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Exit tax in Germany: How to avoid the tax trap when emigrating!
Exit tax can become a financial burden for emigrants. However, there are legal ways to avoid or minimize it. Would you like to learn more about how we can support you in planning your emigration and optimizing your tax situation? Get in contact with us now!
The topic short and concise
Exit tax can become a financial burden for emigrants. However, there are legal ways to avoid or minimize it. Would you like to learn more about how we can support you in planning your emigration and optimizing your tax situation? Get in contact with us now!
Exit tax can become a financial burden for emigrants. However, there are legal ways to avoid or minimize it. Would you like to learn more about how we can support you in planning your emigration and optimizing your tax situation? Get in contact with us now!
Exit tax can become a financial burden for emigrants. However, there are legal ways to avoid or minimize it. Would you like to learn more about how we can support you in planning your emigration and optimizing your tax situation? Get in contact with us now!
Planning your emigration and want to avoid the exit tax? Discover the pitfalls that await and how you can legally minimise your tax burden. Get informed now!
Are you planning your emigration and want to avoid the exit tax? The exit tax, also known as disentanglement tax, can represent a significant financial burden for many emigrants. It's important to familiarize yourself with the regulations early on to avoid unexpected tax payments. We at GoMovin understand that moving abroad comes with many challenges. That's why we offer comprehensive advice and support to make your move as stress-free and efficient as possible. This also includes the clarification of all tax-related questions concerning your emigration. Find out which pitfalls lie in wait and how you can legally minimize your tax burden.
What is the exit tax?
The exit tax primarily affects those who hold shares in corporations (e.g., GmbH, AG) and move their residence abroad. It covers the unrealized gains (hidden reserves) on these shares at the time of departure. This tax is due because the German state wants to prevent profits generated in Germany from remaining untaxed by moving abroad. In essence, the exit tax is a form of 'pre-taxation' on the appreciation of your shares, which would only be realized upon a later sale. It's important to understand that the exit tax is not only relevant for shareholders of corporations but also for sole traders and freelancers who transfer business assets abroad (Source: Ecovis).
Who is affected?
The main focus of the exit tax is on shareholders of GmbHs and AGs. So if you hold shares in a corporation and plan to move your residence abroad, you should definitely familiarize yourself with the regulations regarding the exit tax. But sole traders and freelancers who transfer business assets such as equipment, vehicles, or patents abroad are also affected by the so-called disentanglement tax. From 2025, investors in investment funds are also expected to be more affected by exit taxation, as the Annual Tax Act 2024 anticipates some changes here (Source: WiWo). It is therefore advisable to inform yourself early about the individual impacts and, if necessary, seek tax advice. GoMovin is here to help you understand the complex fiscal aspects of your emigration and make the right decisions.
Corporations: Hypothetical Capital Gain as a Tax Basis
The tax base for the exit tax on corporations is the deemed capital gain. This gain is calculated by determining the difference between the fair market value (deemed sale price) and the acquisition cost of the shares. The fair market value corresponds to the value the shares would have on the market at the time of emigration. However, not the full 100% of this deemed capital gain is taxed, but only 60% due to the so-called partial income procedure. This means that only 60% of the gain is taxed at your personal tax rate. It is important to note that the valuation of the shares plays a crucial role. A valuation report can help ensure a fair assessment of the market value of the equity interests (Source: Kanzlei Mauss).
Essential requirements for the exit tax
For the exit tax to even apply, certain conditions must be met. A key requirement is a minimum participation of 1% in the corporation. So, if you hold less than 1% of the shares, the exit tax does not apply to you. Another important requirement is that you must have been unlimitedly taxable in Germany for at least 7 of the last 12 years before emigration. This means that you had your residence or habitual abode in Germany and were thus taxable in Germany with your entire worldwide income. GoMovin supports you in checking whether you meet the requirements for the exit tax and what tax implications your move has.
Special case: Emigration to EU/EFTA states
Until 31.12.2021, there was a special provision for emigration to EU or EFTA countries. In these cases, an interest-free deferral of the exit tax was possible. This meant that you did not have to pay the tax immediately, but only upon a later sale of the shares. Since 01.01.2022, however, this general deferral option for emigrations to EU/EFTA has been abolished. This means that you generally must pay the exit tax immediately even when moving to an EU or EFTA country. Although there is still the option of payment in instalments over seven years, this is subject to certain conditions and is not always possible (Source: Auf in die Schweiz). It is therefore advisable to inform yourself about current regulations early on and, if necessary, to seek tax advice.
Exit tax: Optimising the transfer of business assets for tax purposes
In addition to the exit tax for shareholders of corporations, there is also the so-called disentanglement tax for self-employed individuals and freelancers. This tax concerns the transfer of business assets abroad. If you, as a self-employed individual or freelancer, transfer your business or parts of it abroad, you must tax the hidden reserves in your business assets. This tax is also referred to as the disentanglement tax as the business assets are 'disentangled' from German tax law. The disentanglement tax can represent a significant financial burden, so it is important to familiarize yourself early with the regulations and consider options to reduce the tax burden. GoMovin supports you in understanding the tax aspects of relocating your business and making the right decisions.
Business Assets in the Focus of the Disentanglement Tax
The disentanglement tax affects various types of assets that belong to your business assets. This includes, for example, equipment, vehicles, patents, software, and other intangible assets. It is important to note that not only tangible assets but also intangible assets like patents or software may be subject to the disentanglement tax. The valuation of these assets can be complex, so it is advisable to seek professional assistance. GoMovin works with experienced tax advisors who can support you in valuing your business assets and calculating the disentanglement tax.
Calculating the Disentanglement Tax
The calculation of the disentanglement tax is generally similar to that of the exit tax for corporations. The difference between the market value and the book value of the assets is determined. The market value corresponds to the value that the assets would have on the market at the time of relocation. The book value corresponds to the value with which the assets are reported on your balance sheet. The difference between market value and book value represents the gain, which is taxed at your personal tax rate. It is important to note that the valuation of the assets plays a crucial role. An excessively high valuation can lead to an unnecessarily high tax burden, while an excessively low valuation can cause issues with the tax office. Therefore, it is advisable to seek professional support in valuing your business assets.
Annual Tax Act 2025: Exit Tax for Fund Investors Tightened
From 2025, the exit tax will be tightened by the Annual Tax Act, especially for investors in investment funds. This change aims to close tax loopholes that have previously been exploited by transferring shares into investment funds to avoid the exit tax. The amendments in the Annual Tax Act mainly affect § 19 para. 3 InvStG and result in investment fund earnings also being subject to the exit tax if the investor relocates their residence abroad (Source: Rosepartner). It is therefore advisable for investors in investment funds to inform themselves early on about the impacts of the Annual Tax Act and, if necessary, seek tax advice. GoMovin supports you in understanding the complex tax aspects of your emigration and making the right decisions.
Overview of the Changes
The Annual Tax Act brings several significant changes in the area of exit taxation. One of the most important changes is the extension of exit taxation to include investment fund earnings (§ 19 para. 3 InvStG). Previously, it was possible to avoid the exit tax by transferring shares in corporations into investment funds before relocating. This option is now restricted by the Annual Tax Act. The new regulation ensures that latent reserves in investment funds are taxed when moving abroad. It is important to note that this new regulation only applies to investment funds held as private assets. For investment funds held as business assets, the general rules on the disconnect tax still apply.
Affected Types of Investments
The new regulations in the Annual Tax Act affect both domestic and foreign investment funds held as private assets. It does not matter whether they are public funds or special funds. Exchange Traded Funds (ETFs) are also affected by the new regulations. The taxation of investment fund earnings generally follows the rules of the Investment Tax Act. However, it is important to note that the exit tax leads to a pre-taxation of latent reserves, which would otherwise only be realised upon the actual sale of the fund shares.
Legally minimise exit tax: Utilise clever strategies
There are various strategies to avoid or at least reduce the exit tax. One option is the anticipated succession through the gifting of shares. Another possibility is restructuring the company into a partnership. Relocating the company's headquarters can also be an option to avoid the exit tax. However, it is important to note that each of these strategies has individual advantages and disadvantages and must be carefully examined. GoMovin supports you in finding and implementing the strategy that suits your individual situation.
Anticipated Succession through Gifting of Shares
One way to avoid the exit tax is to transfer shares to family members before relocating, through anticipated succession. By gifting the shares to, for example, children or a spouse, the hypothetical capital gains are avoided as the shares are no longer owned by the person moving. However, it is important to note that gift tax may apply when gifting. The amount of gift tax depends on the value of the shares and the degree of kinship to the recipient. Therefore, it is advisable to be informed about the tax consequences before gifting and to seek tax advice if necessary. GoMovin supports you in understanding the tax aspects of gifting and making the right decisions.
Restructuring the Company into a Partnership
Another way to avoid the exit tax is to convert the corporation into a partnership. By converting, the hypothetical capital gains are avoided as the shares in the corporation no longer exist. However, it is important to note that converting to a partnership has complex tax and legal consequences. The conversion must be carefully planned and executed to avoid tax disadvantages. It is therefore advisable to seek comprehensive advice before the conversion. GoMovin collaborates with experienced tax advisors and lawyers who can support you in converting your company.
Relocating the Company Headquarters
Relocating the company headquarters abroad can be another way to avoid the exit tax. However, it is important to note that relocating the company headquarters does not automatically lead to the avoidance of the exit tax. The exit tax is linked to the shareholder's residence, not the company's headquarters. So, if you relocate your residence abroad while the company's headquarters remain in Germany, you are generally subject to exit tax. However, there are design options to avoid the exit tax even with a relocation of the headquarters. One option is to transfer the shares to a foreign holding company. By transferring the shares to the holding company, the hypothetical capital gains are avoided as the shares are no longer owned by the person moving. However, it is important to note that transferring shares to a holding company has complex tax and legal consequences. The transfer must be carefully planned and executed to avoid tax disadvantages. It is therefore advisable to seek comprehensive advice before the transfer.
BFH ruling: Is deferral possible when relocating to Switzerland?
The current case law on exit taxation is complex and subject to constant change. An important ruling by the Federal Fiscal Court (BFH) in 2019 attracted considerable attention. In this ruling, the BFH decided that the exit tax can be deferred indefinitely and interest-free when relocating to Switzerland, until the shares are actually sold. This ruling contradicts the current legal situation, which requires immediate payment of the exit tax. It is therefore unclear whether taxpayers can rely on this ruling in the future. It is advisable to stay informed about the current legal situation when relocating to Switzerland and to seek tax advice if necessary. GoMovin supports you in understanding the current case law on exit taxation and making the right decisions.
BFH Ruling on Deferral for Relocation to Switzerland
The BFH ruling on deferral for relocation to Switzerland has raised hopes for many taxpayers. The ruling states that the exit tax can be deferred indefinitely and interest-free when relocating to Switzerland, until the shares are actually sold. However, this deferral option applies only to relocation to Switzerland. For relocation to other countries, particularly EU or EEA states, the current legal situation, which requires immediate payment of the exit tax, still applies. It is important to note that the BFH ruling is controversial and not recognised by the tax authorities. It is therefore unclear whether taxpayers can rely on this ruling in the future. It is advisable to stay informed about the current legal situation when relocating to Switzerland and to seek tax advice if necessary.
Importance of a Valuation Report
A valuation report plays a crucial role in the calculation of the exit tax. The valuation report is used to determine the market value of the shares in the company at the time of the relocation. The market value forms the basis for calculating the notional capital gain subject to the exit tax. It is therefore important that the valuation report is prepared by an independent and qualified expert. The valuation report should consider all relevant factors that may affect the value of the shares. These include, for example, the company's earnings situation, market conditions, and the company's future prospects. A carefully prepared valuation report can help ensure a fair valuation of the capital shares and avoid an unnecessarily high tax burden (Source: Rosepartner). GoMovin supports you in finding a qualified expert for the preparation of a valuation report.
Relocation: Financial Hardship as a Disqualification?
There are several pitfalls and "red flags" you should be aware of with exit taxation. One key issue is the relocation of a company's registered office in the event of financial distress. The relocation of a GmbH is unsuitable for companies that have to reckon with the exit tax or are in financial difficulties. In such cases, there are other structuring options that should be considered. Personal bankruptcy can also be an alternative in certain situations. It is important to seek comprehensive advice to make the right decision. GoMovin supports you in identifying potential risks and finding solutions before the move takes place.
Relocation of a company's registered office in case of financial distress
Relocating a GmbH is fundamentally a complex matter that must be carefully planned and executed. The situation is particularly critical if the company is in financial trouble. In such cases, relocation is generally not a suitable measure to avoid the exit tax. The tax authorities will closely scrutinise whether the relocation is genuinely for economic reasons or merely to circumvent the exit tax. Therefore, it is advisable to seek comprehensive advice and assess alternative structuring options. GoMovin works with experienced tax advisors and lawyers who can support you in choosing the right strategy.
Personal bankruptcy as an alternative?
For individuals with significant private debts, personal bankruptcy in England can be an interesting alternative. English insolvency law may offer advantages over German insolvency law. However, it is important to note that personal bankruptcy in England is subject to certain conditions. For instance, you must relocate your main residence to England and live there for a certain period. Recognition of English bankruptcy in Germany can also be problematic. It is therefore advisable to seek comprehensive advice before initiating personal bankruptcy in England. GoMovin collaborates with experienced lawyers who can support you in assessing the conditions and conducting the bankruptcy.
Assessment of potential risks
Comprehensive advice is essential to identify potential "red flags" in exit taxation and find solutions before the move takes place. There are many factors that can play a role in exit taxation. These include, for example, the level of involvement in the company, the duration of unlimited tax liability in Germany, the type of business assets, and the structuring of the move. A thorough analysis of your individual situation is therefore essential to make the right decisions. GoMovin offers you comprehensive advice and supports you in planning and executing your move. We work with experienced tax advisors and lawyers who can assist you with all tax and legal matters.
Early Planning: Avoid Tax Pitfalls When Emigrating
Wegzugsbesteuerung is a complex subject that requires careful planning. It is important to deal with the regulations early to avoid unexpected tax payments. Individual consultation is essential to identify potential pitfalls and take appropriate measures. The future of Wegzugsbesteuerung is also uncertain. Therefore, it is important to stay informed about current developments. GoMovin supports you in making your move as stress-free and efficient as possible. We offer comprehensive advice and assistance to clarify all tax-related questions associated with your emigration.
Importance of Early Planning
Early planning is crucial in the context of Wegzugsbesteuerung. The earlier you address the regulations, the more time you have to explore planning options and make the right decisions. It is advisable to start planning several years before the intended move. This gives you enough time to consider all tax and legal aspects and develop a strategy tailored to your individual situation. GoMovin assists you in planning your move and ensures that you consider all important aspects.
Individual Consultation is Essential
Wegzugsbesteuerung is a complex matter that requires individual consultation. Every situation is unique, and there are no one-size-fits-all solutions. Therefore, it is important to consult an experienced tax advisor or lawyer who can analyze your individual situation and guide you to the right strategy. GoMovin collaborates with a network of experienced tax advisors and lawyers who can support you with all tax and legal questions. We are happy to connect you with the right expert for your individual situation.
Future of Wegzugsbesteuerung
Wegzugsbesteuerung is subject to constant changes. Laws and regulations are regularly adjusted to close tax loopholes and enhance tax fairness. Therefore, it is essential to stay informed about current developments and adjust your strategy accordingly. GoMovin regularly informs you of current developments in the area of Wegzugsbesteuerung and supports you in adapting your strategy. This way, you are always up-to-date and can be confident in making the right decisions.
GoMovin: Your partner for a worry-free move
Planning a relocation is complex, and the exit tax presents an additional challenge. At GoMovin, we understand this and offer you comprehensive support to make your move as smooth as possible. From the initial consultation to your arrival in your new home, we are by your side.
We simplify the relocation process, making international moves stress-free, efficient, and personalised. Our all-in-one solution includes personal consultation, legal support, property services, and cultural integration.
Plan your move with GoMovin now! Find out more about our relocation assistance and how we can help you with planning and organising your move.
Are you ready for your new chapter abroad? Contact us today for a personal consultation and let's plan your move together. We look forward to meeting you!
Further useful links
Ecovis explains the tax implications when emigrating in connection with exit tax.
WiWo (WirtschaftsWoche) reports on the changes in the Annual Tax Act regarding exit taxation for fund investors.
Kanzlei Mauss provides information on exit taxation and its requirements.
Auf in die Schweiz offers information on exit taxation in Germany, especially concerning moving to Switzerland.
Rosepartner describes the tightening of exit taxation from 2025.
Rosepartner explains the tax liability when moving abroad.
FAQ
What is the exit tax and who is affected?
The exit tax affects individuals who hold at least 1% shares in companies (GmbH, AG) and move their residence abroad. It taxes the unrealised capital gains (hidden reserves) of these shares at the time of relocation. Sole proprietors and freelancers who move business assets abroad are also affected.
How is the exit tax calculated?
The exit tax is calculated on the notional capital gain. This is derived from the difference between the market value (notional sale price) and the acquisition costs of the shares. Only 60% of this gain is taxed at the personal rate due to the partial income procedure.
Are there ways to legally minimise the exit tax?
Yes, there are various strategies. These include anticipated succession through the gifting of shares, restructuring the company into a partnership, or relocating the company headquarters. Each strategy has individual advantages and disadvantages that must be carefully considered.
What changes with the 2025 Annual Tax Act regarding the exit tax?
The 2025 Annual Tax Act tightens the exit taxation, particularly for investors in investment funds. It aims to close tax loopholes that have been used to avoid the exit tax by contributing shares to investment funds.
Is there a deferral option for the exit tax when moving to EU/EFTA countries?
Until 31.12.2021, there was a general deferral option. Since 01.01.2022, this has been abolished. The exit tax must generally be paid immediately, even when relocating to an EU or EFTA country. There may be an option for instalment payments over seven years.
What is the disengagement tax and who is affected?
The disengagement tax affects self-employed individuals and freelancers who move business assets abroad. It taxes the hidden reserves in these business assets, such as equipment, vehicles, patents, or software.
What role does a valuation report play in the exit tax?
A valuation report is used to determine the market value of the shares in the company at the time of relocation. This market value is the basis for calculating the notional capital gain and thus the exit tax. A carefully prepared report can ensure a fair valuation.
What should be considered when relocating a GmbH headquarters in financial distress?
Relocating a GmbH headquarters is unsuitable for companies that have to account for the exit tax or are in financial difficulty. In such cases, comprehensive advice should be sought and alternative structuring options considered.
