Singapore plugs tax, benefit loopholes with tighter foreign hiring rules

The cost of setting up shop would be lower than getting caught for operating illegally.

A law that bars local job agencies from hiring non-Singaporeans for companies without an office in the city-state is expected to plug a loophole that allowed foreign employers to avoid retirement contributions and other taxes, recruitment experts said.

The law, which took effect in September last year, would also ensure job protection for all Singapore-based talent regardless of their origin under the Ministry of Manpower’s (MoM) comprehensive labour laws.

The government banned the so-called employer of record sponsorship for outsiders for the right reasons, Andrew McNeilis, managing director at global recruiter Phaidon International, told Singapore Business Review.

“Those reasons likely include the fact that enough people were taking advantage of the employer of record model in ways that were unfair to the local workforce—perhaps avoiding Central Provident Fund contributions, shifting tax offshore, and ultimately keeping money and commerce from being part of Singapore’s ecosystem,” he said via Zoom.

“I don’t think any government, including Singapore’s, would remove a facility like this lightly unless it was being abused or manipulated,” he added.

Singapore’s Ministry of Manpower has banned non-Singaporean entities from using a job agency, which used to handle all their legal and compliance requirements, to sponsor employment permits for foreign employees.

Before the law took effect in September 2024, it had been common practice for foreign companies to use job agencies without having to establish a local presence. By requiring companies to apply directly for work permits, the state aims to curb the misuse of its work pass system.

“It could be an offence under the Employment of Foreign Manpower Act (EFMA), which could lead to fines and, in very serious cases, even jail time for company officers,” said Ian Lim, a partner at TSMP Law.

This would apply to the foreign company, though such companies might take this less seriously if they’re not based in Singapore, he pointed out.

“However, it could also impact the employer-of-record company,” he said. “Just to be clear, a breach of the EFMA has the potential to affect three parties—the foreign company, the employer of record, and the foreign employee in question,” Lim said.

McNeilis noted that forcing foreign companies to set up an office in Singapore might mean higher costs for them, but those looking to expand in Singapore could instead apply for a short-term visitor pass.

“These operational costs are the right thing to do, the legally compliant approach,” he said. “And I suspect they would be far lower than the costs of getting caught trying to operate illegally and facing the consequences.”

Lim said the law gives Singaporeans more job opportunities. “It’s worth mentioning that nothing prevents foreign companies from engaging Singaporeans through an employee of record. And by Singaporeans, I mean both Singapore citizens and permanent residents because both groups don’t need a work pass to work in Singapore.”

He said there is no reason for foreign companies not to hire local talent.

“There are some sectors, industries, and positions where local talent might be very limited,” he said. “But honestly, those are very few. So, I think foreign companies that don’t want to set up shop in Singapore will just have to hire Singaporeans.”

The law would not necessarily affect specific sectors or businesses more
significantly than others.

“Blue-collar foreign workers in particular are not usually engaged through employer of record arrangements,” Lim said. “In industries like construction, logistics, and oil and gas, companies wouldn’t normally go through employers of record for their blue-collar workers. Typically, it’s white-collar workers who are hired this way.”