Self-Employed Persons (SEPs) typically spend a portion of their income in order to do their work. For example, a taxi driver will have to spend part of his earnings on petrol, without which he cannot operate his taxi and earn income as a taxi driver.
In order to not pay tax on income that had spent on business expenses (such as petrol for the taxi driver), when filing for income tax, SEPs have to submit claims for these business expenses when filing their income tax. But this results in additional administrative work on the part of the SEP.
Simplifying Tax Compliance For SEPs
In light of this, IRAS introduced the Fixed Expense Deduction Ratio (FEDR) from AY2019 onwards, which works by deeming that a fixed percentage of a qualifying SEP’s income was spent in business expenses.
IRAS determines this percentage based on inputs and consultation with the relevant stakeholders. This percentage is calculated to be sufficient to cover most business expenses, so most qualifying SEPs can simply use FEDR rather than have to submit claims on actual allowable business expenses.
The goal of FEDR is to cut down the administrative work to file income tax for some SEPs. SEPs are not required to retain receipts and invoices but are still required to maintain simple records.
Read Also: 10 Tax Deductions For Self-Employed Persons That You May Be Missing Out On
Qualifying For FEDR
For now, FEDR will only apply to tax filing for SEPs who earn income in one of three categories: Commission agents (such as real estate agent or insurance agent), private-hire car (PHC)/taxi driver, or delivery services.
To qualify for FEDR under each category, a SEP’s total annual income from that category must not exceed $50,000.
| Category | FEDR on annual gross income |
| Commission Agent | 25% |
| Public-hire car/taxi driver | 60% |
| Delivery workers [New] | On foot/bicycle – 20% PMD/PAB – 35% Van – 60% |
Rather than requiring you to submit claims based on actual business expenses, FEDR deems that a percentage of your annual income was spent as business expense.
For example, FEDR is set at 60% for taxi drivers, which assumes that a taxi driver spent 60% of his annual income on petrol, car insurance, and other allowable claims. When filing for income tax, a taxi driver who earned less than $50,000 within the year of assessment can choose to claim business expenses under FEDR, which counts 60% of his gross annual income as business expenses. After this deduction, the remaining 40% of the taxi driver’s income is counted as net trade income and is therefore subject to tax.
For SEPs who do not qualify, or whose business expenses exceed the stipulated percentage. While these SEPs will not get to enjoy the simplified tax filing, they will still be able to file their tax-deductible claims as per normal.
Read Also: Guide To Understanding Your Tax Obligations As A Self-Employed Individual
Computation for Delivery Workers (New)
For delivery workers, the percentage of income that can be claimed under FEDR depends on whether they were making deliveries on foot, on bicycle, on PMA/PMD or on a van. Delivery workers are allowed to claim FEDR for deliveries made on different modes of delivery within the year.
For example, a delivery worker who earns $5,000 making deliveries on foot and earns another $20,000 making deliveries on a PMD qualifies to claim 20% FEDR on the $5,000 earned through on-foot deliveries and 35% FEDR on the $20,000 earned through deliveries on PMD.
While the rules allow multiple modes of delivery, all modes of delivery must be FEDR-compatible (on foot, bicycle, PMA/PMD or van only). If one of the modes of deliveries is not FEDR-compatible, (e.g. if delivery worker performed some deliveries on foot and some by car), then tax-deductible business expense claims must be manually submitted instead.
Read Also: Guide On How To File Your Income Tax As A Private Hire Car (PHC) Driver Or Taxi Driver In Singapore
SEPs Holding Multiple Jobs
A SEP who is a real estate agent as well as an insurance agent can still claim FEDR so long as their combined commission income from both commission agent jobs does not exceed $50,000.
A SEP who is a commission agent and also a part-time private-hire car driver can claim 60% FEDR on PHC driving income, and 25% FEDR for commission income, assuming that the PHC income does not exceed $50,000, and the commission income also does not exceed $50,000.
Read Also: How Much Self-Employed Persons Need To Contribute To MediSave (And What Happens If You Don’t)
FEDR Must Be Applied Throughout
Those who qualify for FEDR must stick to one mode of claims – either claim under FEDR for all their business expenses or manually submit business expense claims.
For example, a SEP who worked as a real estate agent and an insurance agent within the year cannot submit claims for business expenses as an insurance agent under FEDR and submit separate business expense claims as a real estate agent. The SEP must choose to either use FEDR on their entire gross annual commission income or claim the allowable business expenses.
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