Local Director Requirement - Employment Pass or Nominee Director?
Singapore’s company law does not make a distinction between local or a foreign entrepreneur. Anyone planning to register a Singapore company is required to satisfy the following minimum requirements:
- A minimum of S$1 share capital
- A minimum of 1 shareholder (100% foreign shareholding allowed)
- A minimum of 1 local director (all other directors can be foreigners)
- A local company secretary
- A local registered address
While above requirements are simple and straightforward, one of the challenges a foreigner entrepreneur is likely to face is the need to appoint a local person as one of the company directors. More often than not, the foreign entrepreneur will not have someone in Singapore who they can appoint as the Local Director for the company.
The purpose of this article is to provide guidance on available options for satisfying the Local Director requirement for such entrepreneurs. There are three such options. Your preferred option will depend on your specific plans as described in the guidance below:
- If you intend to relocate and manage your company from Singapore, the best solution for you will be to obtain an Employment Pass. After you receive the Employment Pass, you can act as the Local Director for your company.
- If you do not plan to relocate to Singapore then there are two other options available to you to satisfy the Local Director requirement:
- Engage a Nominee Director service, or
- If you are planning to hire local staff, appoint one of the staff members as a Local Director of your company.
These options are explained in more detail below.
Employment Pass Option
To satisfy the Local Director requirement, foreign-owned Singapore companies can apply for an Employment Pass (EP) for one or more of their foreign executives who plan to relocate to Singapore to operate the Singapore company. After approval and relocation to Singapore, the Employment Pass holder can act as a director of the company to satisfy the Local Director requirement.
Consider the following points when you are exploring the Employment Pass option:
- Employment Pass is subject to approval by the government. See EP eligibility criteria for more details.
- For senior-level EP applicants, the recommended monthly salary should be at least S$8,000. This is not a paper salary; the Singapore company must pay this salary on a monthly basis.
- The EP applicant will be required to pay personal taxes on this salary in Singapore as per applicable personal tax rates.
- The EP applicant will need to establish a residence in Singapore which means he or she will have to rent an apartment and pay the monthly apartment rental fee. In order to be appointed as a Local Director, the EP holder will need to provide their local residential address.
- Your Singapore company should have a strong financial position (in the form of paid-up capital, client contracts, or the strength of the parent company).
Therefore, you should apply for an Employment Pass only if you genuinely plan to relocate to Singapore after approval of the Pass. If the Employment Pass route is the right option for you, the overall incorporation procedure will consist of the following steps:
- Incorporate your Singapore company, open bank account and inject paid-up capital.
- Use the Nominee Director service of your corporate service provider on a temporary basis while you are waiting for your EP application
- Apply for your Employment Pass
- If your EP application is approved, move to Singapore on the EP and establish residence there
- Transfer the directorship to yourself and list your Singapore residential address to satisfy the Local Director requirement
- Operate your business
Nominee Director Option
Appointing a Nominee Local Director is another option for foreign-owned companies to satisfy the Local Director requirement i.e. you can “hire” a person who will be appointed as a director for a fee. Such a director is called a Nominee Director.
This service is typically provided by the corporate service provider that you will hire for incorporating and administering the compliance of your Singapore company. Since in the eyes of Singapore Company Law, there is no difference between an operational and a nominee director, you must be careful when hiring the services of a Nominee Director. When this service is offered by a reputable corporate service firm, a Nominee Director is contractually prohibited (by way of a contractual agreement) from interfering with your business decisions. The Nominee Director will not participate in management, business operations and has no say during internal meetings. The real directors (i.e. your foreign directors) will run the company while the nominee is only there to comply with the legal requirement and to act as the contact of last resort for the Singapore authorities.
Due to the risks that a Nominee Director undertakes, the vast majority of corporate service providers will require a security deposit in addition to the annual fee. At CorporateServices.com, we generally do not ask for a security deposit except for companies with heightened-risk profiles. For more information on Nominee Director service, refer to our guide Nominee Director for a Singapore company.
Nominee Director is a very suitable option if you don’t plan to relocate to Singapore to operate your company. The Nominee Director will not be involved with your business matters yet will be able to satisfy the local director requirement.
Appointing Local Staff as a Director
If a foreign-owned Singapore company is hiring senior-level local staff, it can appoint a local staff executive as the local director of the company. The decision in this case is simple and straightforward and no special guidance is required here.
Consider the following when you are exploring Local Staff as a Director option:
- This person will be in charge of all duties and responsibilities suitable for a director. You should be aware that finding such an employee might take some time and effort, and your main challenge will be finding a person to whom you can trust the key affairs of your company.
- You can temporarily engage a Nominee Director service from your corporate service provider until you find a suitable local staff to appoint as the local director of your company.
Which Option Should You Choose?
There is no universal solution, each option has its pros and cons. The right answer for you will depend on your specific situation and business needs. But in general, the following guidance is appropriate.
If you are considering relocating to Singapore and establishing your residence there, the Employment Pass option will be the most appropriate. To improve the chances of the successful outcome of your EP application, you should make sure that you and your company have the appropriate credentials that meet the eligibility criteria.
In case you have no intention to change your current place of residence and you plan to manage your Singapore company remotely, you can either hire a Local Director who will be fully engaged in management activities or engage a Nominee Director service. Both options require careful attention while choosing a suitable person for this position.
A Quick Note on the Role of a Singapore Company Director
The director plays an important role in any company. A director is responsible for managing the affairs of the company and providing it with directions. According to ACRA’s definition: “A director must make decisions objectively, act in the best interest of the company, avoid conflicts of interest, and be honest and diligent in carrying out his duties”.
Among the main assignments of a company director are the following:
- Ensuring that the company is operated in compliance with all Singapore laws
- Convening and holding of the company’s Annual General Meeting (AGM)
- Ensuring corporate governance
For a comprehensive overview to this role, read our guide duties and responsibilities of Singapore company directors.
Please keep in mind that your company will be bound by the decisions of its directors, therefore it is crucial to choose directors who have the appropriate skills and experience; and who can align with the strategic objectives of your company and have the ability to govern your company effectively.
Eddy and Hannah
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