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As a leading international maritime centre, Singapore offers a suite of tax incentives under the Maritime Sector Incentive (“MSI”) scheme, aimed at supporting maritime enterprises to operate out of Singapore and grow their businesses.
Maritime tax incentives in Singapore
Currently, the MSI scheme offers corporate income tax exemptions and/or concessionary tax rates to eligible companies on income derived from qualifying shipping activities or shipping-related support services, subject to meeting certain conditions.
The MSI scheme comprises the following sub-schemes which grant tax exemptions and concessionary tax rates to eligible companies.
MSI-Shipping Enterprise (Singapore Registry of Ships) (“MSI-SRS”)
- Tax exemption is granted on qualifying shipping income of Singapore-Registered Ships. Qualifying shipping income includes income derived from the carriage of passengers, mails, livestock or goods, time charter and bare boat charter arrangements.
Approved International Shipping Enterprise (“MSI-AIS”) Award
- The MSI-AIS Award is available to international shipping companies with an established global network, a proven track record and a commitment to growing their shipping operations in Singapore. Tax exemption is granted on qualifying shipping income for a period of either 5 or 10 years.
Maritime Leasing (MSI-ML) Award (Ship) / (Container)
- Ship or container leasing firms, funds, business trusts or partnerships may apply for tax exemption or a concessionary tax rate of either 5% or 10% on their eligible leasing income for a period of up to five years.
Impact of GloBE Rules on the maritime sector
With the introduction of Base Erosion and Profit Shifting (“BEPS”) 2.0 Pillar Two Rules, the maritime sector faces new challenges, particularly in the interpretation of how these Rules may affect companies currently benefiting from maritime tax incentives in Singapore.
The Global Anti-Base Erosion (“GloBE”) Rules, a key component of BEPS Pillar Two, seek to introduce a global minimum corporate tax rate of 15% for large multinational enterprise (MNE) groups (i.e. those with annual group turnover of at least €750 million). As such, unless an entity’s income is explicitly excluded from the scope of BEPS Pillar Two, any tax incentive or tax concession currently enjoyed may be impacted.
Fortunately, the GloBE Rules provide exclusions for most shipping income, specifically income defined as Qualified International Shipping Income and Qualified Ancillary International Shipping Income. However, if a shipping entity or a portion of its income does not meet the exclusion criteria, it would be included in the effective tax rate calculation and may be subject to a top-up tax.
With the above-mentioned BEPS 2.0 developments, Singapore introduced the Net Tonnage Basis of Taxation (“NTT basis”), to take effect from the Year of Assessment 2024. Under this alternative basis, the income of qualifying entities is taxed based on the net tonnage of their qualifying ships. This is to better align Singapore’s shipping tax regime with common international practices.
The NTT basis is not a separate tax regime but an alternative way for computing the income tax base of qualifying MSI entities. This income tax base is then subject to the prevailing corporate tax rate. Importantly, corporate income tax paid under the NTT basis should qualify as covered taxes (i.e. taxes imposed in lieu of a generally applicable corporate income tax) for purposes of calculating the GloBE effective tax rate in Singapore.
There are no changes to the existing MSI requirements, including minimum economic commitments, qualifying income and annual reporting requirements for a qualifying MSI entity, prior to its election to adopt the NTT basis.
Overview of the NTT basis
Eligibility |
Shipping entities currently enjoying the following MSI Sub-schemes may elect to adopt the NTT basis:
For non-qualifying shipping entities or income, the existing tax treatment will continue to apply |
Key features |
A qualifying MSI entity may make an irrevocable election for the NTT basis. Once elected, the NTT basis will apply to all qualifying ships owned or operated by the entity The period covered by the NTT basis is aligned with the MSI Award period. For MSI-SRS entities, the period is the earlier of 10 years or until the entity ceases to own or operate any Singapore-registered ship The deemed income or income tax base is computed based on:
The deemed income is taxed at the prevailing corporate income tax rate, currently 17% No tax adjustments are required for capital items, non-deductible items or capital allowances Any brought forward unabsorbed capital allowances, trade losses and donations cannot be deducted against the deemed income computed under the NTT basis Entities under the NTT basis are not eligible to claim carry-back relief or group relief against the deemed income |
Electing for the NTT basis |
The election to adopt the NTT basis is available with effect from Year of Assessment 2024 A duly completed Election Form must be submitted to both Inland Revenue Authority of Singapore and the Maritime and Port Authority of Singapore by the tax return filing due date for the relevant Year of Assessment |
How we may help
Most Singapore shipping entities currently benefit from tax exemptions or concessionary tax rates that are lower than 15% on their qualifying shipping income.
The NTT basis becomes a relevant consideration if the incentivised entity in Singapore is part of a shipping group that is impacted by global BEPS 2.0 developments and that certain exempt income streams may now be subject to the 15% minimum tax if they do not fall within the scope of excluded income under the GloBE Rules.
Shipping groups should therefore monitor closely the developments of BEPS Pillar Two. We welcome the opportunity to discuss with you the relevance of the above issues to your business.
