business and personal funds/spending
You will now have to split up the credit cards and bank accounts between business and personal spending, can’t just use 1 single credit card for every of your purchase.
Keeping track and records of business purchase
Keep and save all your receipts, this is needed if you want to include it as a business expense and lower your tax payable.
May have to pay personal income tax if you want to move money to Australia
If you want to move all your profits back to Australia in a short time you may have to pay some taxes on it.
Conclusion
It could be a great strategy to open a corporation in Australia or Singapore lower your effective tax rate. Opening a company in Singapore would likely help you to save money on taxes and allow you to expand your company at a much faster pace.
