The following shipping income of a shipping enterprise is exempted from tax under Section 13A of the Singapore Income Tax Act:
- 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; or
- 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 2007).
- 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.
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.
The company would also need to submit copies of the Certificate of Singapore Registry for each of its Singapore ship when it submits its Form C to IRAS.
Things to note when preparing the Tax Computation of a Shipping Company
If a company qualifies for Section 13A exempt income, it 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.
The tax computation should:
- Show the income and expenses separately for each ship
- Distinguish clearly between exempt and non-exempt income
- 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.
However, if the shipping company decides to claim capital allowances against the Section 13A exempt income for the current YA, unutilised balance of such allowances, if any, is not available for carry forward.
Losses
If the company suffers losses from the portion of business qualifying for S13A exemption, that amount of losses cannot be offset against non-exempt income. The losses also cannot be carried forward to future years for offsetting against future years' income.