for the first 1,000 net tons | EUR 9.20 per day

in addition up to 10,000 net tonnes | EUR 62.10 per day

in addition up to 25,000 net tons | EUR 69.00 per day

over 25,000 net tons (up to 108,200 net tons) | EUR 191,36 per day

Total profit per day | EUR 331,66

The so-called tonnage tax is not an independent tax. On the contrary, this is a special method of profit determination for shipping companies using ships in international maritime transport. In doing so, one takes the size of each ship and calculates a lump sum profit via a key, which can be assumed daily. On this basis, a significantly lower profit is usually incurred than if you would make a surplus income statement or an accounting. However, for the application of the so-called tonnage taxation, some conditions must be observed. For example, profits taxed by tonnage tax must in principle be allocated to ships registered in a domestic ship register. At the end of the last century, the legislature wanted German shipowners to flag out their entire fleets. For an exporting nation like Germany, maintaining its own merchant fleet was politically significant.

1st tonnage tax – introduction

Imagine if a tax consultancy could choose a taxation method created specifically for this industry. This could, for example, determine the profit of the law firm based on the employee structure: tax specialist employees would mean a tax of EUR 1 per day, tax consultants, on the other hand, EUR 10 per day. Of course, the tax for holidays or sick days would not apply. Sounds simple and would certainly be tax-advantageous.

Another example: imagine if there were a taxation procedure for football clubs in the Bundesliga, in which a flat-rate acceptance of profit would be permitted for each standing and seat in the stadium and each match day. Let's say for standing places EUR 1 and seats EUR 10, each per match day. Again: ingenious simply advantageous.

So if you think that such a taxation would lead to absurdly low taxes, then you are absolutely right. Everyone would certainly agree with you. But if you conclude that such a taxation will never exist in Germany or even already exists, then let us surprise you. Because today we are talking about the so-called tonnage tax.

2. What is the tonnage tax?

To understand what the strange examples in the introduction mean, we must first explain what the tonnage tax actually is. For this purpose, we refer to § 5a EStG, a very special paragraph that even experienced tax consultants and high tax officials hardly ever pay attention to.

In addition to the two common profit determination methods, the income surplus account and the business assets comparison (balancing), there is another method. This is regulated in § 5a EStG. It is optionally applicable if certain conditions are met. § 5a (1) sentence 1 EStG stipulates that

‘in the case of a business with domestic management, the profit, insofar as it relates to the operation of merchant ships in international traffic, is to be determined at the irrevocable request of the taxable person on the basis of the tonnage carried out in his business’, if the management of these merchant ships is carried out domestically. ‘

So we are dealing with tonnage taxation as an alternative profit determination option, exclusive to shipowners using ships in international maritime transport under certain conditions.

3. Details about the tonnage tax

The most important tax requirement, namely the management of international maritime ships, applies equally to cargo ships and passenger ships. In principle, the ships must be registered in a domestic ship register. The tonnage tax covers both owned and chartered vessels. For the latter, tonnage taxation is only allowed if shipowners also use their own ships registered in Germany commercially in international shipping traffic. In addition, the size of chartered and foreign-flagged merchant ships – the so-called tonnage – may be at most three times the size of their own ships registered in Germany. Otherwise, the right to tonnage taxation shall be waived.

An important limitation to the tonnage tax is the temporal link between taxpayers and this profit determination method. If you apply to the tax administration, you have to apply tonnage taxation for ten years.

If one meets these important and many other conditions, one calculates the profits per full 100 net tons (net tonnage) in the following way:

up to a tonnage of 1,000 net tons, the profit is EUR 0,92 per day,

in addition, up to a tonnage of 10,000 net tons, the daily profit is EUR 0.69,

in the range between 10,000 and 25,000 net tons, a daily profit of EUR 0.46

and for every additional 100 net tonne unit, you flat-rate a profit of EUR 0.23 per day.

Only days when the ships are in use are considered as the basis for calculation. If, for example, a ship were to be repaired in a shipyard for a few weeks, this period for tonnage taxation would remain out of the question.

4th tonnage tax calculation example

To illustrate how to calculate the tonnage tax, we offer a realistic example here. For this purpose, we take data from a ship for which the ship size can be searched on the Internet. We have chosen Berlin Express, a very large container ship that sails for the shipping company Hapag Lloyd AG. The shipping company indicates a net tonnage of 108,203 for the ship, which corresponds to the net tonnage in § 5a EStG. Therefore, we calculate:

Extrapolated to a usage period of 365 days, this results in a lump sum profit of EUR 121,055.90.

Keep in mind that this cargo ship has a loading capacity of over 23,000 standard containers (20 feet long). If you then consider that the freight costs for such a standard container from China to Europe are currently (as of 31.07.2023) about EUR 1,350 and with a travel time (one way) of about 30 to 40 days, you can quickly calculate that for five such trips annually a turnover of EUR 155.250.000.

The tonnage tax profit of EUR 121,055,90 is then at a 15 % tax rate only EUR 18.158,39 in corporation tax. With a lifting rate of 470 % in Hamburg, about EUR 19,904.50 in trade tax is added. Even with a tax rate of 45% in income tax law, we comb on a tax of only EUR 54,475.16. Or, to put it in the technical language of bank managers: peanuts. And this is just one of many ships of the shipping company.

5th tax advantage tonnage tax – our conclusion

5.1. A reality check on tonnage tax

Anyone who now recalls the two examples in the introduction and compares this with the tonnage tax for shipowners will suspect how great this tax advantage is. But we wanted to know more about it and once researched in the annual report of Hapag Lloyd AG for 2022, which is known to apply the tonnage tax. For a profit before tax (EBIT) of about EUR 17.525 billion (annual net income EUR 17.565 billion), income taxes only amounted to 1.14%. About half of this incurred income tax for 2022 (EUR 90.6 million) is even attributable to capital income, which was regularly calculated outside of tonnage taxation. If you deduct these taxes from the total tax, this leads to a percentage tax of only 0.63%!

No wonder then that the tonnage tax is so popular with German shipping companies. After all, this is a tax rate that many other professionals should neither know nor dare to dream of.

5.2. Why tonnage taxation exists

On the one hand, we have a huge profit that significantly exceeds that of many DAX companies. On the other hand, we see a vanishingly small tax. Therefore, one has to ask why the legislator allows such taxation.

Germany introduced the tonnage tax in 1998. At that time, many German shipowners flagged their ships to countries where the conditions were much cheaper. For example, shipowners could pay lower wages to crews, avoid social benefits and abolish training places. But savings are also possible with regard to security aspects. However, since Germany is a nation heavily dependent on exports, policymakers wanted to ensure that the merchant fleet required for this remained, at least in part, under national control. This is why the tonnage tax and other incentives were introduced so that shipowners registered their ships in Germany and their management remained in Germany. That is why Germany is still a relatively attractive country today, which can compete with many a flag of convenience country.

5.3 Risks of tonnage tax

Thus, the systemic relevance of the German merchant fleet is the real reason why shipowners can enjoy a much more advantageous tax regime in this country with the tonnage tax. However, the tonnage tax also includes risks for shipowners. Because by fixing on this profit method, one is bound to it for ten years. In addition, this flat-rate taxation takes place even if a shipowner actually generates losses. However, these risks are hardly relevant. For shipowners, the tonnage tax therefore constitutes a tax haven-like arrangement in Germany, a high-tax country of all places.

Well then, dew!