06 March 2008

At the Committee of Supply debate on the budget for the Ministry of Transport earlier today, Minister of State for Finance and Transport, Mrs Lim Hwee Hua, elaborated on a number of new enhancements in measures to boost Singapore's attractiveness as a hub for maritime businesses, some of which were touched on by the Finance Minister, Mr Tharman Shanmugaratnam, in his budget speech.

The changes involve:

A.Enhancing tax certainty on the treatment of gains from disposal of vessels;

B.Including forex and hedging gains as qualifying income under the MPA's Approved International Shipping (AIS) Enterprise scheme, the Maritime Finance Incentive (MFI) and the Singapore Registry of Ships (SRS);

C.Including container leasing activity under the MFI Scheme

D.Including partnerships as qualifying business entity under the MFI Scheme; and

E.Fine-tuning the Regulatory Framework for Marine Mutual Insurers

Enhancing Tax Certainty on the Treatment of Gains from Disposal of Vessels

Sale and purchase of vessels is an important fleet management and risk management tool for shipping companies and an intrinsic part of shipping operations. For example, shipping companies may sell vessels to raise funds for expansion or in anticipation of a market slowdown. Although capital gains are tax exempt in Singapore, uncertainty over whether gains from specific vessel transactions will be deemed as capital gains can create business uncertainty.

To provide greater certainty, the administrative concession earlier granted by the Inland Revenue Authority of Singapore (IRAS) to shipping companies under the AIS scheme and with ships registered with the SRS has been extended for another 5 years till YA 2014. This means that gains from vessel disposal would continue to be treated as capital in nature and hence exempt from income taxes.

Taking into consideration the various forms of fleet management transactions practiced by shipping companies, we have also extended the tax certainty to include sale-and-leaseback transactions, as well as the sale of shares of Special Purpose Companies (SPCs).1

Including Forex and Hedging Gains as Qualifying Income under AIS, MFI and the SRS

The shipping business is, by its nature, exposed to risks from foreign exchange and price-related movements. Maritime companies are increasingly using derivative instruments like Forward Freight Agreements (FFAs) to hedge the effects of fluctuating freight rates.

Recognizing the importance of such risk management activities to maritime companies, we have included forex and hedging gains as a qualifying income under MPA's AIS scheme, MFI and SRS. This means that companies under these schemes will be able to conduct risk management activities without being subject to tax.

Including Container Leasing Activity under the MFI

The MFI scheme was launched in 2006 to incentivise companies to conduct maritime finance activities such as ship leasing, ship funding, or shipping business trusts in Singapore.

The growth of containership newbuildings has led to an unprecedented demand for more containers. To tap into this strong demand for containers, we have included containers as a qualifying asset under the MFI, in addition to ships.

Container leasing companies and container funds that set up in Singapore can, with effect from 1 April 2008, enjoy concessionary tax rates of either 5% or 10% on their container leasing income, depending on the company's business spending and headcount commitment in Singapore. This enhancement will lead to a wider variety of assets being managed out of Singapore and deepen our sophistication in maritime financial services.

Including Partnerships as a Qualifying Business Entity under the MFI

Entities registered as companies or business trusts may currently apply for the MFI.

To provide greater flexibility to global maritime investors, partnerships will now be allowed as a qualifying business entity under the MFI scheme. Shipping or container leasing partnerships can set up in Singapore with effect from 1 April 2008. This enhancement will increase the number of ship financing entities which can benefit from the MFI, making Singapore a more attractive location for the management of maritime-related funds.

Fine-tuning the Regulatory Framework for Marine Mutual Insurers

On 1 January 2008, the Monetary Authority of Singapore (MAS) put into effect changes to the regulatory framework for marine mutual insurers such as protection and indemnity clubs, so that the requirements are more proportionate to the risks posed by these specialized insurers. The changes were made in areas including capital and solvency requirements and submissions of statutory returns. These adjustments are part of our efforts to enhance the attractiveness of Singapore as a centre for marine insurance. The MAS and the MPA hope to encourage more of such specialized expertise to set up in and service international shipowners from Singapore.

Details on Tax Changes

The details of the tax changes A-D are currently being fine-tuned by the MOF and the MPA. The industry can expect the details to be released by the MPA in May 2008.

The changes in E are detailed in a public consultation paper released by the MAS on 20 April 2007 which may be found on the following website:

www.mas.gov.sg/publications/consult_papers/Reports_and_Consultation_Papers.html

Further details of the changes in E may also be found in the following subsidiary legislation:

Insurance (General Provisions and Exemptions for Marine Mutual Insurers) Regulations 2007

End of Release.

About the Maritime and Port Authority of Singapore (MPA)
The Maritime and Port Authority of Singapore (MPA) was established on 2 February 1996, with the mission to develop Singapore as a premier global hub port and international maritime centre (IMC), and to advance and safeguard Singapore's strategic maritime interests.It is the driving force behind Singapore's port and maritime development, taking on the roles of Port Authority, Port Regulator, Port Planner, IMC Champion, and National Maritime Representative.The MPA partners the industry and other agencies to enhance safety, security and environmental protection in our port waters, facilitate port operations and growth, expand the cluster of maritime ancillary services, and promote maritime R&D and manpower development.