New Rules for the Taxation of Ship Funds

As a result of tax benefits available under German tax law and high returns on investment, German ship funds have enjoyed increasing popularity in recent years, attracting a considerable amount of equity from private investors. Ship funds are vehicles which collect private equity from a limited number of investors to build and operate one or more ships (eg, container ships). The return on investment consists of tax benefits (in particular, losses which can be offset against earnings) on the one hand, and a 'real' entrepreneurial-risk component in form of lease revenue on the other.

While it has not been difficult for initiators of ship funds to attract investors, it may become more difficult in the future to structure such funds in a tax-efficient way. This is because the Federal Ministry of Finance passed new rules on October 20 2003 specifying the tax treatment of such funds. The new decree, which replaces a former decree dating back to 1990, applies not only to ship funds, but