Statute Details
- Title: Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018
- Act Code: ITA1947-S128-2018
- Legislation Type: Subsidiary legislation (SL)
- Authorising Act: Income Tax Act (Cap. 134)
- Authorising Provision: Section 13(12) of the Income Tax Act
- Commencement: 8 March 2018
- Citation: No. S 128
- Key Provisions: Paragraph 1 (citation and commencement); Paragraph 2 (exemption); Paragraph 3 (definition of “shipping income”)
- Current Version: Current version as at 27 Mar 2026 (with amendments reflected in the consolidated text)
- Notable Amendments (from the timeline): S 306/2022 (effective 31/12/2021); S 304/2024 (effective 12/04/2024)
What Is This Legislation About?
The Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018 (“the Order”) is a Singapore tax incentive that exempts certain foreign-sourced income of companies approved as “approved international shipping enterprises” (AISEs). In practical terms, it reduces the Singapore tax burden on qualifying shipping-related profits that arise from approved entities and activities carried out outside Singapore’s port limits.
The Order operates within the broader framework of the Income Tax Act. It is made under a specific enabling power in section 13(12) of the Income Tax Act, which allows the Minister for Finance to prescribe exemptions for foreign income in relation to approved shipping businesses. The policy objective is to strengthen Singapore’s position as a global shipping and maritime hub by encouraging approved shipping groups to conduct qualifying operations through Singapore-based enterprises and related structures.
While the Order is technical, its core effect is straightforward: if an AISE (and certain related approved entities) earns “shipping income” from qualifying maritime activities outside Singapore, that income—together with certain downstream dividends or partnership profits—can be exempt from Singapore tax, subject to the definitions and conditions in the Order.
What Are the Key Provisions?
1. Citation and commencement (Paragraph 1)
Paragraph 1 provides the formal commencement date: the Order comes into operation on 8 March 2018. This date matters because the definition of “shipping income” in Paragraph 3 ties the relevant income to the date of approval of the entity or branch, or 8 March 2018—whichever is later.
2. The exemption (Paragraph 2)
Paragraph 2 sets out what income is exempt and from whom. The exemption applies to “the following income received by an AISE in Singapore”. The exempt categories are:
- Shipping income of an approved branch of the AISE outside Singapore (Paragraph 2(1)(a)).
- Dividends or partnership profits from an approved related entity (ARE) of the AISE (Paragraph 2(1)(b)). These dividends/partnership profits must be paid out of, or derived from, qualifying “shipping income” (including shipping income of approved branches of the ARE) or from dividends/partnership profits that themselves are directly or indirectly derived from qualifying shipping income.
3. Who qualifies: AISE, ARE, and “related AISE” (Paragraph 2(2))
The Order defines key terms that determine the scope of the exemption:
- AISE means a company approved as an AISE under section 13E of the Income Tax Act.
- “approved” means approved by the Minister or an authorised body (as updated by the 2024 amendment).
- ARE (approved related entity) means an approved foreign entity in which the AISE beneficially owns at least 25% of the equity interests.
- “related AISE” means another AISE in which the first AISE beneficially owns at least 50% (or another percentage approved at the time of approval of that other AISE).
4. Equity interest look-through (Paragraph 2(3))
A particularly important technical provision is Paragraph 2(3), which addresses multi-tier ownership. If the subject entity beneficially owns equity interests in a 1st level entity, and the 1st level entity beneficially owns equity interests in a 2nd level entity, the subject entity is treated as beneficially owning a computed percentage in the 2nd level entity. The computation uses a formula N × O, where N is the subject entity’s ownership proportion in the 1st level entity, and O is the 1st level entity’s ownership proportion in the 2nd level entity. This “look-through” mechanism is crucial for groups that structure ownership through intermediate holding companies.
5. What counts as “shipping income” (Paragraph 3)
Paragraph 3 defines “shipping income” for the purposes of the exemption. The definition is both time-based and activity-based.
- Time element: shipping income is income derived on or after the date of approval of the relevant entity/branch, or 8 March 2018, whichever is later.
- Activity element: the income must be derived from specified maritime activities, including carriage, chartering, towing/salvage, offshore oil and gas operations, offshore renewable energy activity, and offshore mineral activity, as well as certain qualifying ship sales and assignments.
The Order is detailed in listing qualifying activities. For example, it includes carriage by a foreign ship of passengers, mail, livestock or goods from outside the limits of the port of Singapore; carriage to Singapore solely for transhipment; and carriage by a Singapore ship outside the port limits. It also covers chartering arrangements (foreign ship charters, charters of dredgers/seismic ships, and charters for offshore renewable energy or offshore mineral activities) where the relevant operations occur outside the port limits of Singapore.
6. Qualifying transactions: ship sales and share transfers (Paragraph 3(m) and onwards)
Beyond operating income, Paragraph 3 also extends “shipping income” to certain disposal and restructuring transactions. The extract shows that the Order treats as shipping income, among other things:
- Sale of a Singapore ship or a ship provisionally registered under the Merchant Shipping Act 1995.
- Assignment of rights under a contract for construction of a ship intended to be registered or provisionally registered under the Merchant Shipping Act 1995.
- Sale of all issued ordinary shares in a special purpose company (SPC) where the SPC owns a qualifying ship or is the buyer under a ship construction contract, and the SPC does not at that time own any foreign ship (as reflected in the extract).
The extract further indicates that similar treatment applies to foreign ships used for offshore renewable energy or offshore mineral activity, and to assignments or share sales involving SPCs that own foreign ships or are buyers under construction contracts for such foreign ships. These provisions are designed to ensure that not only day-to-day freight/charter income, but also certain capital gains or transaction proceeds connected to qualifying shipping assets, can fall within the exemption.
Note on the truncated extract: The provided text cuts off mid-way through Paragraph 3(o). In practice, practitioners should consult the full consolidated version to capture the complete list of qualifying “prescribed purpose” ship transactions and any additional categories introduced by later amendments.
How Is This Legislation Structured?
The Order is structured as a short subsidiary instrument with a small number of paragraphs:
- Paragraph 1: Citation and commencement.
- Paragraph 2: The substantive exemption—what income is exempt, and definitions of AISE, ARE, related AISE, and equity interest look-through.
- Paragraph 3: Definition of “shipping income”—time threshold and enumerated qualifying maritime activities and qualifying transactions.
Although the Order is concise, it relies heavily on cross-references to the Income Tax Act (notably the AISE approval regime under section 13E) and to the Merchant Shipping Act 1995 (for ship registration concepts). This means the practical legal analysis often requires reading the Order together with those parent statutes and the approval conditions imposed by the relevant authorities.
Who Does This Legislation Apply To?
The exemption applies to income received by an AISE in Singapore. Therefore, the primary taxpayer is the Singapore-approved shipping enterprise, not the foreign operating entity itself. However, the exemption is triggered by income earned by approved branches and approved related entities (AREs) outside Singapore, and then received by the AISE in Singapore as exempt shipping income or as exempt dividends/partnership profits.
Accordingly, the Order applies to qualifying shipping groups where: (i) the Singapore company is approved as an AISE under section 13E of the Income Tax Act; (ii) the relevant foreign entities are approved as AREs; and (iii) the AISE meets the equity ownership thresholds (at least 25% for AREs, and at least 50% for related AISEs, subject to any approved alternative percentage). The look-through rule in Paragraph 2(3) is particularly relevant for corporate groups with layered holding structures.
Why Is This Legislation Important?
This Order is significant because it provides a targeted exemption that can materially affect the Singapore tax position of approved international shipping groups. For practitioners, the key value is that it can exempt both (a) operating income connected to qualifying shipping activities outside Singapore’s port limits and (b) certain income streams derived through approved related entities—especially dividends and partnership profits that are traceable to qualifying shipping income.
From an enforcement and compliance perspective, the exemption is not automatic. It depends on meeting approval conditions and on satisfying the Order’s definitions. Practically, tax teams must be able to demonstrate: (i) the AISE and the relevant branches/AREs are properly approved; (ii) the income is derived from the enumerated activities; (iii) the timing requirement (on/after approval date or 8 March 2018) is met; and (iv) for dividend/partnership profit exemptions, the income can be shown to be paid out of or derived from qualifying shipping income (including tracing through direct and indirect distributions).
Finally, the inclusion of ship sales, assignments of construction contract rights, and share sales of special purpose companies indicates that the incentive is designed to cover both revenue and certain capital transaction outcomes. For legal advisers structuring ship acquisitions, disposals, and refinancing/restructuring transactions, the Order’s transaction categories can influence deal structuring, documentation, and the tax treatment of proceeds.
Related Legislation
- Income Tax Act (Cap. 134) — in particular:
- Section 13E (AISE approval regime)
- Section 13(12) (power to make exemption orders)
- Merchant Shipping Act 1995 — for concepts of ship registration and provisional registration referenced in Paragraph 3
- Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018 — amendments reflected in S 306/2022 and S 304/2024 (as shown in the legislation timeline)
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.