EP Holder Trying to Acquire Existing Business in SG

[roshi ensei]

Hi everyone,

I'll try to keep this short and sweet.

First my background:
- EP holder, wife and kid in SG under DP.
- Been here for almost 2 years
- Will try PR next year after my 3rd tax filing, my race & spouse's (Indonesian Chinese) seem favorable
- Have never applied for PR before, thanks to several posts on this forum I know what not to do

What I'm planning to do:
- acquire an existing profitable business using a combination of debt & equity and then run it as director
- company I'm looking for is in the range of SGD 1M-1.5M annual EBITDA (haven't started looking yet)
- I have a potential distant relative who is an SG citizen that can be my nominee shareholder/director (and I'm also aware some companies offer this service)
- I've done some calculation and have identified key parameters in order for this to work, but bottom line it seems very viable

What I'm stumped about:
- My ideal plan would be to run the company I acquired (i.e. company B) while still being employed as company A (my current EP sponsor) for 1 year or so
- Reason is for security sake
- I'm pretty sure this is illegal to do in SG, especially if I receive salary (this is for sure illegal while I'm still under EP)

So the questions are:
- Can I receive cash dividends instead from company B? I've been trying to search for an answer to this, but can't find one (I even called MoM and they too are not sure, MoM advised me to talk to my company (company A) so they can ask their MoM representative about this)
- It seems like from another post, I can try to still apply for an EP for company B and while waiting, of course I can still work for company A, but what if the EP never gets approved? Given that I will be taking huge debt and putting in a significant amount of my own money into the equity pool to buy a company, this seems like a risky gamble (hence my preference to keep both jobs if possible)

Can anyone advise me on the viability of my plan? Again, I've tried searching for similar topics but the closest I can find are the ones about starting a company as opposed to acquiring an existing business (which I will be investing my own money in plus debt) and surely this would weigh differently in the eyes of the gahmen right?

Thank you!

[sundaymorningstaple]

Let's wait for Strong Eagle to weigh in on this one. He's probably the best one for this.

[Strong Eagle]

I qualify my answer by saying that it has been quite a while since I wound up my company in Singapore, and further, what I say here should not be constituted as legal or professional advice.

You have two issues with your plan that I see. First, as far as I can tell, nothing has changed with respect to having secondary employment while on an EP... you cannot do it. Therefore, you cannot work for a second company even as a director. This applies to all types of work passes.

https://www.mom.gov.sg/faq/work-pass-ge ... 20training.

Now, there is a provision which would allow an EP working for company A to serve as a director for company B. However, based on my readings of the MoM regulations, I don't think your circumstances qualify.

https://www.mom.gov.sg/passes-and-permi ... rectorship

So, let's assume that you can only assume the role of shareholder and not hold any active title in the company. You have a relative who's willing to be a director for your company and assume all the risks that a director must assume (he is aware that he is criminally and civilly liable for the actions of the company, correct?).

Here's your second problem. Singapore, like most other countries, is well aware of a commonly tried tax avoidance scheme, and that scheme is to pay yourself dividends as a shareholder of your company, rather than paying yourself a director salary as an expense item from your company. Dividends are not taxable in Singapore, salaries are.

So, if you're working for a company (your relative in this case), then there must be a salary that is commensurate with the duties and revenues of the company. You cannot pay yourself $1 per hour. IRAS has suggested guidelines. I know of a man years back doing exactly this (director and single shareholder of his own company). He was on EP and when IRAS caught wind of his tax avoidance, his EP was cancelled.

Now, maybe because you're only a shareholder and your relative is a director, this whole situation might fly under the radar, but I have to tell you... with the integration of databases between agencies, I'd not be at all surprised if they connect the dots between a company that makes lots of money, a director that doesn't make any money, and a shareholder on EP that's raking in the dividends... and come up with the conclusion that you're actually working for the new company and the director is just a figurehead. What happens after that, I don't know.

Conclusion: I think that you must pay your relative director a sum of money that IRAS finds acceptable for managing a company of the size and revenues that yours will be. This is the cost to you of being risk averse and not wanting to jump in with both feet (more on this in a moment).

As a shareholder, you might consider leaving all the profits in the company and not taking dividends. You'll eventually be able to cash them out once your status changes, and not having dividend income might keep the authorities from assuming that you're doing the work for the company. Of course, if you're paying your relative director enough money, and he's making you a bundle, then maybe there's no issue in taking dividends.

And I suppose that you could make a side deal with your relative director about recouping some of the salary you pay to him/her but that's another topic entirely.

Finally, at some point, you're going to have to qualify for your own EP for your new company. There's all sorts of onerous regulations around the Entrepass, and it is still a fact (I think) that foreigners can setup a company, run it, and get their own EP. But, it's not a guaranteed slam dunk. Therefore, I'd factor in what you plan on doing with your company, should your own EP not be approved.

That's all for now. Write again if you have more questions.

Hi everyone,

I'll try to keep this short and sweet.

First my background:
- EP holder, wife and kid in SG under DP.
- Been here for almost 2 years
- Will try PR next year after my 3rd tax filing, my race & spouse's (Indonesian Chinese) seem favorable
- Have never applied for PR before, thanks to several posts on this forum I know what not to do

What I'm planning to do:
- acquire an existing profitable business using a combination of debt & equity and then run it as director
- company I'm looking for is in the range of SGD 1M-1.5M annual EBITDA (haven't started looking yet)
- I have a potential distant relative who is an SG citizen that can be my nominee shareholder/director (and I'm also aware some companies offer this service)
- I've done some calculation and have identified key parameters in order for this to work, but bottom line it seems very viable

What I'm stumped about:
- My ideal plan would be to run the company I acquired (i.e. company B) while still being employed as company A (my current EP sponsor) for 1 year or so
- Reason is for security sake
- I'm pretty sure this is illegal to do in SG, especially if I receive salary (this is for sure illegal while I'm still under EP)

So the questions are:
- Can I receive cash dividends instead from company B? I've been trying to search for an answer to this, but can't find one (I even called MoM and they too are not sure, MoM advised me to talk to my company (company A) so they can ask their MoM representative about this)
- It seems like from another post, I can try to still apply for an EP for company B and while waiting, of course I can still work for company A, but what if the EP never gets approved? Given that I will be taking huge debt and putting in a significant amount of my own money into the equity pool to buy a company, this seems like a risky gamble (hence my preference to keep both jobs if possible)

Can anyone advise me on the viability of my plan? Again, I've tried searching for similar topics but the closest I can find are the ones about starting a company as opposed to acquiring an existing business (which I will be investing my own money in plus debt) and surely this would weigh differently in the eyes of the gahmen right?

Thank you!

[Strong Eagle]

After thinking about it, I'd SWAG that you will probably be successful in gaining an EP for your new company, given the level of investment in the company and the annual turnover. This would represent a solid investment in an existing company and stands a lot better chance of EP approval than some underfunded and untested business. I'd ensure that my resume reflects business experience in this type of company.

[roshi ensei]

Hi Strong Eagle,

Really appreciate your detailed response here. I've actually just had a call with a law firm and the MoM on this.

You are right that it seems the best path forward is to acquire the company, appoint a local director, get said director to apply for EP, and finally once EP is approved I can resign from my old company. Both the law firm and MoM agree on this point. Just to be clear, I don't mind jumping in with both feet and forego the security if having 2 income sources, it's only the EP approval that worries me (especially more so given that I have skin in the game)

The EP approval itself it not a guaranteed slam dunk like you said. Losing that kind of money would obviously be a catastrophe. I just wrote a more detailed email to MoM to check if there's precedent to this.

Another thing that MoM mentioned was to check with ACRA whether there's any ruling for EP holder from acquiring an SG company. The good news is there's none. ACRA just told me to make sure that the company has a local director in place while I'm still on my old EP.

Will update the group here if I have anything new. Again, thanks everyone!

[Strong Eagle]

No one on this forum can predict if MoM will issue you an EP or not, and they haven't contacted us for advice on any given EP application... their loss, I'm sure.

Having said that, I offer you some background a few insights, and a couple of suggestions that may help you make your decision.

First... the ACRA... they've got nothing to do with work passes. The information on their website says you need a pass of some sort, which is correct, but beyond that, it is MoM and only MoM that grants your EP wishes. The ACRA really doesn't care. ACRA will only enforce the terms of the Companies Act, for example, at least one of your directors listed in BizFile needs to have a permanent Singapore address. However, I wouldn't be surprised that with interagency integration of databases, if someone is listed as a director in a company and they have a FIN, MoM will be contacted to verify work pass status.

Second, a bit of employment pass history is in order. From around 2000 to 2005, MoM created Entrepass rules that were so lax that virtually everybody and their cat could qualify. There were no capital requirements and if you claimed capital, no one bothered to check if you had money in the bank. Business plans were supposedly reviewed by SPRING, a now defunct agency focused on enterprise development, but I thinks that their business acumen was less than sterling.

As a result, Singapore was flooded with _entrepreneurs_ who didn't know shit from Shinola, and who basically used the Entrepass to get a foot into Singapore. As a result, the gahmen slammed the Entrepass pendulum hard the other way, with regulations so onerous that it was virtually impossible to get a pass for someone like yourself. My old thread at viewtopic.php?t=93619 can give you more history.

Two things happened. First, the Entrepass regulations were substantially loosened but that doesn't mean that they're not still a pain in the ass. https://www.mom.gov.sg/passes-and-permi ... ligibility And second, MoM has continued to award EP's to new businesses coming in the traditional way... a track record, skilled management, and money. As evidence, I offer you all the "rent a director" companies whose sole purpose in life is to get a company started for you so that you can get an EP to start a business.

I'm not recommending one of these companies because they are expensive as hell and they will want to know everything about you, but it wouldn't hurt to interview a couple of these companies as though interested to see what they have to say about your situation. Warning... what they say could be a crock of crap because the just want your money. But check.

It is completely allowable by MoM for you to be on one EP and apply for another. Your current EP will not be cancelled until such a time as your new EP is approved. However, not knowing your relationship with your current employer, I'd probably advise them of my intents.

The way I see it is that you have a few options to reduce risk. First and foremost, your contract to buy the new company should be contingent upon you receiving your EP. You might have to include a failure penalty but this would keep you off the hook for the entire amount. No EP, no sale.

Second, rather than buying the company and using it to get your EP, form your own pte ltd and use it to get your EP. Your company's business plan includes buying the other company that you really want. Use your relative to be the director of this new company and to apply EP for you. Upon success, use your new company to buy the one you want.

Finally, it strikes me that if the company you want to buy is a good deal, then maybe purchasing it is not such a large risk because it can be sold again to someone else. Factor that possibility into your equations.

Hi Strong Eagle,

Really appreciate your detailed response here. I've actually just had a call with a law firm and the MoM on this.

You are right that it seems the best path forward is to acquire the company, appoint a local director, get said director to apply for EP, and finally once EP is approved I can resign from my old company. Both the law firm and MoM agree on this point. Just to be clear, I don't mind jumping in with both feet and forego the security if having 2 income sources, it's only the EP approval that worries me (especially more so given that I have skin in the game)

The EP approval itself it not a guaranteed slam dunk like you said. Losing that kind of money would obviously be a catastrophe. I just wrote a more detailed email to MoM to check if there's precedent to this.

Another thing that MoM mentioned was to check with ACRA whether there's any ruling for EP holder from acquiring an SG company. The good news is there's none. ACRA just told me to make sure that the company has a local director in place while I'm still on my old EP.

Will update the group here if I have anything new. Again, thanks everyone!