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), section 13(12)
- Commencement: 8 March 2018
- Status: Current version as at 27 March 2026
- Key Provisions:
- Paragraph 1: Citation and commencement
- Paragraph 2: Exemption (foreign income of an approved international shipping enterprise)
- Paragraph 3: Definition of “shipping income” for the exemption
- Amendment History (from provided extract):
- SL 128/2018 (8 Mar 2018)
- Amended by S 306/2022 (w.e.f. 31 Dec 2021; also shown as 19 Feb 2020 and 12 Dec 2018 in the timeline)
- Amended by S 304/2024 (w.e.f. 12 Apr 2024)
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 framework under Singapore’s Income Tax Act. In plain terms, it provides that certain foreign-sourced income earned by a qualifying shipping group can be exempt from Singapore income tax, provided the income falls within the categories defined as “shipping income” and is received by the right entities.
The Order is designed to support Singapore’s shipping sector by encouraging approved international shipping enterprises (“AISEs”) to conduct qualifying shipping and related activities through Singapore-approved structures. It also extends the exemption to income flows within the group, such as dividends or partnership profits paid from approved related entities that are funded by qualifying shipping income.
Practically, the Order operates as a “rulebook” for what counts as exempt foreign income. It is not a general exemption for all foreign income; rather, it is tightly linked to (i) approval status under the Income Tax Act, (ii) ownership thresholds for related entities, and (iii) specific shipping activities (including carriage, chartering, offshore-related shipping, and certain ship sale/assignment transactions).
What Are the Key Provisions?
Paragraph 1 (Citation and commencement) confirms the legal identity of the instrument and that it comes into operation on 8 March 2018. This date matters because the definition of “shipping income” in paragraph 3 ties eligibility to the later of the approval date or 8 March 2018.
Paragraph 2 (Exemption) is the core operative provision. It provides 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.
- (b) Dividends or partnership profits from an approved related entity (an “ARE”) of the AISE (referred to as the 1st ARE), where those distributions are paid out of, or derived from:
- the shipping income of the 1st ARE (including shipping income of an approved branch of the 1st ARE); or
- dividends/partnership profits of the 1st ARE that themselves are paid out of, or derived from shipping income of:
- another ARE of the AISE (the 2nd ARE), including an approved branch of the 2nd ARE; or
- a related AISE of the AISE, including an approved branch of that related AISE.
In other words, the exemption is not limited to direct shipping operations. It also covers downstream distribution income (dividends/partnership profits) that can be traced to qualifying shipping income within the approved group structure.
Paragraph 2 also contains important definitions that determine eligibility:
- AISE: a company approved as an AISE under section 13E of the Income Tax Act.
- “approved”: approved by the Minister or an authorised body (noting the extract indicates an amendment w.e.f. 12 April 2024).
- 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% (or another percentage approved at the time of approval) of equity interests are beneficially owned by the other AISE.
- Equity interest: for companies, an issued share not held as treasury shares; for partnerships, the proportion of profits entitled to by a partner.
- Foreign entity: a company incorporated outside Singapore or a partnership registered/formed outside Singapore.
Paragraph 2 further addresses multi-tier beneficial ownership. If the subject entity beneficially owns equity interests in a 1st level entity, and that 1st level entity beneficially owns equity interests in a 2nd level entity, the subject entity is treated as beneficially owning a computed percentage of the 2nd level entity using the formula N × O. This is crucial for groups with holding companies and layered structures, because it allows the ownership threshold tests for ARE and related AISE concepts to be satisfied through indirect holdings.
Paragraph 3 (Shipping income) defines what “shipping income” means for the exemption. The definition is both time-bound and activity-specific.
Time element: shipping income is income derived on or after the later of (i) the date of approval of the relevant entity/branch, or (ii) 8 March 2018. This means that income earned before approval (even if the activity is otherwise qualifying) will not be sheltered by the exemption.
Activity element: shipping income includes income derived from specified activities, such as:
- Carriage by foreign ships of passengers, mail, livestock or goods from outside the port limits of Singapore.
- Carriage by foreign ships of cargo shipped in Singapore, with carve-outs where carriage arises solely from transhipment or is only within the port limits.
- Carriage to Singapore solely for transhipment.
- Carriage by Singapore ships outside the port limits of Singapore.
- Charter of foreign ships for carriage outside the port limits of Singapore.
- Charter and use of ships for offshore oil and gas activities, offshore renewable energy, and offshore mineral activities, where operations occur outside the port limits of Singapore.
- Towage and salvage operations outside the port limits.
- Ship sale and related transactions involving Singapore ships, provisionally registered ships, foreign ships, and certain assignments of rights under ship construction contracts.
The extract also shows that the definition extends to disposals and restructuring-type transactions, including:
- sale of a Singapore ship or a ship provisionally registered under the Merchant Shipping Act 1995;
- assignment of all rights as buyer under a ship construction contract where the ship is 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 the relevant ship or is the buyer under the construction contract; and
- similar sale/assignment concepts for foreign ships used for offshore renewable energy/mineral activities and for “prescribed purpose” categories (the extract truncates the remainder, but the structure indicates further enumerated categories).
For practitioners, the key takeaway is that “shipping income” is not limited to freight revenue. It can include income from chartering, offshore-related shipping services, and certain asset and contract-related transactions that are commonly used in shipping finance and fleet structuring.
How Is This Legislation Structured?
The Order is structured as a short instrument with three main provisions:
- Paragraph 1 sets out the citation and commencement date.
- Paragraph 2 creates the exemption and defines the relevant entities (AISE, ARE, related AISE) and the ownership mechanics (including indirect ownership via N × O).
- Paragraph 3 defines “shipping income” by reference to (i) the timing of approval and (ii) a detailed list of qualifying shipping and related activities, including offshore and disposal/assignment transactions.
Although the extract truncates the remainder of paragraph 3, the overall legislative design is clear: paragraph 2 establishes who receives exempt income and what types of receipts qualify (shipping income and certain distributions), while paragraph 3 specifies what activities generate “shipping income”.
Who Does This Legislation Apply To?
The exemption applies to an AISE in Singapore. In other words, the tax benefit is accessed by the approved international shipping enterprise that is resident in Singapore (as a company) and holds the relevant approvals under the Income Tax Act.
It also applies to income received by the AISE that is linked to qualifying activities carried out by (i) approved branches outside Singapore, and (ii) approved related entities (AREs) and related AISEs, subject to the equity ownership thresholds (25% for AREs; 50% or other approved percentage for related AISEs) and the traceability of dividends/partnership profits to qualifying shipping income.
Why Is This Legislation Important?
This Order is significant because it provides a targeted mechanism to exempt foreign income in the shipping sector—an area where cross-border operations and group structures are common. For shipping groups, the exemption can materially reduce Singapore tax exposure on income streams that arise from international shipping and offshore-related activities.
From an enforcement and compliance perspective, the Order’s drafting makes eligibility highly dependent on approval status and classification of income. Practitioners advising AISEs must therefore focus on: (i) ensuring the entity/branch is properly approved; (ii) confirming that the relevant income is derived from activities listed in paragraph 3; and (iii) documenting the ownership and distribution tracing requirements for dividends/partnership profits from AREs.
Finally, the inclusion of ship sale, share sale in special purpose companies, and assignments of construction contract rights reflects the commercial reality that shipping businesses often monetise or restructure fleets through corporate vehicles and contract transfers. The Order’s activity list therefore supports not only operating revenue but also certain transaction-based income, provided the statutory conditions are satisfied.
Related Legislation
- Income Tax Act (Cap. 134) — in particular section 13(12) (authorising power) and section 13E (approval of AISEs)
- Merchant Shipping Act 1995 — referenced for concepts such as ship registration and provisional registration
- Income Tax (Exemption of Foreign Income of Approved International Shipping Enterprises) Order 2018 — amendments including S 306/2022 and S 304/2024 (as reflected in the 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.