The fundamental driver for the German KG model for shipping is tonnage tax. The ship owners have the opportunity to get taxed on basis of tonnage than the operation result of the ship. The amount calculated as the deemed profit is an amount per net ton of the ships in operation. The German tax system assumes the profit earned is fixed and is lower than the average profit considering the rules determining the regular profit. The lump sum taxing system is nearly like a tax free income for shipping investors. The following requirement has to be fulfilled in order to qualify for the German tonnage tax system.
- The vessel has to operate merchant ship in international traffic.
- The management of the shipping company must be located in German.
- The tonnage tax application is irrevocable i.e., It is binded for ten years.
- The vessel should be registered in German.
- Bareboat chartering the vessel is not possible.
- It can be long term for 15-16 years.
A certain ratio of foreign registered vessel to Germany should not exceed in order to comply with the German tonnage tax exemption. So the existing fleet of vessel can be expanded by adding foreign owners.
General
There is an exemption of corporate tax, Vat and German trade tax which is imposed on KG model. The individual partners are tradable entities rather than KG itself. The German scheme allows for those invest in KG to offset against their income tax. The System is especially for the high professional to offset against their income tax. The investors are also benefitted by “Tax deferral scheme” to generate tax benefits for tax payers in the form of losses. The rule only allows the tax offset against the same source. The KG model tax regulations are found on Einkommen-steuerGesetz (EStG) –German income tax law.
Tax rules concerning German Scheme
The following tax law is very important for the shipping industry.
Einkommen-SteuerGestez (EstG) – German income tax law
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Paragraph 4a – Profit determination per period, Year. |
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Paragraph 5a – Profit determination of merchant ship in International traffic. |
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Paragraph 15b – Losses related to tax deferral mode. |
OECD Model Convention
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Article 1 – Scope of the convention |
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Article -4 Residence |
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Article-7 Business profits |
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Article-8 Shipping Income |
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Article-15 Income from employment |
Tax Sparing credit
Tax sparing credits are available to Germany under the Article 12 royalties. Specific tax treaties or bareboat rentals are considered to be royalties in shipping industry. It is the royalties arising from the contracting state and the beneficiary. It mainly advocates the relief from the double taxation relief for the owners.
Deepak sekar 