Fixed Expense Deduction Ratio (FEDR) for Self-Employed Persons in Singapore

Managing business expenses is a crucial aspect of running a successful enterprise, especially for self-employed individuals. In Singapore, the IRAS offers the Fixed Expense Deduction Ratio (FEDR) scheme to simplify the tax filing process for eligible self-employed persons. This guide explains the key aspects of the FEDR, its benefits, and how to apply it to your tax filings.

What is the Fixed Expense Deduction Ratio (FEDR)?

The Fixed Expense Deduction Ratio (FEDR) is a tax simplification scheme offered by IRAS. It allows eligible self-employed individuals to claim a fixed percentage of their gross income as deductible business expenses, eliminating the need to track and substantiate each expense.

Who is Eligible for FEDR?

The FEDR scheme is available to specific categories of self-employed individuals, including:

1. Commission Agents:
   • Insurance agents
   • Real estate agents
2. Private-Hire Car Drivers:
   • Individuals earning income through private-hire driving platforms.

Benefits of Using FEDR

1. Simplified Tax Filing
   • Self-employed persons do not need to maintain detailed records of their business expenses.
2. Reduced Administrative Burden
   • Eliminates the need to substantiate each business expense with receipts or invoices.
3. Fixed Deduction Ratio
   • The percentage of deductible expenses is predetermined and consistent, making tax calculations straightforward.

Fixed Expense Deduction Ratios by Profession

1. Commission Agents
   • Deduction Ratio: 25% of gross commission income
   • The remaining 75% of income is taxable.
2. Private-Hire Car Drivers
   • Deduction Ratio: 60% of gross driving income
   • The remaining 40% of income is taxable.

How to Apply FEDR

1. Declare Gross Income
   • Report your total gross commission or driving income in your annual income tax return.
2. Elect for FEDR
   • Opt for the FEDR scheme when completing your tax return.
3. IRAS Automatically Applies Deduction
   • The fixed deduction ratio will be applied to your declared income, and the net taxable income will be calculated.

When to Use FEDR

The FEDR scheme is particularly beneficial for individuals who:

• Have minimal business expenses.
• Do not wish to maintain detailed records of their expenses.
• Prefer a simplified approach to tax filing.

Key Considerations for FEDR

1. Cannot Claim Additional Expenses:
   • Once FEDR is applied, no further business expense deductions can be claimed.
2. Annual Election:
   • The decision to use FEDR must be made annually during tax filing.
3. Record-Keeping:
   • Although detailed records are not required for FEDR, maintaining basic documentation of income is advisable.

Examples of FEDR Application

Scenario 1: Insurance Agent

• Gross commission income: $100,000
• Deduction under FEDR: 25% x $100,000 = $25,000
• Taxable income: $100,000 - $25,000 = $75,000

Scenario 2: Private-Hire Car Driver

• Gross driving income: $50,000
• Deduction under FEDR: 60% x $50,000 = $30,000
• Taxable income: $50,000 - $30,000 = $20,000

Common Mistakes to Avoid

1. Misreporting Gross Income:
   • Ensure accurate declaration of total gross income.
2. Assuming Automatic Enrollment:
   • You must opt for the FEDR scheme during tax filing.
3. Claiming Additional Deductions:
   • Once FEDR is applied, no other business expense deductions can be claimed.

How Apexia Corporate Advisory Can Help

Navigating tax filing requirements can be overwhelming, especially for self-employed individuals. At Apexia Corporate Advisory, we offer expert guidance to help you make informed decisions about your tax filings. Our services include:

1. Tax Advisory Services
   • Assess the suitability of the FEDR scheme for your business.
2. Tax Filing Assistance
   • Ensure accurate reporting of income and application of FEDR.
3. Compliance Reviews
   • Conduct reviews to ensure adherence to IRAS guidelines.

Conclusion

The Fixed Expense Deduction Ratio (FEDR) is a valuable scheme for simplifying tax filings for self-employed individuals in Singapore. By opting for FEDR, you can reduce administrative effort while ensuring compliance with IRAS regulations. For professional advice and assistance, contact Apexia Corporate Advisory today.