Tax incentives for shipping companies

The main attractions of the KG through the partnership structure are the benefits available under the German Tonnage Tax. The Tonnage Tax was introduced into the German Income Tax Act (§ 5a) in 1999 in order to promote standardization of the taxation of shipping companies within the EU. Tonnage Tax is the tax levied on the tonnage of shipping companies, as opposed to the general corporate tax, which is based on the profits earned by them. Under the tonnage tax regime, the tax benefits of ownership flow through to the individual investors and the KG's income tax is based on net tonnage rather than corporate profit, leading to a much reduced tax burden.

A German shipping company may opt between the general tax system and the Tonnage Tax system. This choice is binding for a period of at least ten years. After this period, the shipping company can renew its choice.

Requirements for the use of the Tonnage Tax model

Requirement	Explanations
Operation of a merchant ship in international trade		The ship´s primary use must be to transport passengers and cargo by coming into contact with at least one foreign port
		The vessel can be chartered out (exception: bareboat charters)
		The ship must be entered in - Germany`s first register - ISR International Ship Register (a so-called second register), which does not require that the ship fly a German flag
Seat of operations and management in Germany		The shipping company`s seat of management must be in Germany
Application to use Tonnage Tax		Seat of operations in Germany
		Previously, option could be exercised three years after the fiscal year (first year) in which the other requirements - seat of management, operations in Germany and operation of a ship in international trade - were satisfied
		Starting in 2007, option must be exercised in the year the ship is delivered