Tax certainty exemption is available, as a concession, to ship owners in the business of ship operations on:
- Gains on disposal of Singapore registered vessels or vessels owned or operated under the MSI-AIS award, including under a sale and lease-back transaction;
- Gains on disposal of 100% of shareholding in a wholly owned SPC that owned or operated Singapore registered vessels or foreign vessels under the MSI-AIS award. The SPC must be in the business of ship operations;
- Dividend income paid out of gains from vessel disposals by MSI-AIS company's Approved Network Company [MSI – AIS(ANC)] under the MSI-AIS award.
However, the concession is only valid till YA 2014 and is not available to the following types of disposal:
- Gains on disposal of vessels derived by a lessor under a finance lease treated as a sale agreement under Section 10D of the ITA;
- Gains on disposal of new building contracts;
- Gains on disposal of vessel which has not been delivered to the buyer, where the seller only owns that vessel and is not related to any ship operating entity in Singapore.
Companies are required to make an irrecovable written election to opt into the concession.Automatic tax exemption would be available to:
- Gains on disposal of vessels
Revenue gains derived from the disposal of vessels registered or to be registered under the SRS or vessels owned or operated under the MSI-AIS / MSI-ML(Ship) awards. The exemption would include gains derived:
- from the disposal of vessels under a sale and lease-back transaction; and
- from the disposal of vessels under construction (including new building contracts).
- Dividend income and/or share of partnership profits
- An MSI-AIS company's dividend income and/or share of partnership profits paid out from gains from vessel sales derived by the MSI – AIS(ANC) under the MSI-AIS award; or
- An Approved Shipping Investment Enterprise (MSI-ASIE)’s dividend income and/or share of partnership profits paid out from gains from vessel sales derived by the MSI-ASIE’s foreign Approved Special Purpose Vehicle [MSI–ASPV] under the MSI-ML(Ship) award.
- Gains on disposal of shares in a wholly-owned SPC that owns vessel(s)
Gains derived from the disposal of 100% of shareholding in a wholly-owned SPC that, at the time of sale:
- Owns vessel(s) registered or to be registered under the SRS. The SPC must be in the business of ship operations;
- Owns vessel(s) under the MSI-AIS award. The SPC must be in the business of ship operations; or
- Owns vessels under the MSI-ML(Ship) award. The SPC must be in the business of ship leasing.
As the tax exemption is granted automatically under the MSI incentives, there is no need for qualifying companies to opt for the exemption.1 June 2011In many countries, especially those that adopt the tonnage tax regime, gains on disposal of vessels are not subject to income tax or tonnage tax. In comparison, Singapore, before Budget 2012, grants tax exemption certainty by way of concession that is usually valid for a time period.
Instead of having companies opt into the concession to avail of the tax exemption certainty for a limited period, shipping companies are now assured that their gains from disposal of qualifying vessels or shares in SPCs would be exempt from tax as long as they are under the MSI incentives.
In addition, the scope of the tax exemption certainty has been extended to cover vessels under construction and new building contracts.. While tax certainty for gains on disposal of existing vessels or shares in SPCs under the MSI incentives may not be viewed by some as a major change, the addition of vessels under contruction and new building contracts would prove attractive and be another draw for companies to come under the MSI incentives. However it is unclear whether the retrospective effective date of 1 June 2011 would be applicable to qualifying transactions that had taken place on or after 1 June 2011 if the companies were only granted the MSI incentives after the transactions.
Notwithstanding the above, the automatic tax exemption for gains derived from the disposal of vessels or shares in qualifying SPCs under the MSI incentives is a welcome move, and would move Singapore up the rungs in its race with other major shipping countries to be a major international maritime hub. |
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