("ais") incentive - Watson, Farley & Williams

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WATSON, FARLEY & WILLIAMS LLP Comments 9 The Income Tax Act defines a company to be resident in Singapore if the control and management of its business is exercised in Singapore. Under normal circumstances, the management and control of a company's business is deemed to be vested in its board of directors and the place where the board meetings are held is therefore the place where the company is resident. 10 As it is a requirement that the AISE company be resident in Singapore, the company can utilise Singapore's network of double-tax treaties and (amongst other benefits) enjoy either full or partial exemption from foreign income tax on the freight income derived from these treaty countries (which would otherwise be subject to full taxation in those countries). In addition, the shareholders of the AISE company may be able to utilise these tax treaties to obtain either full or partial exemption from income tax imposed in their jurisdiction on the dividend income which they receive from the AISE company. The list of relevant treaty countries is attached as a schedule hereto. 11 The vessels need not be directly owned by the AISE company or a Singapore incorporated subsidiary. As long as the overseas shipowning company qualifies as an approved subsidiary or an associated shipping company under the AISE Incentive Scheme, a vessel may be owned by such an overseas company. For the purposes of the AISE Incentive Scheme, an "associated company" is one in which the AISE company owns not less than 25% of the equity and preferably is the single largest shareholder and for which maintenance of control is evidenced. The exemption from tax of qualifying dividends received from approved associated and subsidiary companies stems from a recognition of the general practice amongst shipowners of incorporating single purpose subsidiaries or associated companies to own vessels. 8
WATSON, FARLEY & WILLIAMS LLP 12 Income such as agency fees, third party ship management fees and investment and other non-shipping income (including interest - other than those derived from derivative gains) would not constitute qualifying income. 13 Exemption from withholding tax on charter hire of vessels chartered in for the qualifying activities of the AISE company (including those operated under finance leases) will be given in the following circumstances: - vessels chartered in from approved subsidiaries and associated companies; - vessels chartered in from non-related, non-resident companies and which have been declared; and - vessels chartered in for "pooled" arrangements and which have been declared. 14 If a Singapore resident company obtains offshore loans, then the company will remain obliged (subject to the terms of any relevant double tax treaty or other specific exemption) to withhold tax on interest payments to the foreign lender. 15 Exemption from withholding tax on interest referred to in paragraph 14 will be given on a case by case basis, but will usually be subject to the following conditions: - the loan shall be used solely for the purchase of a vessel; - there shall be no change in the basic terms and conditions of the loan without the prior written approval from the Ministry of Finance; - the vessel purchased and financed from the loan shall not be disposed of during the loan period without the prior written approval from the Ministry of Finance; - there should be no tax-sparring benefits or debt for equity swaps; and - the vessel will be registered in Singapore. Should the vessel leave the Singapore registry, exemption will be withdrawn. 9
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("ais") incentive - Watson, Farley & Williams

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