2015 - Budget 2015 - Key Takeaway for Maritime Sector

Companies operating in the maritime sector can rejoice about the changes announced in the Budget 2015. The tax exemptions enjoyed by qualifying companies under the Maritime Sector Incentive (MSI) award schemes were given extensions and enhancements. The changes, for which the maritime sectors have been lobbying, are timely and this will help sustain the competitive advantage of Singapore as logistics and shipping hub, prompting business growth as well as new company incorporations and collaborations in the maritime cluster. The enhancements to the MSI will take effect for existing and new award recipients from 24 February 2015. The approval window to award MSI-AIS, MSI-Maritime Leasing (MSI-ML)(Ship), MSI-ML (Container) and MSI-SSS will be extended to 31 May 2021.

MSI-AIS, MSI-SRS, MSI- SSS – Scope of tax-exempted income and qualifying activity enhanced

Approved foreign branches of MSI-Approved International Shipping Enterprise (MSI-AIS) entities can now remit their qualifying profits and enjoy tax exemption.

Likewise MSI-AIS and MSI- Singapore Registered Ships (MSI SRS) award, under which qualifying incomes are exempt, have been expanded to cover mobilization fees, demobilization fees, holding fees and incidental container rental income derived in the course of qualifying shipping operations.

Existing MSI-Shipping-related Support Services (MSI-SSS) award recipients can now renew their award tenure for another five years, subject to qualifying conditions and higher economic commitments. The MSI-SSS awardees presently enjoy 10% concessionary tax rate on incremental qualifying income derived from carrying out approved shipping-related support services.

The definition of qualifying activities for the purpose of MSI-AIS, MSI-SRS and MSI-SSS will be updated in line with the current scenario in the sector.

MSI-Maritime Leasing (MSI-ML) award will now include income derived from finance leases treated as a sale. Presently ship-leasing companies enjoy tax exemption on qualifying incomes and container-leasing companies enjoy 10% or 5% concessionary tax rate on qualifying incomes. Both categories enjoy 10% concessionary tax rate on qualifying income derived from managing an approved investment enterprise in their specific segment.

Withholding Tax Exemption – Enhanced

Automatic withholding tax exemption has been expanded to cover finance leases, hire-purchase arrangements and loans used to finance equity injection or inter-company loans to wholly owned Special Purpose Vehicles (SPVs) for the purchase/ construction of vessels, containers and intermodal equipment. The withholding tax exemption will also be extended to qualifying payments made, or qualifying loans taken, on or before 31 May 2021.

Our Comments

The long awaited withholding tax exemption will be a game changer, for one it will bring in more finance sector players and funds focusing on the maritime sector and another more interesting outcome is that more ship owners will park their assets in Singapore. The withholding tax exemption will empower ship owners and operators with flexibility and accessibility in financing their operations. The inclusion of finance lease arrangement in MSI-ML and exemption of foreign earned profits for AIS will act as an added stimulant, by aiding operators along the sluggish economic growth trajectory. We anticipate a flutter of activity in the maritime cluster, where new company formations, mergers and acquisitions will peak in the coming years.

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