Transportation & Logistics
Your gateway to industry information
May 2010
Sailing With the Wind
With government policy support, competition and
collaboration with Hong Kong and Singapore, Shanghai is
emerging as the next international shipping centre
In this flyer…
1. Overview of relevant PRC Tax
Policies in establishing Shanghai
as an International Shipping
Centre
2. Looking forward to 2010 - More
Tax Policies are expected for
attracting multinational
corporations to participate in the
development of an International
Shipping Centre at Shanghai
3. Comparison of shipping models
in Hong Kong, Singapore and
Shanghai (Yangshan Free Trade
Port)
4. The integration of the region's
shipping industry and tax
strategy in the future
development of China,
Singapore and Hong Kong
1. Overview of relevant PRC Tax Policies in
establishing Shanghai as an International
Shipping Centre
On 14 April 2009, State Council issued “Opinions of the State Council on Promoting
the Development of Modern Service Industries and Advanced Manufacturing Industries
and Establishing Shanghai as an International Financial Centre and an International
Shipping Centre” (Guofa (2009) No.19, abbreviated as “the Opinions” or “Guofa No.19”
below), and proposed developing Shanghai as an international financial and shipping
centre. As stated in the Opinions, the objective of this policy is to establish Shanghai
as an international shipping centre with the following features by 2020:1.
Possess the basics of highly centralised shipping resources,
2.
Have comprehensive shipping service functions;
3.
Be surrounded by a sound, shipping industry environment;
4.
Be supported with highly efficient, contemporary logistics services; and
5.
Be capable in allocating global shipping resources.
To support the implementation of an international shipping business, the Opinions
offers a number of preferential policies in association with tax and customs, which
includes:
1.
The policy of tax exemption for China-funded “Flag of Convenience” (“FoC”)
vessels has been extended from 30 June 2009 to 30 June 2011;
2.
Business Tax (“BT”) would be exempted on income derived by the shipping
enterprises registered in the Shanghai Yangshan Free Trade Port from their
international shipping business;
3.
BT would be exempted on the income derived by the enterprises registered in
the Shanghai Yangshan Free Trade Port from transportation, warehousing,
loading and unloading businesses;
4.
Permission of enterprises to set up offshore bank accounts to facilitate funding
and settlement for their overseas business needs;
5.
Implementation of tax refund policies at the port of departure under an efficient
supervisory mechanism, and measures to prevent tax fraud in order to promote
the transshipment business at Yangshan Free Trade Port; and
6.
Exploration of innovative regulatory infrastructure for special customs
supervision and administration zones to better demonstrate the functionality of
Yangshan Free Trade Port.
The tax policies suggested in the Opinions were further affirmed by “Notice on BT
Policies in relation to establishing Shanghai as an International Financial and Shipping
Centre” issued by the Ministry of Finance and State Administration of Taxation on 1
May 2009 (Caishui (2009) No.91, abbreviated as “No.91” below). No.91 re-emphasises
the following three main points:
1.
BT would be exempted on the revenue derived by enterprises registered in the
Shanghai Yangshan Free Trade Port from the international transportation
business;
2.
BT would be exempted on the revenue derived by enterprises registered in the
Shanghai Yangshan Free Trade Port from transportation and loading and
unloading businesses; and
3.
BT would be exempted on the revenue derived by the insurance companies
registered in Shanghai from international shipping insurance business.
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With respect to the further extension of the deadline for tax exemption for China-funded FoC vessels, the Ministry of Finance has issued
“Notice Regarding Extension of Import Tax Policies for China-funded FoC Vessels” (Caiguanshui (2009) No.28, abbreviated as “Circular
28” below) which further elaborates the requirements for the BT exemption policy, i.e. for those China-funded vessels (capital
contribution by Chinese party is not less than 50%) with prescribed ages and qualified technology that have performed business
registration outside China prior to 31 December 2005, they can be exempted from Customs Duty and Import Value Added Tax (“VAT”)
at import declaration between 1 July 2009 and 30 Jun 2011.
On 8 May 2009, the Shanghai Municipal Government also issued “Opinions on Implementation of Promoting the Development of
Modern Service Industries and Advanced Manufacturing Industries and Establishing Shanghai as an International Financial Centre and
an International Shipping Centre” (Hufufa (2009) No. 25, abbreviated as “Opinions on Implementation” or “Circular 25” below) to provide
additional recommendations for establishing Shanghai as the aforementioned centres. To add further focus on the relevant tax policies
mentioned in the Opinions, for optimising the development of financial services for the shipping business, the Opinions continues to
explore and implement the pilot tax preferential polices, which includes:1. Setting out the preferential policy for finance leasing companies which are engaged in finance leasing activities for international
shipping vessels;
2. Research on the relevant tax policies in respect of the insurance premiums paid by the import and export companies for sea
transportation; and
3. Encouragement of import and export companies to subscribe domestic insurance for their shipping business.
Furthermore, on 24 July, the Government of Pudong New District issued “Opinions on Implementation of the establishment of Pudong
New District as the function centre to help position Shanghai to become the International Shipping Centre” (Pufu (2009) No.267,
abbreviated as “Opinions on Implementation - Pudong” or “Circular 267”). This sets out the detailed policies to support the
aforementioned initiative and includes:
1.
2.
3.
4.
The enforcement and execution of national policies to support the development of Shanghai as the International Shipping Centre,
which includes making good use of the BT preferential policies available to enterprises in Yangshan Free Trade Port and
Shanghai insurance enterprises engaged in insurance business for international shipping business;
Coordination in the development of tax refund policies at the port of departure and provision of assistance to the relevant
authorities in research and development for the efficient supervisory mechanism and implementation rules to prevent fraud in tax
refund and in order to promote the transition business of finished goods at Yangshan Free Trade Port;
Research and development for the financial subsidies available in Pudong District which could: 1) set out a clearer plan for the
shipping business, 2) manage the industry development catalogue for the shipping business, 3) set up the support system with
assistance of the financial subsidies given to the headquarters involved in modern logistics and professional services; and
For establishing the finance system in the shipping industry, Circular 267 further promotes this as a pilot programme to support
the research in the preferential policy available to finance leasing companies for international shipping vessels.
The aforementioned opinions and policies issued by the State Council, governments at Shanghai Municipal and Pudong New District
provide immense support in the development of Shanghai to become an international shipping centre.
2. Looking forward to 2010 - More Tax Policies are expected for
attracting multinational corporations to participate in the development
of an International Shipping Centre at Shanghai
We believe that there will be more detailed rules on how to implement the abovementioned policies and initiatives in further
announcements in 2010. For example, according to relevant sources, we understand that the draft for “2010 core arrangements for the
development of Shanghai International Shipping Centre” is almost finalised. According to our research, Shanghai will continue to put
more focus on the infrastructure development for Collection and Distribution Operating System (集疏运体系) and Shipping Services
System and Network System (连个体系) in 2010. From a taxation perspective, BT exemption is expected to be enforced for shipping
enterprises in the Yangshan Free Trade Port. From other preferential policies perspectives, the authorities will focus on developing “one
document for two declaration purpose” (一单两报) at custom declaration; fostering the leadership for the professionals in the shipping
industry and development of the arbitrage field in Shanghai; promoting the platform for shipping financing and information, oil tanker
industry development; and driving the collaboration and interaction among the “three ports and three districts” (三港三区).
The policies issued in 2009 were mainly focused on providing BT preferential treatments to specific shipping locations and industries. In
2010, we understand relevant authorities are exploring the feasibility of detailing the relevant tax policies for shipping and shipping
related businesses (such as extending the applicability of BT on net basis for shipping logistics business operations). Relevant
authorities are currently discussing whether the policy of BT at 3% being taxed on net basis for logistics businesses (such as
warehousing, distribution and agency, etc.) could apply to Shanghai as a whole (currently BT on net income is only applicable to certain
logistics enterprises as a pilot programme). Simultaneously, for establishing Shanghai as an international shipping centre, relevant
authorities also suggest to extend the BT exemption on revenue derived from the international transportation business of shipping
enterprises registered in the Shanghai Yangshan Free Trade Port to other relevant enterprises registered in Shanghai, as well as to
income derived from financial derivative instruments related to shipping industry. The aforementioned initiatives are still being discussed
by relevant authorities. Whether or not the specific preferential tax policies could extend to cover other locations, industries and type of
taxes is as yet unknown although development in these areas will be closely monitored. Nevertheless, we believe more favourable
taxation policies (especially preferential Corporate Income Tax and Individual Income tax treatments for shipping enterprises and the
related shipping professional, etc.) will attract more domestic and international shipping enterprises, and other associated business
enterprises to participate in these developments enabling Shanghai to become an international shipping centre.
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2
On 23 April 2010, the Ministry of Finance and State Administration of Taxation jointly issued “Notice on Business Tax Exemption for the
Service in the International Transportation Business” (Caishui (2010) No.8). As stated in the notice, effective from 1 January 2010, BT
would be exempted for domestic enterprises or individuals providing international transportation services, which include:
•
•
•
Outbound transportation of passengers or goods;
Inbound transportation of passengers or goods; and
Transportation of passengers or goods provided offshore
This notice is effective from 1 January 2010. BT paid between 1 January and 23 April 2010 could be entitled to offset against BT
payable or be refunded in the future periods.
3. Comparison of shipping models in Hong Kong, Singapore and
Shanghai (Yangshan Free Trade Port)
In order to promote Shanghai as an international shipping centre, China is actively seeking to reduce the tax burden of enterprises by
providing tax incentives in order to attract enterprises to set up office and conduct their operations in Shanghai (in particular, the
Yangshan Free Trade Port, etc.).
The above mentioned tax preferential policies could be viewed as challenges to Hong Kong and Singapore, which are also considered
as international shipping centres, with tax-free or low tax competitive advantages in Asia. In terms of taxation, what are the main
differences for international transportation enterprises established in these three international shipping centres? Below is a brief
comparison of tax policies among Shanghai (mainly Yangshan Free Trade Port), Hong Kong and Singapore for enterprises that intend
to further develop business in these three regions as reference.
Comparison of tax policy for enterprises engaging in international shipping business
Type of Tax
Companies registered in Yangshan
Free Trade Port of Shanghai
Companies registered in Hong Kong
Companies registered in Singapore
Turnover tax
on income
derived from
international
transportation
•
BT is exempted on income
derived by taxpayer located in
Yangshan Free Trade Port from
international transportation
income;
•
Not applicable
•
•
According to Caishui (2010) No.
8, China reiterates that the
above BT exemption policy has
been extended to cover all
enterprises engaged in
international transportation.
•
Depending on whether countries
or regions as places of
departure impose turnover tax
and income tax;
•
•
Should there be avoidance of
double taxation arrangements
for shipping income (“DTAs”)
signed with China and the
countries where goods are
uploaded, preferential policies
available under DTA could be
applied. At present, China has
signed DTA with 94 countries or
regions, some of which have
particular articles of income tax
and BT exemption for
international shipping income;
Shipping income derived from
•
uploading of goods outside Hong
Kong and proceeding to
international waters would not be
chargeable to Hong Kong profits tax.
Such shipping income might be
subject to overseas taxes (e.g.
turnover tax, income tax) in the
countries where the goods are
uploaded;
•
Should there be avoidance of
double taxation arrangements for
shipping income (“DTAs”) between
Hong Kong and the countries where
goods are uploaded, investors may
enjoy tax relief under DTAs and
reduce overall tax costs. Whilst
Hong Kong has entered into 20
DTAs (to date), the Government of
the HKSAR has also scheduled
negotiations / conclusions for new
DTAs with various countries, e.g.
Japan, France and Switzerland.
Tax on
shipping
income derived
from uploading
of goods
offshore
•
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According to Caishui (2010) No.
8, from 1 January 2010, BT is
exempt on income arising from
uploading passengers or goods
from overseas.
•
Not applicable
Shipping income from
uploading of goods outside
Singapore and proceeding to
international waters would not
be chargeable to Singapore
corporate income tax. Such
shipping income might be
subject to overseas taxes (e.g.
turnover tax, income tax) in the
countries where the goods are
uploaded;
Should there be DTAs between
Singapore and the countries
where goods are uploaded,
investors may enjoy tax relief
under DTAs and reduce overall
tax costs. Currently, Singapore
has entered into 65 DTAs with
various countries.
3
Type of Tax
Companies registered in Yangshan
Free Trade Port of Shanghai
Companies registered in Hong Kong
Companies registered in Singapore
CIT
•
•
•
For Singapore-registered
vessels operating in
international traffic, their
qualified shipping income
would be exempt from
Singapore corporate income
tax;
•
For foreign-flagged ships
operated by Singapore tax
resident companies, their
qualified shipping income
derived from international traffic
might be exempt from
Singapore corporate income
tax pursuant to the “Approved
International Shipping
Enterprise” scheme (subject to
certain considerations);
•
Companies that are not
qualified for any tax incentive
schemes would be chargeable
to corporate income tax at 17%
in Singapore.
•
Goods and Services Tax (GST)
is zero-rated on supply of
international shipping services;
•
GST-registered entities would
be able to claim input GST
(subject to conditions).
Ship-related
Custom Duty
(“CD”) and
import VAT
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Shipping income is generally
subject to the standard CIT rate at
25%.
•
CD and import VAT generally
would not apply to those vessels
with “flags of convenience” (方便
旗);
•
For those vessels where “flags of
convenience” are replaced by the
Chinese flag, subject to certain
conditions, they would generally
be exempt from CD and Import
VAT. Such preferential policy has
now been extended to 2011.
Based on Hong Kong Profits Tax
provisions specifically for the
shipping business, profits tax
would be imposed on a ship
owner (defined as a person who
is a ship owner or carries on a
business of chartering or
operating ships in Hong Kong).
The same provisions state that a
ship owner is deemed to carry on
a shipping business in Hong
Kong if: (a) the ship-owning
business is normally controlled or
managed in Hong Kong; or (b)
the owner of the ship is a
company incorporated in Hong
Kong. Any ship owner who has
ships calling at any location
within the waters of Hong Kong
(except casual calls) shall also
be deemed to be carrying on a
shipping business in Hong Kong;
•
For freight income, chargeability
to profits tax is determined based
on: (a) where the goods (except
goods in transit) are uploaded; (b)
where the ships are registered;
and (c) where the ships are
navigated. If there is no carriage
shipped in Hong Kong, the
shipping income is tax-exempt in
Hong Kong;
•
As a tax incentive, for ships flying
a Hong Kong flag uploading
goods in Hong Kong and
proceeding to international
waters, the relating freight
income is still exempt from Hong
Kong profits tax;
•
For a taxpayer resident in any
territory outside Hong Kong but
carrying on a shipping business
in Hong Kong, it will be taxexempt in Hong Kong if there is
reciprocal tax treatment in that
country for a Hong Kong resident
taxpayer.
•
Not applicable
4
Type of Tax
Companies registered in Yangshan
Free Trade Port of Shanghai
Companies registered in Hong Kong
Companies registered in Singapore
Implications on
charter hire
income from
operations of
ships & container
leasing
•
Income from Voyage Charter
and Time charter is usually
identified as transportation
income, however, Income from
Bare Charter is usually identified
as rental income;
•
•
Please refer to the section
above on “Corporate Income
Tax” for comments on the tax
implications on ship charter hire
income;
•
•
Income from Voyage Charter
and Time Charter derived by
enterprises in Yangshan Free
Trade Port would be BTexempted if they are considered
as international transportation
income. However, the profit
derived would be subject to CIT;
For companies not granted any
tax incentives, the income
derived from the leasing of
containers would be chargeable
to prevailing corporate income
tax (currently at 17%);
•
Container leasing companies
granted the “Approved
Container Investment Enterprise”
status enjoy a reduced
corporate income tax rate of
10% for qualifying container
leasing income.
•
Rental income from Bare
Charter by enterprises in
Yangshan Free Trade Port
would be subject to BT at 5%
and the profit would also be
subject to CIT;
•
Companies of Yangshan Free
Trade Port may need to withhold
relevant CIT and BT on behalf of
overseas companies for services
they render through Voyage
Charter and Time Charter.
•
Charter hire income derived
from operations of ships would
generally be exempt from Hong
Kong profits tax unless: (a) the
ships are navigated solely or
mainly within Hong Kong waters;
or (b) the ships are navigated
between Hong Kong and Pearl
River trade waters;
Depending on whether the
income from containers leasing
could be regarded as incidental
to the operations of ships, the
income derived from there may
be chargeable to Hong Kong
profits tax under general taxing
provisions at 16.5% (other than
those specifically for shipping
business as mentioned above).
As shown in the above analysis, although China may have a similar BT preferential policy as Hong Kong and Singapore, in terms of CIT,
Chinese tax policy may not be as competitive as Hong Kong and Singapore. In the medium term, Hong Kong and Singapore may still
have the competitive advantage over China with regards to taxation policy. Although taxation is only one of a number of supportive
policies provided by China, other related policies in China are also important to both domestic and multinational corporations. The
policies for the shipping industry in Hong Kong and Singapore could be considered as a critical reference for Chinese policy makers to
further attract shipping enterprises and development of Shanghai as an international shipping centre.
4. The integration of the region's shipping industry and tax strategy in
the future development of China, Singapore and Hong Kong
China is encouraging the development of Shanghai to become both a financial centre and shipping centre – two-centre status, gradually
providing policy guidance and support to Shanghai in respect of tax, infrastructure, etc. In the foreseeable future, Shanghai will become
the primary choice of many multinational shipping enterprises as a result of its strategic position. According to a recent “global
competitiveness index for international shipping centres," issued by the Research Centre of Shanghai Pudong International Financial
and Shipping Centre, Shanghai has been ranked fifth in the world based on the total index score.
To choose a regional shipping centre headquarter in the Asia Pacific, the key question for many multinational companies is no longer
whether Shanghai is a choice but rather more importantly, it is how best to analyse and utilise the policy advantages of Shanghai as a
business hub in order to expand shipping business in China and the Asia Pacific despite some larger shipping corporations, despite
some larger shipping corporations having perhaps more than one regional headquarters for shipping operations. As far as management
is concerned with the Asia Pacific business operations, they are placing greater emphasis on how to better integrate and map the
strategic advantages of Hong Kong, Singapore and other international shipping centres.
In order to strengthen Hong Kong’s position as a global financial centre and to cater for the rapid pace of economic development, the
Government of the HKSAR has been providing a favourable business environment to investors. With a well-developed business
environment, finance and legal structures as well as non-discriminatory low tax regime, Hong Kong acts as an important platform for
entities to establish a favourable structure for their existing operations and proposed outbound business development / cross border
investments. Hong Kong adopts a territorial source principle with a standard tax rate of 16.5%. There are also specific charging
provisions in Hong Kong governing the taxing principles for the shipping industry. With the tax concessions under Hong Kong tax law,
both local and foreign shipping companies can enjoy a relatively low or zero effective tax rate in Hong Kong subject to certain conditions.
There are no capital gains tax, service fees or interest payment withholding tax, sales tax, VAT, etc. in Hong Kong. The Government of
the HKSAR had also introduced further measures with a view to maintaining Hong Kong’s competitiveness and reducing the overall
effective tax costs of shipping companies due to their international operations. Specifically, the Government of the HKSAR had entered
into comprehensive double tax treaties and agreements for the avoidance of double taxation with respect to shipping income with
various countries. It is worth noting that the Government of the HKSAR has also been actively scheduling negotiations / conclusions with
various countries (e.g. Japan, Switzerland, etc.).
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5
Singapore recognises that a leading international shipping centre comprises of many
components. Supporting such a shipping centre would be a comprehensive community of
specialised shipping service providers that would provide ship financing, ship broking,
accounting and legal services (including arbitration), ship management, insurance, ship
classification services, etc.
ContactsTransportation & Logistics
Apart from granting tax incentives to target and grow the traditional businesses of chartering
and operating of vessels, Singapore is moving towards providing more tax incentives for
ancillary support services sectors in many of the above areas. For example, the Singapore
government has recently extended the MFI application period from 28 February 2011 to 31
March 2016 and introduced new tax incentives for ship brokers and forward freight agreement
traders.
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With a view towards enhancing Singapore’s competitive edge, it is likely that the Singapore
government will continue to increase their efforts in maintaining Singapore as a convenient
one-stop shop for all players in the shipping industry.
In conclusion, the governments of China, Hong Kong and Singapore are committed to
promoting the development of the shipping industry in order to provide a more favourable
business environment through the coordination of taxation, financing and law, thereby
enhancing competitiveness and reducing operating costs. The way to harmonise the
competitive advantage of Hong Kong, Singapore and to reasonably establish specific
approaches would be through shipping centres in China.
Shipping industry customers may consider integrating law, regulatory frameworks and
development trends of various shipping centres, and to take into account of future operations
to ensure the success of development plans. In addition, we believe Shanghai and other cities
which operate shipping centres are likely to issue corresponding implementation rules by
considering new trends. Given this, enterprises should closely monitor the aforementioned
trends. Similarly, customers should consider business models, holding structures, policies,
regulations and international tax planning for financing, etc. PricewaterhouseCoopers (PwC)
provide the following professional and tax-effective advisory services by leveraging our indepth knowledge and global experience in the shipping industry. Please contact our
professional teams in China, Hong Kong and Singapore for further details:
•
•
•
•
•
•
•
•
•
•
Review of group holdings and shipping business development framework
Review of the Asia Pacific company migration plan
Business performance review of current operations
Group and corporate restructuring services
Financial, tax and commercial due diligence involved in mergers and acquisitions
Structure investment and financing
Tax advisory and compliance services
Operating fund remittance services
Transfer pricing services
Other services
China/ Hong Kong
Alan Ng
+852 2289 2828
Beijing
Thomas Leung
+86 (10) 6533 2838
Shanghai
Jack Li
+86 (21) 2323 3736
Guangzhou
Shirley Yeung
+86 (20) 3819 2218
Shenzhen
Y K Tong
+86 (755) 8261 8021
Singapore
Kok Leong Soh
+65 6236 3788
Knowledge Manager
Annie Fong
+852 2289 2845
Tax
Reynold Hung
+852 2289 3604
Cathy Jiang
+852 2289 5659
Mui Peng Ho
+65 6236 3838
Advisory
Transaction Services
Victor Huang
+852 2289 2319
Performance Improvement
Edmund Lee
+852 2289 2714
Business Recovery
Rainier Lam
+852 2289 2412
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interest only, and is not intended to provide specific advice on any matter, nor is it intended to be
comprehensive. No representation or warranty (express or implied) is given as to the accuracy or
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