Shipping Companies

Shipping income of a shipping enterprise is exempt from tax under Sections 13A and 13F of the Income Tax Act (ITA).

Shipping Income under Section 13A

Shipping enterprises operating Singapore-registered and foreign ships enjoy tax exemptions on certain types of shipping income under Section 13A of the Income Tax Act (ITA). For definitions of shipping enterprise, qualifying company, ship management services, etc. please refer to Section 13A(16).

Singapore-Registered Ships

Shipping enterprises operating Singapore registered ships will enjoy tax exemption on income derived from the operation of Singapore ships outside the limits of the port of Singapore:

  1. the carriage of passengers, mails, livestock or goods;
  2. towing or salvage operations;
  3. the charter of ships;
  4. the use of the ship as a dredger, seismic ship or ship used for offshore oil or gas activity;
  5. foreign exchange and risk management activities which are carried out in connection with and incidental to the operation of Singapore ships;
  6. gain on the sale of a Singapore ship;
  7. gain on the assignment of rights under a contract for the construction of a ship.  At the time of the assignment, the ship is intended to be registered or is provisionally registered under the Merchant Shipping Act;
  8. gain from the sale of 100% issued ordinary shares  in a Special Purpose Company (“SPC”) that does not own any foreign ship at the time of the sale of shares and the SPC:

    (i) owns a Singapore ship or a ship that is provisionally registered under the Merchant Shipping Act; or

    (ii) is the buyer under a contract for the construction of a ship. At the time of sale, the ship is intended to be registered or is provisionally registered under the Merchant Shipping Act.

    The exemptions mentioned in paragraphs (f) to (h) above do not include:

    - income of the shipping enterprise as a lessor of a ship under a finance lease that is treated as a sale under Section 10D; or

    - income of the shipping enterprise from carrying on a business of trading in ships or of constructing ships for sale.
  9. income derived between 22 Feb 2010 and 23 Feb 2015 from the provision of ship management services [defined in Section 13A(16)] to any qualifying company in respect of Singapore ships owned or operated by the qualifying company;
  10. income derived on or after 24 Feb 2015 from the leasing of any container (other than finance leasing) carried out in connection with and incidental to the operation of Singapore ships;
  11. income derived on or after 24 Feb 2015 from:

    (i) the provision of prescribed ship management services [Income Tax (Prescribed Ship Management Services) Rules 2017] to a qualifying company in respect of Singapore ships owned or operated by the qualifying company;

    (ii) any mobilisation, holding or demobilisation of any ship used or to be used for offshore oil or gas activity where these activities are undertaken by the shipping enterprise itself using a Singapore ship;

    (iii) any mobilisation, holding or demobilisation of a Singapore ship owned or operated by the shipping enterprise and used or to be used for offshore oil or gas activity.
  12. income derived on or after 29 Dec 2016 from foreign exchange and risk management activities that are carried out in connection with and incidental to any activity mentioned in paragraph (k) above;
  13. income derived on or after 25 Mar 2016 from:

    (i) any mobilisation, holding or demobilisation of any ship used or to be used for offshore renewable energy activity, or offshore mineral activity, where these activities are undertaken by the shipping enterprise itself using a Singapore ship; or

    (ii) any mobilisation, holding or demobilisation of a Singapore ship owned or operated by the Shipping enterprise and used or to be used for offshore renewable energy activities, or offshore mineral activities.

    (iii) foreign exchange and risk management activities  that are carried out in connection with and incidental to any activity mentioned in paragraphs (i) and (ii) above;

    (iv) the use of Singapore ships for offshore renewable energy activity or offshore mineral activity.
  14. income derived on or after 12 Dec 2018 from the finance leasing of a Singapore ship. 

Foreign-Registered Ships

For foreign ships, tax exemption applies to income derived from the carriage of passengers, mails, livestock or goods uplifted from Singapore, except where such carriage arises solely from transhipment from Singapore, or is only within the limits of the port of Singapore.

Applying for Tax Exemption under Section 13A

There is no need to apply to IRAS for this exemption. Companies which derive income that qualifies for the exemption need only report the amount and nature of the income when filing their annual Income Tax Return (Form C) and tax computation.

International Shipping Profits under Section 13F

Approved international shipping enterprises operating foreign ships plying in international waters enjoy tax exemptions on certain types of international shipping income under Section 13F of the Income Tax Act (ITA).

Approved International Shipping Enterprises

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.

Approved international shipping enterprises ("AISE") will enjoy tax exemption on income derived from the operation of foreign ships outside the limits of the port of Singapore:

  1. carriage of passengers, mails, livestock or goods by foreign ships;
  2. charter of any foreign ship to any person for the carriage of passengers, mails, livestock or goods outside the limits of the port of Singapore;
  3. carriage of passengers, mails, livestock or goods by foreign ships to Singapore solely for the purpose of transhipment;
  4. towing or salvage operations by foreign ships;
  5. charter of any foreign ship to any person for towing or salvage operations;
  6. operation of any dredger, seismic ship or any ship used for offshore oil or gas activity;
  7. charter of any foreign dredger, foreign seismic ship or any foreign ship used for offshore oil or gas activity to any person where such dredger, seismic ship or ship is used by the person for his operation outside the limits of the port of Singapore;
  8. foreign exchange and risk management activities which are carried out in connection with and incidental to the operations mentioned in paragraphs (a) to (g) above;
  9. gain on the sale of a foreign ship used for prescribed purpose;
  10. gain on the assignment of rights under a contract for the construction of a ship for a prescribed purpose. At the time of the assignment, the ship is intended to be a foreign ship to be used for that or any other prescribed purpose;
  11. gain from the sale of 100% issued ordinary shares in a Special Purpose Company (“SPC”) of the approved AISE where at the time of the sale of the shares, the SPC-

    (i) owns any foreign ship that is used for a prescribed purpose;

    (ii) is the buyer under a contract for the construction of a foreign ship for a prescribed purpose that is intended to be used for that or any other prescribed purpose;

    (iii) owns a Singapore ship or a ship that is provisionally registered under the Merchant Shipping Act; or

    (iv) is the buyer under a contract for the construction of a ship. At the time of the sale, the ship is intended to be registered or is provisionally registered under the Merchant Shipping Act.

    The exemptions mentioned in paragraphs (i) to (k) above do not include:

    - income of an AISE as a lessor of a foreign ship used for a prescribed purpose, under a finance lease that is treated as a sale under Section 10D; or

    - income of an AISE from carrying on a business of trading in foreign ships used for a prescribed purpose, or of constructing for sale foreign ships for a prescribed purpose.
  12. income from the carriage of passengers, mails, livestock or goods uplifted from Singapore, except where such carriage is only within the limits of the port of Singapore;
  13. income derived between 22 Feb 2010 and 23 Feb 2015 from the provision of ship management services [defined in Section 13A(16)] to any qualifying special purpose vehicle in respect of ships owned or operated by the qualifying special purpose vehicle, unless the conditions of its approval otherwise provides;
  14. income derived on or after 24 Feb 2015 from:

    (i) providing prescribed ship management services to any qualifying special purpose vehicle in respect of ships owned or operated by the qualifying special purpose vehicle, unless the conditions of its approval otherwise provides;

    (ii) any mobilisation, holding or demobilisation of any ship used or to be used for offshore oil gas activity where these activities are undertaken by the AISE itself using a foreign ship;

    (iii) any mobilisation, holding or demobilisation of a foreign ship owned or operated by the AISE and used or to be used for offshore oil or gas activity outside the limits of the port of Singapore;

    (iv) the leasing of any container (other than finance leasing) carried out in connection with and incidental to the operation of foreign ships.
  15. income derived on or after 25 Mar 2016 from:

    (i) the operation outside the limits of the port of Singapore of any foreign ship for offshore renewable energy activity or offshore mineral activity;

    (ii) the charter of any foreign ship for offshore renewable energy activity or offshore mineral activity to any person, where such ship is used by the person for the person’s operation outside the limits of the port of Singapore;

    (iii) any mobilisation, holding or demobilisation of any ship used or to be used for offshore renewable energy activity, or offshore mineral activity where these activities are undertaken by the AISE itself using a foreign ship;

    (iv) any mobilisation, holding or demobilisation of any foreign ship owned or operated by the AISE and use or to be used for offshore renewable energy activity or offshore mineral activity, outside the limits of the port of Singapore;

    (v) foreign exchange and risk management activities which are carried out in connection with and incidental to any activity mentioned in paragraphs (i) to (iv) above.

    (f) paragraphs (i) to (k) mentioned above also apply to any foreign ship used for offshore renewable energy activity or offshore mineral activity. 
  16. income derived on or after 29 Dec 2016 from foreign exchange and risk management activities that are carried out in connection with and incidental to any activity mentioned in paragraphs (l) and (n)(i)-(iii) above.
  17. income derived on or after 12 Dec 2018 from:

    (i) finance leasing of any foreign ship where the ship is used for any prescribed purpose or for offshore renewable energy activity, or offshore mineral activity; and

    (ii) foreign exchange and risk management activities which are carried out in connection with and incidental to an activity mentioned in paragraph (i) above,
  18. assignment of rights 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 (for income derived on or after 22 Feb 2010);
  19. mobilisation, demobilisation, holding fees and incidental container leasing (for income derived on or after 24 Feb 2015);
  20. exploration or exploitation of offshore energy (for income derived on or after 25 Mar 2016);
  21. exploration or exploitation of offshore mineral extraction (for income derived on or after 25 Mar 2016);
  22. ancillary activities supporting the offshore activities in (k) and (l) (for income derived on or after 25 Mar 2016).

Tax Computation for Shipping Companies

Please refer to the Basic Format of Tax Computation for a Shipping Company (XLS, 105KB).

Guidelines for Preparation of Tax Computation

  1. The company must prepare separate operational accounts for each of its Singapore ship and foreign ship it owns so that the income and direct expenses of each ship can be separately identified.
  2. The company should maintain certificates for each ship and be prepared to submit these certificates to IRAS upon request.
    1. For claims under Section 13A, the company should maintain copies of Certificate of Singapore Registry (CSR) of each ship.
    2. For claims under Section 13F, the company should maintain copies of Certificate of Registry of the foreign country.
  3. Companies claiming exemption under Section 13F must ensure that the terms and conditions specified in the letter of award issued by the MPA are met.
  4. Companies should ensure the tax computation distinguishes the different categories of incentivised income clearly and indicate the relevant Income Tax Act provision or incentive scheme under which the income is derived.
  5. Where both exempt and non-exempt income is derived, the company should 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.

Claiming Capital Allowances

Where a shipping company derives both exempt and non-exempt income, capital allowances claim on common assets should be apportioned to income derived from different tax categories using an appropriate basis e.g. turnover ratio.

If the fixed assets are directly identifiable to a particular exempt or non-exempt income source, the capital allowances for such assets will be deducted against that respective source of income.

For instance, capital allowances 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 allowances for the portion that is attributed to its exempt income under Section 13A. However, it is mandatory for a shipping company to claim capital allowances against its shipping income exempted under Section 13F.

Where a shipping company claims capital allowances against the exempt income under Section 13A for the current YA, the unutilised balance of such allowances, if any, cannot be used to offset against any other income or be carried forward.

Application of Section 13A(11) when a ship ceases to be a Singapore ship (a ship registered with the Singapore Registry of Ships) 

Shipping enterprises enjoy tax exemption on income derived from the operation of Singapore ships outside the limits of the port of Singapore under section 13A of the Income Tax Act.

During the tax-exempt period, it is not mandatory for shipping enterprises to claim capital allowances on the ship and other assets used in the shipping operation. However, when such ship ceases to be a Singapore ship, Section 13A(11) provides for the capital allowances to be computed on the Residue of Expenditure (“RoE”) of the assets. 

RoE is the notional tax written-down value of the assets after taking into account the capital allowances for those years of assessment during which income derived from the operation of the Singapore ship was exempt from tax notwithstanding that no claim for such allowances was made.

In GCN v CIT [2020] SGITBR 2, the Income Tax Board of Review ruled that all capital allowances (both initial and annual allowances under section 19) should be taken into account in computing the RoE.

Example of RoE computation of a Singapore ship:

A ship at the cost of $1 million was registered as a Singapore ship from 1.1.2018 to 30.06.2020. It ceases to be a Singapore ship on 1.7.2020. The shipping enterprise has a Dec year end and did not make any claim for capital allowances in years of assessment 2019 and 2020. 

Cost of ship    $1,000,000 
Less    
YA 2019     
Initial Allowance ("IA") (20% x $1,000,000)  200,000   
Annual Allowance ("AA") (80% x $1,000,000 /16 years)50,000    
Notional capital allowance    $250,000
Tax written value as at 31.12.2018    $750,000
YA 2020     
IA-    
AA50,000    
Notional capital allowance    50,000
Tax written value as at 31.12.2019    $700,000

 

For YA 2021, capital allowance for the ship is to be calculated based on the RoE of $700,000 and not on the original cost of the ship of $1,000,000 notwithstanding that no claim for such allowances was made by the shipping enterprise in years of assessment  2019 and 2020. 

Setting-Off and Carrying-Forward Company Losses

When the company suffers losses from the portion of business qualifying for Section 13A exemption, that amount of losses cannot be used to offset against non-exempt income.

The losses also cannot be carried forward to future years for set-off against future years' income.

  • The principal activities of Company A are that of ship owner and operator. Company A derives charter income from the chartering out of Singapore - registered ships. It receives a compensation sum from a customer for early termination of the charter-out contract. Is the compensation receipt exempted from tax under Section 13A of the Income Tax Act (“ITA”)?

    The compensation receipt will qualify for tax exemption under Section 13A of the ITA if it is to compensate Company A for the loss of future charter income, which it is expected to earn if not for the early termination. This is subject to the following conditions:

     

    1. The vessel chartered out is used by Company A to derive income that qualifies for tax exemption under Section 13A of the ITA  immediately prior to the termination of the charter-out contract;

    2. The compensation sum is provided for under the charter-out contract; and

    3. The compensation amount is determined with reference to the estimated income loss for Company A from the early termination of the charter-out contract.  It is computed based on the difference between the charter hire rate as per the charter-out contract and the prevailing market charter hire rate at the early termination date over the remainder of the charter period.

     

  • Company B is an approved international shipping enterprise. It receives a compensation sum from a customer for early termination of the charter out of a foreign ship. Is the compensation receipt exempted from tax under Section 13F of the ITA?

    The compensation receipt will qualify for tax exemption under Section 13F of the ITA if it is to compensate Company B for the loss of future charter income, which it is expected to earn if not for the early termination. This is subject to the following conditions:

     

    1. Company B is an approved international shipping enterprise at the point of early termination of the charter-out contract;

    2. The vessel chartered out is used by Company B  to derive income that qualifies for tax exemption under Section 13F of the ITA  immediately prior to the termination of the charter-out contract;

    3. The compensation sum is provided for  under the charter contract; and

    4. The compensation amount is determined with reference to the estimated income loss for Company B from the early termination of the charter contract. It is computed based on the difference between the charter hire rate as per the charter-out contract and the prevailing market charter hire rate at the early termination date over the remainder of the charter period.