Shipping & Transport - Germany

Registration of a seagoing vessel in a German register may not be the first requirement that comes to mind for most owners, but it has clear benefits. Germany has a longstanding ship registration system based on statute. A total of 15 registries are located at selected magistrates courts whose jurisdiction depends on the seat of the shipowner in question. The registries provide a reliable service with clear, statute-based requirements, ensuring that the needs of both owners and other parties with financial interests (eg, mortgagees) are safeguarded as far as possible. Nevertheless, the system is flexible enough to allow for today’s worldwide trade and the fact that registration may take place across a number of time zones and with different requirements and documentation. German registrars will normally accept faxed copies of delivery documents - which are generally available only at the closing of an agreement - for the permanent registration of both vessel and mortgage, provided that the relevant party undertakes to supply the originals at a later date.

Since 1999 vessels that trade internationally and are registered in a German register are eligible for the German tonnage tax regime, whereby the income generated by the vessel's operation is taxed according to its tonnage, rather than according to the normal income tax criteria. This also applies to the shipowner's profits from such operations when they are distributed to its shareholders, thus making shipping companies a potentially advantageous investment. Most German shipowners have their vessels permanently registered in a German register - around 3,100 such vessels are registered at present.

However, the German register is not an open register - only German and EU-owned vessels may be included. Access to the register is regulated by the Statute on the Registration of Vessels and Ship Mortgages and the Statute on Flag Rights.

Section 1 of the Statute on Flag Rights requires that a seagoing vessel be registered in a German register if it is owned by:

• a German national;
• a German partnership with a majority of German shareholders and German directors; or
• a German legal entity whose management is predominantly German and which has its main residence or registered office in Germany.

If they are the legal owners of the vessel, such parties may not choose a different flag state.

Section 2 of the statute extends the option of registration to limited groups of individuals and companies that do not fall within the scope of Section 1. Registration of a vessel in a German register is open to: (i) an EU national or a company registered in an EU member state, provided that the applicant has a residence or registered office in Germany (Section 2(1)(1));(1) or (ii) a German national or company or an EU national or company which does not have a residence or registered office in Germany, provided that the individual or company appoints a resident representative to guarantee the observance of German social, technical and administrative regulations.

Registration on these terms is also open to individuals and companies registered in EEA member states.

Section 7 allows shipowners that wish to take advantage of German registration, but do not wish to fly the German flag, to effect a parallel-out registration of the vessel to a different flag. A bareboat charter agreement for a minimum of one year must be entered into with a bareboat charterer outside Germany. The shipowner can then apply for consent to parallel registration for a period of no more than two years (on a rolling renewable basis). However, for tonnage tax purposes the management of the vessel must remain in Germany; this can be achieved by a management agreement. Permanent registration in Germany combined with a parallel-out registration abroad is a popular choice for German shipowners - about 75% of German-registered merchant vessels have parallel registrations - as it most effectively combines the tax certainty and advantages of German registration with the day-to-day working advantages of a foreign flag.

For further information on this topic please contact Sieke Kremer-Tiedchen at Dabelstein & Passehl by telephone (+49 40 31 77 970) or by fax (+49 40 31 77 97 77) or by email (s.kremer@da-pa.com).

Endnotes

(1) For an EU public or private limited company with a main registered office outside Germany, this may also be accomplished by registering an affiliate office in a German company register.