The following shipping income of a shipping enterprise is exempt from tax under Section 13A and Section 13F of the Singapore Income Tax Act (SITA):
Section 13A Income
- For Singapore registered ships plying in international waters, income derived from:
- the carriage of passengers, mails, livestock or goods;
- towing or salvage operations carried out;
- the charter of such ships;
- the use of the ship as a dredger, seismic ship or vessel used for offshore oil or gas activity (with effect from Year of Assessment (YA) 2007);
- foreign exchange and risk management activities which are carried out in connection with and incidental to its operation (with effect from YA 2009); or
- the provision of ship management services to any qualifying company in respect of Singapore ships owned or operated by the qualifying company (income derived on or after 22 Feb 2010).
- For foreign ships
- Income derived from freight uplift from Singapore. This exemption does not cover charter fees and carriage arising solely from transhipment from Singapore or is only within the limits of the port of Singapore.
Note: For definition on what is a shipping enterprise, qualifying company, ship management services etc, please refer to Section 13A(16) of the SITA.
There is no need to apply to IRAS for this exemption. If a company derives income that qualifies for the exemption, it simply needs to report the amount and nature of the income in its annual Income Tax Form (Form C) and its tax computation.
Section 13F Income
- For an approved international shipping enterprise* operating ships plying in international waters, income derived from:
(a) On or after 1 Apr 1991
- the carriage of passengers, mails, livestock or goods by foreign ships;
- the charter of such ships to any person for the carriage of passengers, mails, livestock or goods outside the limits of the port of Singapore;
- the carriage of passengers, mails, livestock or goods by foreign ships to Singapore solely for the purpose of transshipment.
(b) With effect from YA 2003
- towing or salvage operations by foreign ships;
- the charter of such ships to any person for towing and salvage operations.
(c) With effect from YA 2005
- the operation of a dredger, seismic ship or vessel used for offshore oil or gas activity;
- the charter of a foreign dredger, seismic ship or vessel used for offshore oil or gas activity.
(d) With effect from YA 2009
- foreign exchange and risk management activities which are carried out in connection with and incidental to the operations described in paragraphs (a), (b) and (c).
(e) On or after 22 Feb 2010
- the provision of ship management services to any qualifying special purpose vehicle in respect of any ships owned or operated by the qualifying special purpose vehicle.
* An approved international shipping enterprise is one approved under the Maritime Sector Incentive - Approved International Shipping Enterprise award (MSI-AIS) that is administered by the Maritime and Port Authority of Singapore (MPA). To apply for this incentive, please refer to MPA’s website at www.mpa.gov.sg.
Disposal of Vessels
To give certainty to the shipping industry, gains arising in YA 2005 to YA 2009 from the disposal of vessels registered with the Singapore Registry of Ships (SRS) and vessels owned or operated under the MSI-AIS award would not be subject to income tax.
Following the introduction of the Maritime Sector Incentive - Maritime Leasing (MSI-ML) award (previously known as Maritime Finance Incentive), from 1 Mar 2006, the concession also applies to disposal of Singapore registered ships by MSI-ML (Ship) entities who are engaged in the business of ship operations.
With effect from 16 Feb 2008, the scope of the concession has been expanded to include:
(a) gains from the sale of vessels which would subsequently be leased back to
shipping companies; and
(b) gains from sale of 100% shareholding in a Special Purpose Company (SPC) that owns
a vessel registered with SRS or a vessel under the MSI-AIS award.
The concession was extended till YA 2014 and does not cover ship disposal gains by any entity engaged in the business of ship trading.
As announced in Budget 2012, exemption has been granted to qualifying ship operators and ship lessors under the Maritime Sector Incentive (MSI) awards on gains from the disposal of vessels derived on and after 1 Jun 2011. This is to bring Singapore’s tax regime on par with other maritime nations and provide certainty to the maritime sector. The exemption does not cover ship disposal gains by any entity engaged in the business of ship trading.
With the above exemption, the concession is no longer applicable and shipping companies will not need to make an election in respect of gains from any ship disposals made on or after 1 Jun 2011. For more details, please refer to the MPA website at www.mpa.gov.sg.
How to Prepare the Tax Computation of a Shipping Company?
Please refer to the Basic Format of Tax Computation for a Shipping Company (105KB).
Things to Note when Preparing the Tax Computation of a Shipping Company
The company has to prepare separate operational accounts for each of its Singapore ship and foreign ship so that the income and direct expenses of each ship can be separately identified. It also has to maintain copies of Certificate of Singapore Registry (CSR) of each ship if it is claiming exemption under Section 13A and in the case of Section 13F income, Certificate of Registry of the foreign country. The company only needs to submit such certificates to IRAS upon request.
In addition, companies claiming exemption under Section 13F must also ensure that the terms and conditions specified in the letter of award issued by the MPA are met.
The tax computation should distinguish clearly between different categories of incentivized income and indicate the relevant Income Tax Act provision or incentive scheme under which the income is derived.
Where both exempt and non-exempt income is derived, allocate the common expenses (usually administrative expenses) that cannot be directly identified to each ship on a reasonable basis. Normally, the turnover basis is used. The share of common expenses allocated to exempt income will be deducted against exempt income.
Capital allowances
Where a shipping company derives both exempt and non-exempt income, capital allowances should be apportioned on the common fixed assets based on a turnover basis.
If the fixed assets are directly identifiable to a particular exempt or non-exempt income source, the capital allowance for such assets will be deducted against that respective source of income. For instance, capital allowance on a Singapore registered ship plying in international waters can be claimed only against Section 13A exempt shipping income.
A shipping company can choose not to claim capital allowance for the portion that is attributed to its exempt income under S13A. However, it is mandatory for a shipping company to claim capital allowance against its shipping income exempted under S13F.
Where a shipping company decides to claim capital allowances against the exempt income under Section 13A for the current YA, unutilised balance of such allowances, if any, is not available for setoff against any other income or to be carried forward.
Losses
If the company suffers losses from the portion of business qualifying for S13A exemption, that amount of losses cannot be setoff against non-exempt income. The losses also cannot be carried forward to future years for setoff against future years' income.