Will this plan for freelancing in SG work?

[throwawaypep]

Hi all,

First off, let me thank the numerous contributors to this forum, i have learned a lot from you!

I hold a PEP, and i have opportunities to work as a freelance / contractor for Singapore companies. I know that you can't normally freelance if you are on an EP or PEP.

MoM doesn't care if have an employment relationship with any employer outside Singapore (i have verified this by calling them).

I'm thinking of incorporating an entity outside Singapore and invoicing my clients through that entity.

Would this plan for freelancing work?

Specifically, will MoM / ICA be fine with this, and do i risk running afoul of any labour / employment laws? From a taxation perspective, it seems that my income earned from this foreign entity will be treated as personal income tax, which i'll gladly pay

[Strong Eagle]

Hi all,

First off, let me thank the numerous contributors to this forum, i have learned a lot from you!

I hold a PEP, and i have opportunities to work as a freelance / contractor for Singapore companies. I know that you can't normally freelance if you are on an EP or PEP.

MoM doesn't care if have an employment relationship with any employer outside Singapore (i have verified this by calling them).

I'm thinking of incorporating an entity outside Singapore and invoicing my clients through that entity.

Would this plan for freelancing work?

Specifically, will MoM / ICA be fine with this, and do i risk running afoul of any labour / employment laws? From a taxation perspective, it seems that my income earned from this foreign entity will be treated as personal income tax, which i'll gladly pay

I judge that they already prohibit such an idea. Here is what is going to get you.

Who is not eligible

You are not eligible for the PEP if you are:

An Employment Pass holder under the sponsorship scheme.
A freelancer or foreigner who intends to work on a freelance-basis.
A sole proprietor, partner or where a director is also a shareholder in an ACRA-registered company.
A journalist, editor, sub-editor or producer.

Note: You are not allowed to start a business or conduct any form of entrepreneurial activity while on a PEP. If you intend to do so, you should apply for an EntrePass.

See, the only way you can declare your foreign income in Singapore is via an unregistered sole proprietorship. You file your business earnings on the SP sheet of you personal income tax.

Now, it is true that there are both registered and unregistered SP's. You only need to legally register if you are conducting business other than in your name, so, if you get checks payable to you, and deposit them in your personal account, I'd think registration is not necessary.

Now, you tell me whether the "sole proprietor" listed above applies to registered, unregistered, or both types of SP. Given that the clear intent is for PEP holders to work for a Singapore company and not their own, I'd say they won't look upon this favorably.

But even if that doesn't get you, it seems that you will be in clear violation of the last sentence, to whit, "You are not allowed to start a business or conduct any form of entrepreneurial activity while on a PEP."

Clearly, by invoicing an external company and reporting it on your own SP, you are engaged in an entrepreneurial activity, instead of being a good boy and working for da man. I predict you will be shot down.

The rules also state:

Requirements of the pass

To keep holding a PEP, you must:

Not be unemployed in Singapore for more than 6 months at any time. Otherwise, you will need to cancel the pass.

Whether working for your own SP is considered "employed" is a SWAG... I'd guess not, given the rules above. IF you were working for a Singapore registered firm, at a salary sufficient to cover your $144K, then I suppose you could venture off into your own activities... I understand that PEP's can do this while EP's cannot. Maybe you work out some kind of arrangement with a Singapore firm.

[throwawaypep]

Thanks for your reply, SE! Also, thank you for the numerous posts you have made on this forum, i appreciate them very much!

See, the only way you can declare your foreign income in Singapore is via an unregistered sole proprietorship. You file your business earnings on the SP sheet of you personal income tax.

Can't I declare my income as salary earned from a foreign corporation?

I wasn't planning on using a sole proprietorship for my freelancing activity. I want to set up a foreign corporation where i won't have any directorship or ownership. The foreign corp will sign a contract with the Singapore company.

I'll be an employee of the foreign corporation and do the actual work here in Singapore. At the same time, I'll continue working my current job and keep my PEP.

This IRAS page says that you can pay taxes on income earned from foreign employers: https://www.iras.gov.sg/IRASHome/Indivi ... Employers/

[Strong Eagle]

The foreign corp will sign a contract with the Singapore company.

Now you've got me confused. Which Singapore company is going to be signing the contract?

[throwawaypep]

The Singapore company that i will be freelancing for will sign a contract with the foreign corporation. I will be an employee of the foreign corp, and I will have no directorship / ownership in it.

All this while i'll continue working for my current employer to keep my PEP. My current employer is of course a different company than the one that signs with the foreign corp, though they are both registered in Singapore.

[Strong Eagle]

Now you have tossed another element into the equation: “The Singapore company that I will be freelancing for will sign a contract with the foreign corporation.”

To date, you have referred to:

1. A foreign company that you are going to create
2. A local company that you are actually working for on your PEP
3. A second local company that is going to be contracting with your foreign company.

Update: I get it. The reference to "The Singapore company that I will be freelancing for will sign a contract with the foreign corporation" is the company that you think is going to contract with the foreign company you are setting up. Won't work. See d), below.

Here is the fact situation as I see it… and of course, you’re more than welcome to prove me wrong.

1. You are clearly attempting to circumvent the rule which prevents people from forming their own company and working as a freelancer. No matter what mechanisms you put in place, it’s pretty obvious what you are trying to do, and I’d not be surprised at all if someone at MoM says, “WTF,” shuts you down, and let’s you make all the appeals that you want.
2. You already know that with a PEP you can work for a second Singapore company, if the first Singapore company you are working for allows you to do this.
3. You already know that you cannot start your own Singapore company and act as its director, or, although not explicitly stated on MoM’s website, a key employee, nor can you start and run your own SP or your own partnership. Reason: They don’t want you to freelance on a PEP.
4. You may not be aware of the fact that if you are working for a foreign company that provides goods or services in Singapore, then that entity _must_ have a Singapore registered legal entity, and it is the Singapore entity that you will be working for.
   
   Example: Dell sells computers in Singapore. Even though it is a US based company, it must have a Singapore entity, and all Dell people in Singapore work for that Singapore entity. They get IR8A’s from Dell. Dell could not simply sell into Singapore and have people on the US payroll. This is your situation... a foreign company providing services in Singapore.
   
   Example: You work for a professional services firm in Green Bay, Wisconsin, advising the Packers what third down plays they should call. That’s all they do. No Singapore entity is required because no goods or services are supplied in Singapore. You report your income as a sole proprietor in Singapore. As a PEP you couldn't hold this job because you'd be reporting free lancing income via your own sole proprietorship.
5. Here’s a useful distinction: If you’re working for a Singapore entity that is not your own (ie, an arm’s length relationship), then, by definition, you are not freelancing, you are an employee. If you’re working for a Singapore entity that is your own… well, you can’t do that.
6. If you’re working for that Singapore entity, and it is the one bringing in the free lance consulting contracts, then you don’t need anything else. You are an employee of that Singapore firm, it is executing contracts with other Singapore entities for services, and it is paying you, as an employee, piecework or otherwise, to fulfill the terms of the contract.
   
   Back to the Green Bay consulting gig: If you're hired by the the Singapore entity who in turn contracts with the Green Bay foreign firm, then you're an employee of the Singapore firm, and not technically freelancing.
7. You can see then, that you don’t need a foreign entity if you are working for a Singapore entity since you are planning to source work from Singapore companies. And if you create the foreign entity, you have a problem anyway, because your foreign entity is providing goods and services in Singapore, and thus, must be registered in Singapore anyway.

Update: Now that I see that the Singapore company is the company that is going to contract for your freelance services via your foreign company, I state that this will not work as you must have a Singapore legal entity to provide goods and services into Singapore, and that includes Singapore companies.

Bottom line: As I have previously stated, the only way I see this working is that you work for a Singapore entity that does the contracting for your freelance services. This entity cannot be yours.

[throwawaypep]

Thanks for the thorough explanation SE, i appreciate it!

You are right, i didn't know that you need a business entity in Singapore to provide goods and services in Singapore.

I scoured the forums even more over the last few days, and i saw this post you made in 2016: viewtopic.php?t=112275#p753513

You have no issues working for Singaporean firms from the UK. They simply pay you as a foreign contractor and they have their own set of corporate tax rules to follow regarding your tax treatment on the company books.

Can a Singapore firm pay a UK resident as a foreign contractor? In this case, the foreign contractor is providing services in Singapore, so doesn't he need to register a company here? Or perhaps you meant that he will register a company here and provide services through it but will continue to reside and pay tax in the UK?

If you’re working for a Singapore entity that is not your own (ie, an arm’s length relationship)...

In light of what you have shared, i'm thinking of the following plan:

1. Set up an SG registered company (let's call it Raffles Consulting) in which i own no shares and hold no directorship.
2. Set up contracts between Raffles consulting and Singapore companies like Singtel and Starhub.
3. Hire employees in the UK or someplace outside SG to actually do the work.
4. Continue working at my current employer and keep my PEP. When i'm confident, leave my job and join Raffles Consulting. Assuming i can make 144k+ at Raffles Consulting, i won't have to apply for an EP or submit a business plan.

When i make the transition full time to Raffles Consulting, i likely won't be retaining the offshore contractors. Do you think demonstrating an "arm's length relationship" will be a difficult if I am the only employee of this company?

[Strong Eagle]

Thanks for the thorough explanation SE, i appreciate it!

You are right, i didn't know that you need a business entity in Singapore to provide goods and services in Singapore.

I scoured the forums even more over the last few days, and i saw this post you made in 2016: viewtopic.php?t=112275#p753513

You have no issues working for Singaporean firms from the UK. They simply pay you as a foreign contractor and they have their own set of corporate tax rules to follow regarding your tax treatment on the company books.

Can a Singapore firm pay a UK resident as a foreign contractor? In this case, the foreign contractor is providing services in Singapore, so doesn't he need to register a company here? Or perhaps you meant that he will register a company here and provide services through it but will continue to reside and pay tax in the UK?

No, he doesn't need to have a registered company here. Let's first be clear that we are talking about arm's length transactions, ie, no shared ownership, no shared management or directorships.

My Singapore company, Acme Pte Ltd, is in need of a technical manual for sheep shearing. Nobody in Singapore knows how to shear sheep, so I contract with a fellow by the name of Monty Goodheart in the UK, who writes up a manual for me under contract. I could have also contracted with Monty's UK company if he had one.

Monty doesn't need a Singapore presence because he doesn't live in Singapore and has no personnel present in Singapore that are providing products or services. He did all the work for me in the UK, and delivered it by post, or more likely, electronically, by PDF. He could even fly into Singapore for a couple of days to demonstrate how to shear sheep without being in violation of any rules.

The key differentiator here, from you, is that that Monty is not resident in Singapore for tax purposes, and, Monty has no other related personnel in Singapore, either. You are resident for tax purposes, a bit different.

To go back to the Dell example I previously used: If Dell _only_ shipped PC's into Singapore to be stocked at Sim Lim or Funan IT Mall shops, and it had no employees in Singapore, then it wouldn't need a legal presence in Singapore. The instant Dell picked up a warm body in Singapore to pedal PC's into those shops, it would need a legal presence.

Let's say you became a Singapore based contractor for Monty's UK based firm. If you performed work for companies that have no presence in Singapore at all, then you need no legal entity per se, and you file your income as an unregistered sole proprietor. But, if you OR Monty provides services in Singapore, that legal entity is now required and you will work for it.

If you’re working for a Singapore entity that is not your own (ie, an arm’s length relationship)...

In light of what you have shared, i'm thinking of the following plan:

1. Set up an SG registered company (let's call it Raffles Consulting) in which i own no shares and hold no directorship.
2. Set up contracts between Raffles consulting and Singapore companies like Singtel and Starhub.
3. Hire employees in the UK or someplace outside SG to actually do the work.
4. Continue working at my current employer and keep my PEP. When i'm confident, leave my job and join Raffles Consulting. Assuming i can make 144k+ at Raffles Consulting, i won't have to apply for an EP or submit a business plan.

When i make the transition full time to Raffles Consulting, i likely won't be retaining the offshore contractors. Do you think demonstrating an "arm's length relationship" will be a difficult if I am the only employee of this company?

Here's a couple of thoughts about this plan.

1. If you are neither a shareholder nor a director of a pte ltd in Singapore, then you are simply a disinterested third party, acting on behalf of someone else that doesn't know how to setup a company. This would typically be a law firm or CPA but it could be anyone, including you.
2. But, who is the shareholder? Do you know the shareholder has absolute control over the company, ultimately exercised through resolutions passed at AGM's and EGM's? Who do you trust enough to grant that kind of power to a company that is ultimately intended to be of benefit to you? And who wants to be involved in a company unless they get compensation for their role?
3. Who is the director? Directors by law (Companies Act) have nearly absolute authority and responsibility for the governance of a company, which cannot be restricted by articles of incorporation or employment contracts. Most people don't want to be directors because it is their ass on the line for your actions.
4. This leaves rented "nominee" directors, and these firms will want to be your accountant, your auditor, and will demand approval authority over bank transactions, contracts, and employment permits, because they don't want to be left holding the bag, should you do something dodgy. I suspect there won't be much interest in being your nominee director, given what your stated goals are.
5. This Singapore company, can, of course, employ contractors from anywhere, with the provisions I have stated above... their tax residency is not in Singapore.
6. Here's the rub for you. You obviously intend to be managing this Singapore company even though you're not a director or a shareholder. But, "director" has a very special meaning under the Companies Act, and the act takes the time to point out that even if you don't have the title of director, you may still be a director, based upon your job functions.
   
   Here's an example. Frammis Widgets Pte Ltd has hired a "sales executive". She sells the shit out of widgets and pretty soon they promote her to be "director of sales" and hire another grunt to be a "sales executive". Even though this person has the title of "director", she is not a director under the Companies Act because she doesn't materially run the company, but instead sells crap and manages other people who sell crap.
   
   So... the other person in the company holds the title of "general manager", and it is this person handles the hiring and firing of personnel, contracts to purchase widgets for resale, handles bank loans... all the aspects of running the business. Under the Companies Act, this person is a director regardless of title because they have responsibility for running the company.
   
   Do you see where I am going with this? You may think that you're just going to be an employee of a company that you don't own, but your rented director is probably a director for dozens, if not hundreds, of companies, and MoM knows rented directors don't manage companies. While you may fly under the radar, sooner or later it becomes obvious that there is a subterfuge here... and that's assuming you can find a shareholder and director willing to get in bed with you.

That's the bad news. The good news is that I judge you are thinking about all of this in the wrong way. Consider the historical reason for the rule against freelancing. It wasn't there in the beginning. PEP's were also pretty easy to get, an ill thought out employment pass if there ever was one.

You get all these clowns who either can't find a job, or they have a job and they lose it. Under an EP, they'd be out of Singapore in 30 days. With the PEP, they run on down to ACRA and form a pte ltd, and bingo, they now have a company to work for and they don't need to leave Singapore.

Bzzzzttttt!!!! No real work to do. No real clients. Freelancing, as in, "I don't have shit to do, maybe I'll run on down to Penny Black for a pint or two and see if anyone wants to hire me." (Parenthetical note: It can be notoriously difficult to break into consulting/real freelancing in Singapore without a network in place).

But, you sound different. It sounds like you have real live clients that would hire you. You sound like you might be able to demonstrate real experience in running a company. Entrepass requirements have been substantially loosened. And even if you don't go the Entrepass route, you form a company, get a director, apply for an EP, and dump your PEP (and your current company). MoM is well aware that current Entrepass requirements exclude a lot or worthwhile people, and grants employment passes to qualified people who form their own pte ltd's.

http://www.mom.gov.sg/passes-and-permits/entrepass

That's my view. Good luck.