Singapore has consistently set her sights on becoming and being a leading international maritime centre. In order to achieve this vision, ship owners and operators need to be able to do business in a dynamic and vibrant environment. One feature of such a business environment is the availability of a suite of tax incentives which promote the maritime sector by targeting at ship operators, maritime lessors and providers of certain supporting shipping services. More recently, with effect from 1 June 2011, all existing tax incentives for this sector have been streamlined and consolidated under the new Maritime Sector Incentive (“MSI”).
This article is provided by the Tax Practice of WongPartnership LLP, a leading law firm in Singapore. For more information, please contact Mr TAN Kay Kheng, Head of Tax Practice at kaykheng.tan@wongpartnership.com.
For more than a decade, Singapore has a tax exemption on qualifying income derived from operating Singapore-flagged and foreign-flagged ships (mainly income from goods shipped in Singapore). Another incentive implemented two decades ago was to attract shipping enterprises to locate in Singapore and to come under the Approved International Shipping Enterprise scheme which exempts international shipping profits for a period not exceeding 10 years, subject to conditions begin met. Under the new MSI, these companies with international shipping operations can continue to enjoy the tax incentives.
There are other specific schemes such as those relating to qualifying foreign loans obtained to finance ship purchases or construction, or relating to ship and container leasing companies (i.e. the MSI-Maritime Leasing award).
What is of more recent interest is first the announcement in the Budget Statement 2010 by the Minister for Finance of new incentives relating to supporting shipping services. In the Budget Statement 2010, a new incentive targeted at ship brokers and Forward Freight Agreement (“FFA”) traders was announced. This incentive has been streamlined into the new MSI as mentioned. The Maritime and Port Authority of Singapore (“MPA”) refers to this incentive as an “MSI-SSS award”. Applications are made to the MPA.
In brief, under an MSI-SSS award, approved ship brokers and approved FFD traders can enjoy a 10% concessionary tax rate on incremental qualifying income derived by them. Previously, they would have been taxed at the prevailing corporate tax rate which is currently 17%. Approval of a MSI-SSS award is for 5 years. The sunset clause for this incentive will be 31 May 2016.
Qualifying supporting shipping services include:
- ship management, ship agency and shipping freight/logistic services (currently covered under the Approved Shipping and Logistics scheme);
- ship broking
- FFA trading; and
- qualifying corporate services.
“ship broking” in turn means:
- the broking of sale and purchase of vessels (including the activity of valuing the vessels);
- the matching of vessel owners (which intend to build new vessels) to shipyards based on the vessel owners’ requirements;
- the matching of vessels to:
(i) cargoes; or
(ii) vessel owners and vessel charterers;
- the valuation of vessels; or
- the matching of forward freight agreement traders where the forward freight agreement trade is in connection with shipping freight rates,
- and includes the provision of research, consultancy or advisory services using information derived from the business of carrying on any of the above-mentioned activities, subject to the fees derived from such services being capped at 20% of the aggregate of these fees and the fees and commissions derived from the above-mentioned activities in the same year.
According to information provided by MPA, “companies with a strong track record, demonstrable business plan and a commitment to expand their ancillary shipping activities in Singapore may apply for the MSI-SSS award during the period 1 June 2011 to 31 May 2016.”
The MSS-SSS award is only for Singapore incorporated and resident companies (i.e. not available to other entities such as partnerships).
Another new measure relates to the automatic withholding tax exemption for qualifying payments (such as interest) made on or after 1 June 2011 in respect of qualifying loans entered into on or before 31 May 2016 with foreign lenders to finance the purchase or construction of Singapore-flagged and foreign-flagged vessels. This was announced in the Budget Statement 2011. The aim of this withholding tax exemption is to further promote the growth of the maritime sector. Conditions need to be met to obtain the exemption.