Singapore Bans Employers of Record Sponsorship: Key Alternatives for Foreign Businesses

Singapore’s Ministry of Manpower has now banned non-Singaporean entities from using an Employer of Record (EOR) to sponsor employment permits for foreign employees.

The EOR handles all legal and compliance requirements, while the original company maintains direct day-to-day management of the employee. The EOR could sponsor the foreign worker for Work Permits, S Pass, and Employment Pass.

It had been common practice for non-Singaporean entities to use an EOR without having to establish a local presence.

However, with the Ministry of Manpower effectively closing this loophole, the EOR will be restricted to hiring local employees only and a foreigner wishing to work in Singapore must be directly employed with a local business that adheres to the country’s labor regulations.

A strategic rethink for non-Singaporean businesses

Non-Singaporean businesses can no longer rely on EORs to hire foreign workers. However, there are several solutions to enable them to hire a foreign employee.

Establishing a private company limited by shares

A private company limited by shares, also known as a private limited company, is by far the preferred structure among small and medium-sized (SME) foreign companies for setting up a local business presence in Singapore.

A private limited company can benefit from tax incentives available to local companies. It is also a separate legal entity from its directors, shareholders, and officers of the company; this means that the foreign holding company cannot be held for the liabilities of its subsidiary. In addition, the holding company’s liability is limited to the share capital subscribed in its subsidiary.

As a private limited company can be wholly owned by a foreign individual and/or corporate investor, this legal entity can be established as a regional holding company or subsidiary of the foreign holding company.

Having a Singapore-incorporated company provides the advantage of gaining access to the wider Asian market and ASEAN free trade zones, as well as access through free trade agreements such as the ASEAN-Hong Kong FTA, ASEAN-India FTA, and the Regional Comprehensive Economic Partnership (RCEP). This is particularly helpful for companies looking to set up larger manufacturing operations elsewhere in ASEAN.

Key requirements for setting up a private company limited by shares

Reservation of company name

• The company name must be approved by the Accounting and Corporate Regulatory Authority (ACRA) before the company registration process;
• Once a name is selected, the name application shall be submitted via ACRA Bizfile for approval, which may be rejected if the name is identical, similar, or phonetically similar to a company that has already been registered; and
• The name application costs S$15 (US$11.1), which will be reserved for 120 days upon approval.

Appointment of Company Officers

The officers of a company include the following:

• Director:
  • The appointment of at least one director who is either a Singaporean citizen, permanent resident, or EntrePass / Employment Pass holder; and
  • The director needs to be at least 18 years of age and must not have a history of misconduct or bankruptcy in their work history.
• Auditor (to be appointed within 3 months of incorporation unless exempted from audit requirements);
• Company secretary (to be appointed within 6 months of incorporation); and
• Shareholders (the minimum shares issued, and paid-up capital is S$1 (US$0.74)).

Registered Address

• This must be a commercial business address in Singapore.

Opening a representative office in Singapore

A representative office (RO) is a short-term, temporary arrangement with a limited purpose. However, it must be established for a maximum of three years, of which the RO status is subject to evaluation by Enterprise Singapore, the government agency under the Ministry of Trade and Industry, before the RO can be further renewed on an annual basis.

This setup is an ideal choice for foreign investors who are still researching their investment options before setting up a fully-fledged office in Singapore. Companies looking to set up an RO must have sales turnover of at least US$250,000 and must be represented by staff from their own HQ or a Singaporean citizen.

ROs can be staffed by a maximum of five individuals, with the parent company bearing liability for the activities of the RO and is responsible for financing its operations. The RO is confined to activities set out by Enterprise Singapore, which include:

• Gathering of information on markets and potential clients;
• Researching to ascertain product/service information;
• Developing trade contacts and managing product inquiries;
• Participating in trade shows and exhibitions; and
• Gathering information on regulatory requirements for the set-up of a permanent entity.

Key requirements for setting up a representative office

As a temporary administrative office, the RO cannot engage in profit-yielding business activities and can only participate in information-gathering or market research-based activities.

Investors wishing to establish a RO in Singapore must ensure:

• The parent company has been established for more than three years;
• The parent company has incurred an annual sales turnover of more than US$250,000;
• The foreign chief representative is from its headquarters; alternatively, the RO may appoint a Singapore citizen to fulfill the role of the chief representative; and
• The RO does not hire more than five local employees as support staff.

The following documents are required to setup the RO:

1. A completed application form;
2. Copy of the company certificate; and
3. Copy of the parent company’s latest annual reports and audited accounts.

The application must be made through Enterprise Singapore, rather than ACRA.

Applying for the Overseas Networks & Expertise Pass 

The foreign employee could apply for the Overseas Networks & Expertise Pass. This employment permit allows high-earners and achievers to live in Singapore without the need to secure employment first.

Qualifying salary

Applicants for the Overseas Networks & Expertise Pass will need to earn at least S$30,000 (US$21,300) per month, although individuals with outstanding achievements in research and academia, science and technology, sports, and arts and culture can also qualify even if they do not meet the qualifying salary.

Duration and work criteria

The Overseas Networks & Expertise Pass allows the holder to concurrently work, start, and operate multiple companies in Singapore at any one time. Moreover, their spouse can also work through a Letter of Consent with the Ministry of Manpower.

Applicants with no recent history of working in Singapore will need to prove that they have worked or will be working for a company with a market capitalization of at least US$500 million or with an annual revenue of at least US$200 million.

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