Statute Details
- Title: Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018
- Act Code: ITA1947-S128-2018
- Type: Subsidiary legislation (SL)
- Authorising Act: Income Tax Act (Cap. 134), specifically section 13(12)
- Commencement: 8 March 2018
- Current status: Current version as at 27 Mar 2026
- Key provisions: Paragraph 1 (Citation and commencement); Paragraph 2 (Exemption); Paragraph 3 (Shipping income)
- Amendment history (high level): Amended by S 306/2022 (effective 31/12/2021); Amended by S 304/2024 (effective 12/04/2024); earlier commencement as SL 128/2018 (08/03/2018)
What Is This Legislation About?
The Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018 (“the Order”) is a tax incentive instrument under Singapore’s Income Tax Act. In plain terms, it provides that certain types of income earned outside Singapore by an “approved international shipping enterprise” (an “AISE”) may be exempt from Singapore income tax.
The policy objective is to strengthen Singapore’s position as a global shipping and maritime hub. By reducing the tax burden on qualifying foreign shipping-related income, the regime encourages AISEs to structure and conduct international shipping activities through Singapore-approved entities and branches, while still maintaining appropriate boundaries to ensure that the exemption applies only to specified shipping income streams.
The Order also extends the exemption beyond the AISE itself to cover qualifying income at the level of approved related entities and approved branches, and it carefully defines what counts as “shipping income”. The definitions and eligibility thresholds are critical: they determine whether dividends/partnership profits flowing from approved related entities are exempt, and whether particular transactions (including ship sales, charters, and offshore-related shipping activities) fall within the exempt category.
What Are the Key Provisions?
1. Citation and commencement (Paragraph 1)
Paragraph 1 provides the Order’s short name and states that it comes into operation on 8 March 2018. This date matters because Paragraph 3 ties the definition of “shipping income” to income derived on or after the date of approval of the relevant entity/branch, or 8 March 2018—whichever is later.
2. The exemption (Paragraph 2)
Paragraph 2 is the core operative provision. It states that the following income received by an AISE in Singapore is exempt from tax:
- (a) Shipping income of an approved branch of the AISE outside Singapore; and
- (b) Dividends or partnership profits from an “approved related entity” (ARE) of the AISE (referred to in the Order as the “1st ARE), where those dividends/partnership profits are paid out of or derived from specified sources.
The dividend/partnership profit limb is structured to ensure that only distributions that are traceable to qualifying shipping income are exempt. Specifically, the exemption applies where the dividends/partnership profits from the 1st ARE are paid out of or derived from:
- the shipping income of the 1st ARE (including an approved branch of the 1st ARE); or
- dividends/partnership profits of the 1st ARE that are themselves paid out of or derived from shipping income of:
- another ARE (the “2nd ARE”) of the AISE (including an approved branch of the 2nd ARE); or
- a “related AISE” of the AISE (including an approved branch of the related AISE).
3. Definitions and ownership thresholds (Paragraph 2(2)–(3))
Paragraph 2 contains definitions that practitioners will rely on when assessing eligibility and tracing exempt income.
- AISE: A company approved as an AISE under section 13E of the Income Tax Act.
- “approved”: Approved by the Minister or an authorised body.
- ARE: An approved foreign entity where at least 25% of the equity interests are beneficially owned by the AISE.
- “related AISE”: Another AISE where at least 50% of the equity interests are beneficially owned by the other AISE (or such other percentage as may be approved at the time of approval).
Paragraph 2(3) addresses indirect ownership for the purposes of determining whether the ARE and related AISE thresholds are met. It provides a computation mechanism where an entity beneficially owns equity interests through multiple levels (a “1st level entity” owning a “2nd level entity”). The subject entity is taken to beneficially own a percentage of equity interests in the 2nd level entity computed as N × O, where N reflects the subject entity’s proportionate beneficial ownership in the 1st level entity and O reflects the 1st level entity’s proportionate beneficial ownership in the 2nd level entity.
4. What counts as “shipping income” (Paragraph 3)
Paragraph 3 defines “shipping income” for the purposes of Paragraph 2. It is not a generic term; it is tied to specific maritime and offshore-related activities and to the timing of when the income is derived.
Timing rule: Shipping income is income derived on or after the date of approval of the relevant entity/branch, or 8 March 2018—whichever is later. This ensures that pre-approval income is outside the exemption.
Qualifying activities: Paragraph 3(1) lists a range of activities, including carriage and charter arrangements involving foreign ships and Singapore ships, with particular attention to whether the carriage/charter relates to movements outside the limits of the port of Singapore. Examples include:
- Carriage by a foreign ship of passengers, mail, livestock or goods from outside the port of Singapore.
- Carriage by a foreign ship of goods shipped in Singapore, but excluding cases where the carriage arises solely from transhipment from Singapore or is only within the port limits.
- Carriage to Singapore solely for transhipment.
- Chartering foreign ships for carriage outside port limits.
- Chartering foreign dredgers, seismic ships, and ships used for offshore oil or gas activity for operations outside port limits.
- Chartering for towage and salvage operations outside port limits.
- Operations outside port limits involving dredgers, seismic ships, and ships used for offshore oil and gas.
- Use of ships outside port limits for offshore renewable energy or offshore mineral activity.
Ship sale and related transactions: Paragraph 3 also includes certain disposal and reorganisation-type transactions. The extract shows that the definition extends to, among other things, the sale of a Singapore ship (or a ship provisionally registered under the Merchant Shipping Act 1995), and assignments of rights under ship construction contracts intended to be registered or provisionally registered under that Act. It further extends to the sale of ordinary shares in a special purpose company (SPC) of the relevant AISE/ARE, where the SPC owns the relevant ship or is the buyer under a ship construction contract, and where the SPC does not at that time own foreign ships (for the Singapore-ship limb).
The extract further indicates that similar categories exist for foreign ships used for offshore renewable energy/mineral activity and for “prescribed purposes”, including assignments of rights under construction contracts and share sales of SPCs where the SPC owns the foreign ship or is the buyer under the relevant construction contract. While the provided text is truncated after “that, at the time of assignment, is…”, the structure makes clear that the exemption is designed to cover both operational shipping income and qualifying gains arising from ship-related disposals and corporate structuring, subject to the specific conditions in Paragraph 3.
How Is This Legislation Structured?
The Order is concise and structured around three main provisions:
- Paragraph 1: Citation and commencement.
- Paragraph 2: The exemption—what income is exempt and the conditions for exemption, including definitions and ownership thresholds for AISE, ARE, and related AISE.
- Paragraph 3: The definition of “shipping income”—what activities generate qualifying income, the timing rule, and the inclusion of certain ship sale/assignment/share sale transactions.
In practice, Paragraph 2 and Paragraph 3 operate together: Paragraph 2 grants the exemption, while Paragraph 3 determines whether the underlying income is “shipping income” for the purposes of tracing and qualifying the exempt distributions.
Who Does This Legislation Apply To?
The Order applies to income received in Singapore by an AISE—a company approved under section 13E of the Income Tax Act. The exemption is not automatic for all shipping businesses; it depends on formal approval status.
Additionally, the exemption is relevant to approved branches of the AISE and to approved related entities (AREs) of the AISE. The ARE must be a foreign entity with at least 25% beneficial equity ownership by the AISE, and the exemption for dividends/partnership profits depends on whether those distributions are derived from qualifying shipping income (including shipping income at the level of a 2nd ARE or a related AISE, subject to the tracing rules).
Why Is This Legislation Important?
This Order is important because it provides a targeted tax exemption that can materially affect the effective tax rate of qualifying international shipping groups. For practitioners, the value lies in the ability to structure group operations—through approved branches and approved related entities—so that qualifying foreign shipping income and related distributions can be exempt from Singapore tax.
From an enforcement and compliance perspective, the Order’s detailed definitions and thresholds create clear (but sometimes complex) eligibility tests. Lawyers advising shipping clients must carefully assess:
- whether the relevant entities are properly approved as AISE/AREs;
- whether the ownership thresholds (25% for ARE; 50% for related AISE, subject to approved variations) are met, including through indirect ownership using the N × O formula;
- whether the income is derived from activities that fall within the enumerated categories in Paragraph 3; and
- whether distributions (dividends/partnership profits) can be traced to qualifying shipping income at the relevant entity levels.
Finally, the inclusion of offshore-related shipping activities (dredging, seismic, offshore oil and gas, offshore renewable energy, and offshore mineral activity) and the coverage of ship sale and corporate transaction structures reflect the modern scope of maritime operations. This makes the Order particularly relevant for groups with both traditional shipping and offshore asset/contracting models.
Related Legislation
- Income Tax Act (Cap. 134) — particularly section 13(12) (power to make the Order) and section 13E (approval of AISEs)
- Merchant Shipping Act 1995 — relevant to the registration/provisional registration concepts referenced in the definition of shipping income
- Merchant Shipping Act 1995 (as referenced in the Order) — for ship registration status conditions
Source Documents
This article provides an overview of the Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.