Alternative Net Tonnage Basis of Taxation in Singapore – Key Aspects of the Scheme and what Shipping Companies should know

In light of the Base Erosion and Profit Shifting (“BEPS”) Pillar Two global minimum tax regime, which is set to impact multinational enterprises (“MNEs”) from 2025, Singapore has introduced the Alternative Net Tonnage Basis of Taxation (“NTT basis”), providing shipping companies a competitive and flexible tax framework in Singapore. The introduction of NTT basis helps to better align Singapore’s tax regime with international tax practices andstrengthen its position as a global maritime hub. The introduction of the NTT basis would help Singapore to meet the international standards required under BEPS Pillar Two, ensuring Singapore remains competitive and compliant with emerging global tax policies.

Key Features of the NTT Basis

The NTT Basis is not designed as a separate tax regime, but instead provides qualifying shipping companies with the option to compute the income tax base for a Year of Assessment (“YA”) on a tonnage-based system, rather than the profit-based corporate tax structure. The option may be elected from YA 2024 and once made, the election is irrevocable. Entities that do not elect for the NTT basis would continue with the existing tax exemption under the relevant shipping incentives.

Key highlights of the NTT Basis include:

1. Eligibility Criteria

• Applicable to shipping enterprises as follows:

1. 1. Shipping enterprises under Section 13A of the Singapore Income Tax Act (“SITA”), also known as Maritime Sector Incentive – Shipping Enterprise (Singapore Registry of Ships) (“MSI-SRS”) scheme;

1. 2. Approved International Shipping Enterprises under Section 13E of the SITA, also known as the Maritime Sector Incentive – Approved International Shipping enterprise (“MSI-AIS”) scheme; and

1. 3. Approved shipping investment enterprises under Section 13P of the SITA, also known as the Maritime Sector Incentive – Maritime Leasing (Ship) (“MSI-ML (Ship””) scheme.

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2. Tax Computation

• Tax is computed based on the net tonnage of qualifying vessels, regardless of the company’s actual profits.
• The company’s income tax base for a particular Year of Assessment (“YA”) is computed based on the total sum of income for each qualifying ship computed by reference to the net tonnage of the ship, a deemed daily income per net ton and number of days that the ship was in operation during the basis period for the YA.
• Exemptions (e.g. partial tax exemption), deductions, unabsorbed capital allowances, trade losses and donations cannot be deducted against deemed income under NTT basis and carry-back of capital allowances, losses, or group relief against deemed income under NTT basis are not allowed.
• Where applicable, foreign tax credit may be claimed subject to meeting the necessary conditions and corporate income tax rebate, if any, is applicable for that YA.
• Requirement to segregate incentivised and non-incentivised income and expenditure, and for common expenditure / capital allowances to be allocated on a reasonable basis remains.

3. Benefits

• For purposes of compliance with the Global Anti-Base Erosion (“GloBE”) rules under the BEPS Pillar 2 initiative, corporate income taxes paid under the NTT basis could help MNE entities mitigate any Singapore tax exposure resulting from the GloBE rules.

• This could include the inclusion of corporate income tax paid under the NTT basis as covered taxes, for calculation of GloBE Effective Tax Rate (“ETR”), which may help to address the risk of any qualifying tax exempt MSI income from being subjected to a top-up-tax in Singapore. However, a detailed analysis of the group’s structure should be performed to assess the BEPS implications and the NTT basis’ potential contribution to jurisdictional ETR.
• Electing for the NTT basis would also provide certainty and help to simplify the tax computation and tax return preparation for eligible shipping entities due to the simplified method of computing the corporate income tax payable under the NTT basis as described above. Shipping companies should however assess their own operational and financial profiles and assess the suitability of the NTT basis.

Why Does This Matter for Your Business?

With the impending implementation of the Income Inclusion Rule (“IIR”) and a domestic minimum top-up tax (known as “DTT”), under the GloBE Rules, shipping and related companies with global revenue exceeding EUR 750 million will be subject to a minimum effective tax rate of 15%. The NTT basis thus offers a viable mechanism to manage tax exposure while ensuring alignment with the GloBE Rules.

In addition, shipping companies can benefit from the tonnage-based scheme by achieving greater tax certainty and cost efficiency.

How Can We Help?

In this regard, we can help shipping companies to assess their eligibility for the NTT basis and evaluate the tax implications of opting into the tonnage-based tax system, as well as provide guidance on the use of the NTT basis to address any Singapore tax exposure arising from the implementation of the BEPS Pillar Two initiatives.

If you have any questions, please do not hesitate to reach out to us for a discussion.

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CONTACT US

Contact our Tax Advisory Specialists for a Discussion

Edwin Leow Co-Advisory Leader Head of Tax edwinleow@sg.cla-ts.com

John Chua Associate Director, Mergers & Acquisition Tax Lead johnchua@sg.cla-ts.com