The Bundesfinanzhof (BFH, Federal Fiscal Court) has clarified the requirements for the domestic management of a merchant vessel (BFH, judgment of 6 June 2024 – IV R 15/21). On this basis, the Bundesministerium der Finanzen (BMF, Federal Ministry of Finance), in its letter dated 21 October 2026 (IV C 6 – S 2133-a/00023/006/020), amended paragraphs 1, 2, 14a and 15 of its letter dated 10 July 2023 concerning § 5a EStG (German Income Tax Act) and inserted a new paragraph 2a on crewing with a master and ship’s officers.
Domestic management of a merchant vessel
Management of vessel operations as the key concept
The management of a merchant vessel within the meaning of § 5a(1), sentence 1 EStG encompasses the administration of vessel operations in technical, commercial and personnel-related terms. This refers to the management of vessel operations.
According to the second official headnote of the BFH judgment, paragraph 1 of the BMF letter dated 12 June 2002 may be used to identify the individual activities attributable to ship management. The amended BMF letter provides further details for assessing whether ship management is carried out in Germany.
Overall assessment of ship management activities
According to the third official headnote of the BFH, § 5a(1), sentence 1 EStG requires ship management to be carried out almost exclusively in Germany. Whether this requirement is met is determined by assessing all the circumstances of the individual case.
The BFH decision was published in Part II of the Bundessteuerblatt (Federal Tax Gazette). It is therefore generally applied by the tax authorities.
Sub-chartering of chartered merchant vessels
Assessment in the case of through-chartering
Special criteria apply to the sub-chartering of a chartered merchant vessel that is not equipped by the charterer itself. In the case of such through-chartering (Durchcharterung), the requirements for domestic ship management must be observed in addition to the conditions under § 5a(2), sentences 3 and 4 EStG.
In this case, the assessment of domestic ship management is limited to those activities undertaken by the domestic charterer itself. Ship management services not performed by the charterer are not subject to this assessment.
Entry into service of chartered merchant vessels
Chartering with equipment provided by the charterer
As a rule, the chartering of a merchant vessel also constitutes entry into service under § 5a(3) EStG if the charterer has equipped the vessel itself. The application for the use of tonnage-based profit determination must then be submitted in the financial year in which the merchant vessel can first be used by the charterer.
The following points are therefore particularly relevant to this classification:
- The merchant vessel must have been chartered.
- The vessel must be equipped by the charterer itself.
- The relevant application date is determined by the financial year in which the charterer can use the vessel for the first time.
No entry into service without a qualifying activity
By contrast, there is no entry into service if the charterer’s use of the chartered merchant vessel, viewed in isolation, does not constitute an activity within the meaning of § 5a(2) EStG.
This applies in particular to the conclusion of a time charter agreement under § 557 HGB (German Commercial Code). In the case of a time charter, the charterer generally does not perform the required activity because the merchant vessel is typically equipped not by the charterer but by the party chartering out the vessel (Vercharterer).
Significance of the amended administrative position
The BMF letter dated 21 October 2026 clarifies the requirements for tonnage tax with regard to domestic ship management, through-chartering and the entry into service of chartered merchant vessels. The decisive factors remain the specific ship management duties assumed, the equipping of the vessel and the nature of the charterer’s activity.
The tax classification may therefore depend on the relevant contractual and operational structures. MTR Legal advises companies, investors and high-net-worth private individuals on matters relating to tonnage tax and other tax law issues. Further information is available under tax law advice.
