Tax measures for Shipping Enterprises

Approved Shipping Financing Arrangement Award

With effect from 19 February 2025, an Approved Shipping Financing Arrangement (ASFA) award will be available to Singapore-based owners and managers of ships and sea-containers. The ASFA award provides a withholding tax exemption on interest and related payments in respect of qualifying financing arrangements entered into on or before 31 December 2031 for the purchase or construction of ships or containers, an incentive which would otherwise only be available to Maritime Sector Incentive (MSI) recipients. While the full details of the ASFA award are not yet available, it appears to be independent of the MSI.

It will be interesting to see how the qualifying conditions and scope of the AFSA award compare with the existing withholding tax exemption conditions for MSI recipients. Our preliminary view is that the AFSA should benefit the wider shipping community and is a welcome addition to the suite of tax incentives for the shipping industry. We look forward to further guidance around the potential flexibility of the ASFA award to accommodate different types of financing arrangements, and the type of qualifying payments (other than interest).

The ASFA award is the long-awaited missing piece of the puzzle to Singapore’s maritime incentive regime, given the lack of financing support for non-MSI recipients. The introduction of this new incentive should encourage more organisations to anchor their ownership and management of ship and sea containers in Singapore, bolstering Singapore’s maritime ecosystem.

Extend and enhance Maritime Sector Incentive

Singapore has maintained its position as a leading international maritime hub in part due to the Government’s continuous efforts in enhancing its maritime incentive regime. With effect from 19 February 2025, the following sub-schemes under the MSI have been enhanced to keep pace with industry developments:

• MSI-Shipping Enterprise (Singapore Registry of Ships) (MSI-SRS)
• MSI-Approved International Shipping Enterprise (MSI-AIS)
• MSI-Maritime Leasing (Ship) (MSI-ML [Ship])
• MSI- Maritime Leasing (Container) (MSI-ML [Container]),
• MSI-Shipping-related Support Services schemes (MSI-SSS)

With the above changes, it comes as no surprise that the Government has decided to amend the sunset date of the MSI from 31 December 2026 to 31 December 2031.

In line with the extension, there is also an extension of the withholding tax exemption to cover qualifying payments made on qualifying financing arrangements entered into on or before 31 December 2031.

Extend withholding tax exemption for container lease payments made under operating lease agreements

Lease payments made to non-resident lessors (excluding payments derived from any operation carried on by the non-resident through its permanent establishment in Singapore) under operating lease agreements for the use of qualifying containers for the carriage of goods by sea are exempted from withholding tax. This exemption was scheduled to lapse after 31 December 2027 but has now been extended to cover agreements entered into on or before 31 December 2031.

We welcome the extension of this scheme which aims to harmonise the withholding tax treatments of lease payments for ships and containers, both of which are crucial to the maritime industry. The withholding tax exemption should help ensure that Singapore remains attractive and competitive compared to other maritime nations.

To provide certainty to shipping groups which already face the challenges of a highly volatile market, a permanent withholding tax exemption would have been preferred.

Extend withholding tax exemption for ship and container lease payments made under finance lease agreements for MSI recipients

Ship and container lease payments made to non tax-resident lessors (excluding payments derived from any operation carried on by the non tax-resident through its permanent establishment in Singapore) under finance lease agreements for specified MSI recipients are exempted from withholding tax. This exemption was scheduled to lapse after 31 December 2028 but has now been extended to cover agreements entered into on or before 31 December 2031.

As with the withholding tax exemption for container lease payments made under operating lease agreements, a permanent exemption would have been preferred for certainty beyond 2031.