Singapore Shipping Tax Exemptions
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Singapore Shipping Tax Exemptions Explained
The shipping income of a shipping enterprise can be exempt from tax under Sections 13A and 13E of the Income Tax Act (ITA) Singapore.
Section 13A provides tax exemption for specified income derived by a shipping enterprise from the operation of Singapore-registered ships and foreign ships under certain conditions.
Section 13E provides tax exemption for international shipping profits of an Approved International Shipping Enterprise (AISE) operating foreign ships plying in international waters. The AISE status is granted under the Maritime Sector Incentive (MSI) scheme administered by the Maritime and Port Authority of Singapore (MPA).
It's important to note that there are specific conditions and definitions outlined in the ITA for what constitutes qualifying shipping income, shipping enterprise, and the applicability of these exemptions.
Here's a breakdown of the conditions and definitions under Sections 13A and 13E of the Income Tax Act (ITA) Singapore concerning the tax exemption for shipping income:
Section 13A: Exemption of Shipping Profits
This section provides tax exemption for specified income derived by a shipping enterprise from the operation of Singapore-registered ships and, under certain conditions, foreign ships.
Definitions (Section 13A(16) of the ITA):
Shipping enterprise means a company that carries on the business of operating ships.
Singapore ship means a ship that is registered under the Merchant Shipping Act 1995 and has a valid certificate of registry (excluding provisional certificates) and whose registry is not closed or suspended.
Qualifying shipping income for Singapore-registered ships includes income from:
The carriage of passengers, mail, livestock, or goods outside the limits of the port of Singapore.
Towing or salvage operations outside the limits of the port of Singapore.
The charter of the ship for use outside the limits of the port of Singapore.
The use of the ship outside the limits of the port of Singapore as a dredger, seismic ship, or vessel used for offshore oil or gas activity, offshore renewable energy activity, or offshore mineral activity.
Foreign exchange and risk management activities that are carried out in connection with and incidental to the operation of Singapore ships or the activities mentioned above.
Gains from the disposal of a Singapore ship.
Gains from the sale of 100% issued ordinary shares in a Special Purpose Company (SPC) that owns only Singapore ships (or ships provisionally registered in Singapore or newbuilds intended to be so registered) at the time of sale.
Specific income related to ship financing leases (before 12 Dec 2018) and certain mobilization/demobilization activities.
Income from the leasing of containers (other than finance leasing) carried out in connection with and incidental to the operation of Singapore ships (on or after 24 Feb 2015).
Qualifying shipping income for foreign ships is limited to income from the carriage of passengers, mail, livestock, or goods uplifted from Singapore, except where such carriage arises solely from transshipment from Singapore or is only within the limits of the port of Singapore.
Conditions for Applicability:
The income must be derived by a shipping enterprise.
For Singapore-registered ships, the specified income must be from operations outside the limits of the port of Singapore (with some exceptions like gains on disposal).
For foreign ships, the income is mainly from freight uplifted from Singapore under specific conditions.
There is no need to apply to the Inland Revenue Authority of Singapore (IRAS) for these exemptions under Section 13A. Eligible companies report the qualifying income in their annual Corporate Income Tax Return.
Section 13E: Exemption of International Shipping Profits
This section provides tax exemption for international shipping profits of an Approved International Shipping Enterprise (AISE) operating foreign ships plying in international waters. The AISE status is granted under the Maritime Sector Incentive (MSI) scheme administered by the Maritime and Port Authority of Singapore (MPA).
Definitions (related to Section 13E):
Approved International Shipping Enterprise (AISE): A shipping enterprise that has been approved by the Minister for Finance (or an authorized body) under the MSI-AIS scheme. This typically requires meeting certain criteria related to fleet size, international operations, and economic contribution to Singapore.
International shipping profits generally refer to income derived from the operation of foreign ships in international waters.
Qualifying Income for AISEs (operating foreign ships):
The specific types of income exempt under Section 13E for an AISE are broader than under Section 13A for foreign ships and can include:
The carriage of passengers, mail, livestock, or goods from outside Singapore port limits.
The charter of any foreign ship to a non-resident of Singapore or to another AISE for use outside Singapore port limits.
The carriage of passengers, mail, livestock, or goods by a foreign ship to Singapore solely for the purpose of transshipment.
The operation or charter of approved Floating Production Storage Offloading (FPSO) or Floating Storage Offloading (FSO) facilities.
Towing or salvage operations carried out by any foreign ship outside Singapore port limits.
The charter of any foreign ship for towage and salvage operations conducted outside Singapore port limits.
The charter of foreign dredgers, seismic ships, or vessels used for offshore oil or gas activity, offshore renewable energy activity, or offshore mineral activity to any person where such vessels are used outside Singapore port limits.
Foreign exchange and risk management activities carried out in connection with and incidental to the qualifying activities.
The provision of ship management services to a qualifying company in respect of ships owned or operated by the qualifying company.
Conditions for Applicability (for Section 13E):
The company must be granted AISE status by the MPA. This involves an application process and meeting specific criteria.
The income must be derived from the operation of foreign ships engaged in international traffic.
The specific income must fall within the categories defined as qualifying income for AISEs.
The AISE status is typically granted for a specific period (e.g., 5 or 10 years) and may be renewable.
In summary, both Sections 13A and 13E aim to promote Singapore as an international maritime center by providing tax exemptions on shipping income. Section 13A offers broader exemptions for Singapore-registered ships, while Section 13E targets approved international shipping enterprises operating foreign fleets with a wider scope of qualifying international shipping activities. The definitions of key terms and the specific conditions for each section are crucial in determining the applicability of these tax exemptions.
How Bestar can Help
Let's focus on how Bestar can specifically help with navigating Singapore's shipping tax exemptions under Sections 13A and 13E of the Income Tax Act (ITA). Given the complexities of tax laws and the specific requirements for these exemptions, engaging Bestar can be invaluable. Here's how we can assist:
Expert Interpretation of the Law: Bestar possesses a deep understanding of the intricacies of Sections 13A and 13E, including the definitions of qualifying income, shipping enterprises, and the specific conditions that need to be met. We can provide accurate interpretations of the ITA and relevant guidelines issued by the Inland Revenue Authority of Singapore (IRAS).
Example: We can clarify whether a specific type of charter income qualifies under Section 13A or if a particular operational activity falls within the scope of "international shipping profits" under Section 13E.
Eligibility Assessment: We can assess your shipping business operations and structure to determine if you meet the eligibility criteria for either Section 13A or the Approved International Shipping Enterprise (AISE) status required for Section 13E.
Example: We can analyze your fleet composition (Singapore-registered vs. foreign ships), the geographical scope of your operations, and the nature of your income streams to advise on the most suitable exemption.
Application and Documentation: For Section 13E (AISE status), Bestar can guide you through the application process with the Maritime and Port Authority of Singapore (MPA). We can help prepare the necessary documentation, ensuring all requirements are met to maximize the chances of a successful application.
Example: We can assist in compiling financial projections, business plans, and details of your international shipping activities required for the AISE application.
Tax Planning and Optimization: Bestar can advise on structuring your shipping business and operations in a way that optimizes your tax benefits under these exemptions. This might involve reviewing your chartering agreements, operational routes, and corporate structure.
Example: We advise on setting up specific entities or allocating income streams to best utilize the available exemptions.
Compliance and Reporting: We can ensure that your company complies with all the reporting requirements related to these tax exemptions when filing your annual Corporate Income Tax Return with IRAS. This includes correctly identifying and reporting the exempt income.
Example: We can help in preparing the necessary schedules and disclosures related to your shipping income and claimed exemptions.
Risk Management and Audit Support: Bestar can help you understand potential tax risks associated with your shipping operations and ensure you have adequate documentation to support your claims in case of an audit by IRAS. We can also assist in managing tax audits if they occur.
Example: We can review your records to ensure you have sufficient evidence to demonstrate that your shipping activities meet the "outside the limits of the port of Singapore" requirement under Section 13A.
Staying Updated on Regulatory Changes: Tax laws and guidelines can change. Bestar stays abreast of these updates and can advise you on how any amendments might affect your eligibility or compliance requirements.
Contract Review and Drafting: Bestar can help review and draft charter agreements, ship management contracts, and other relevant legal documents to ensure they align with the requirements for tax exemptions.
Example: We can ensure that charter clauses clearly define the areas of operation to support claims under Section 13A regarding activities "outside the limits of the port of Singapore."
Corporate Structuring Advice: Bestar can advise on the most appropriate corporate structure for your shipping business to optimize tax efficiency while considering other legal and regulatory aspects.
Dispute Resolution: In the event of a tax dispute with IRAS regarding the interpretation or application of these exemptions, Bestar can provide professional representation and assistance in resolving the matter.
Financial Record Keeping: Bestar ensures that your financial records are accurately maintained and can clearly distinguish between qualifying and non-qualifying shipping income.
Verification and Certification: Bestar can provide an independent verification of your financial records and compliance with tax regulations, which can be important for the AISE application or during tax audits.
In summary, engaging Bestar provides you with the expertise needed to:
Understand the complex requirements of Singapore's shipping tax exemptions.
Determine your eligibility for these exemptions.
Navigate the application process for AISE status.
Structure your business and operations for optimal tax benefits.
Ensure ongoing compliance with tax regulations.
Manage potential tax risks and audits.
By leveraging our specialized knowledge, you can maximize your tax savings and ensure your shipping business operates efficiently within the legal and regulatory framework in Singapore.
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