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Emigrate and save taxes? Avoid the exit tax trap!
The dream of a new life abroad is getting closer? Before you pack your bags, you should address the tax implications. The exit tax can become a financial burden if you don't plan in advance. Learn how to manage your emigration from a tax perspective and what pitfalls to avoid. Do you need individual advice? Get in contact now!
The topic short and concise
The dream of a new life abroad is getting closer? Before you pack your bags, you should address the tax implications. The exit tax can become a financial burden if you don't plan in advance. Learn how to manage your emigration from a tax perspective and what pitfalls to avoid. Do you need individual advice? Get in contact now!
The dream of a new life abroad is getting closer? Before you pack your bags, you should address the tax implications. The exit tax can become a financial burden if you don't plan in advance. Learn how to manage your emigration from a tax perspective and what pitfalls to avoid. Do you need individual advice? Get in contact now!
The dream of a new life abroad is getting closer? Before you pack your bags, you should address the tax implications. The exit tax can become a financial burden if you don't plan in advance. Learn how to manage your emigration from a tax perspective and what pitfalls to avoid. Do you need individual advice? Get in contact now!
Plan your emigration in the most tax-efficient way! Learn how to avoid the exit tax and which tax obligations remain even after moving abroad.
Emigrating from Germany is a significant step that requires careful planning. A key aspect is understanding the tax obligations associated with such a move. Many people are unaware that leaving Germany does not automatically mean all tax responsibilities end. It's crucial to understand that the German tax authorities may continue to have access to your income through expanded and limited tax liability. Additionally, the move itself can trigger substantial tax burdens, particularly due to the exit tax. Early and comprehensive information is therefore essential to avoid financial surprises.
At GoMovin, we understand that planning an emigration is complex. That's why we offer comprehensive advice that considers all tax aspects. Our goal is to help you organise your emigration in a tax-optimised way and avoid or minimise the exit tax. We assess your individual situation and develop customised solutions tailored to your needs. This way, you can be assured of fulfilling all tax obligations while optimising your financial situation. Find out here about the first steps in tax planning for your emigration.
The motivations for emigrating are varied. Often, tax aspects play a role, whether it's the search for lower tax rates or the avoidance of certain types of taxes. However, it's important to note that emigration does not always bring the desired tax advantages. In some cases, it can even lead to additional burdens, particularly if the state focuses on tax repression rather than creating incentives to retain taxpayers. Therefore, it is advisable to thoroughly inform yourself about the tax consequences before emigrating and, if necessary, seek professional advice. Read more here about the financial aspects of emigration.
Unlimited tax liability: Relinquishment of residence and centre of life ensures
The termination of unlimited tax liability is an important step when emigrating. This tax liability does not automatically end when you deregister with the residents' registration office. It is crucial that you relocate your residence and habitual abode abroad. This means that you not only have to physically move away from Germany, but also permanently shift your centre of life abroad. Only then can you ensure that you are no longer subject to unlimited tax liability in Germany.
Surrendering control over an apartment in Germany plays a key role here. If you continue to own or rent an apartment in Germany and use it yourself or rent it out, this can result in the unlimited tax liability being maintained. Even if you only stay in Germany temporarily, it can affect your tax liability. To avoid unlimited tax liability, you should not stay in Germany for more than 183 days per year. It is advisable to cut all ties with Germany to avoid tax disadvantages. Find out here how to properly terminate your tax liability.
It is important to note that the German tax authorities examine the actual circumstances and do not just rely on formal deregistration with the residents' registration office. Therefore, you should take all necessary steps to actually relocate your centre of life abroad. This includes, for example, giving up memberships in German clubs, cancelling subscriptions and contracts, as well as moving your bank accounts abroad. The more clearly you relocate your centre of life abroad, the smaller the risk that the German tax authority will continue to assume unlimited tax liability. Here you will find more information on deregistering with the tax office.
Limited tax liability: German income remains relevant
Even after leaving Germany, you may remain subject to limited tax liability. This occurs if you continue to receive income from Germany. Such income may include rental income from property located in Germany, income from self-employment in Germany, or income from capital investments held in Germany. Limited tax liability means you are required to pay tax on this income in Germany, even if you reside abroad.
Double taxation agreements (DTA) can mitigate this tax liability. Germany has concluded DTAs with many countries, which determine which country has the right to tax the income. In some cases, the DTAs stipulate that Germany may tax the income, but the tax paid abroad is credited against the German tax. In other cases, the DTAs stipulate that Germany must not tax the income at all. It is therefore important to inform yourself about the DTAs between Germany and your destination country before emigrating. Learn more here about avoiding double taxation.
A special form of limited tax liability is the extended limited tax liability. This applies to German citizens who relocate to low-tax countries. The prerequisites are that you were subject to unlimited tax liability in Germany for at least five years, that the foreign tax rates are lower than those in Germany, and that you have significant economic interests in Germany. The extended limited tax liability applies for ten years after departure and extends to income not considered foreign income. The aim of this regulation is to prevent tax evasion. Read more here about the extended limited tax liability.
Avoid exit tax: Temporary residence can help
The departure tax is a tax that may be payable when emigrating from Germany. It affects individuals who hold shares of at least 1% in a corporation (GmbH, AG). The departure tax is imposed on the notional capital gain, which is the difference between the market value of the shares and the acquisition cost. The aim of the departure tax is to prevent taxpayers from relocating profits abroad without paying taxes.
The calculation and payment of the departure tax can be complex. It is advisable to obtain a professional valuation of the shares to avoid excessive assessments by the tax office. Generally, the payment terms require immediate payment, although under certain conditions, instalments over seven years are possible. However, since 1 January 2022, there is no longer a general deferral for moves within the EU/EEA. Here you can find more information on the calculation and payment of the departure tax.
However, there are also structuring opportunities to avoid or minimise the departure tax. One option is a temporary stay abroad. If you spend less than seven years abroad (possibly extendable to twelve) and do not sell any shares during this period, the tax can be avoided. Another option is the conversion from a corporation to a partnership. However, this is a complex strategy that should be carefully examined. Find out more here about strategies to avoid the departure tax.
Tax return obligation: Declare German and foreign income
Even in the year of relocation, there remains a requirement to submit a tax return. In this tax return, you must declare both your German and foreign income. The foreign income affects the tax rate on domestic income (progression clause). This means that the income you earn in Germany could be taxed at a higher rate if you have additional income from abroad.
It is important to correctly declare all income and provide the corresponding documentation. Otherwise, you risk back taxes and penalties. At GoMovin, we are happy to assist you with preparing your tax return in the year of relocation. Our experts are familiar with the specific tax requirements for expatriates and help you fulfil all your tax obligations. Learn more here about tax returns following relocation from Germany.
The tax return in the year of relocation is often more complex than in previous years. This is because you need to take into account both German and foreign income, and you may also need to declare the exit tax. It is therefore advisable to address the matter early and seek professional help if needed. This way, you can ensure that you meet all tax obligations and avoid unnecessary risks. Find out here what financial aspects you need to consider when emigrating.
Inheritance and Gift Tax: Adhere to the Five-Year Rule
Even after emigration, inheritance and gift tax can still be relevant. Generally, German citizens are treated for tax purposes as if they had never emigrated if they live abroad for less than five years. In this case, they are subject to unlimited inheritance and gift tax liability. This means that their entire estate, regardless of its location, is taxed in Germany.
If neither the deceased/donor nor the heir/recipient is resident in Germany, the limited inheritance and gift tax liability applies. In this scenario, only domestic assets are taxed. Domestic assets include, for example, real estate located in Germany or shares in German companies. It is therefore important to be informed about the inheritance and gift tax implications before emigrating, and if necessary, to take appropriate tax planning measures. Read more here about the tax aspects of emigration.
Inheritance and gift tax can be particularly relevant if you plan to transfer assets to your children or other relatives living abroad. In this case, you should seek advice early to minimise the tax burden. There are various ways to optimise inheritance and gift tax, such as by using allowances or by moving assets abroad. Here you can find more information about the costs of emigration.
Jahressteuergesetz 2024: Changes to exit tax from 2025
The Annual Tax Act 2024 introduces several changes to the exit tax, which will come into effect in 2025. One significant change affects the taxation of income from investment funds. The aim of this change is to close tax loopholes related to investments in funds when moving abroad from Germany. Until now, it was sometimes possible to avoid the taxation of profits from investment funds by relocating abroad. This is intended to be prevented by the new regulation.
The exact details of the new regulation are not yet known, but it is expected that the taxation of income from investment funds when moving abroad from Germany will be tightened. It is therefore advisable to inform oneself about the changes early and, if necessary, make adjustments to one's own investment strategy. We at GoMovin closely monitor developments in tax law and keep you informed of all relevant changes. Read more here about the planned changes in tax legislation.
The changes brought by the Annual Tax Act 2024 show that the German tax law is constantly evolving. Therefore, it is important to regularly stay informed about new laws and regulations to avoid any tax disadvantages. Especially when emigrating, careful planning and consultation are essential to fulfil all tax obligations and at the same time minimize the tax burden. Here you will find more information on planning your emigration.
Minimise exit tax: Use professional evaluation
There are various strategies to avoid or minimise exit tax. One option is to choose a temporary stay abroad. If you spend less than seven years abroad (potentially extendable to twelve) and do not sell any shares during this time, the tax can be avoided. However, this strategy is not suitable for everyone as it requires a high degree of flexibility.
Another option is to have a professional valuation of the shares carried out. The exit tax is levied on the notional capital gain, which is the difference between the market value of the shares and the acquisition cost. If the market value of the shares is lower than assumed by the tax office, this can lead to a reduced tax burden. A professional valuation can help you prove the actual value of the shares and avoid an excessive assessment by the tax office. Learn more here about the valuation of shares in relation to exit tax.
Furthermore, there are other structuring options to minimise exit tax, such as converting from a capital company to a partnership or relocating assets abroad. However, these strategies are complex and should be carefully examined. We at GoMovin are happy to advise you on choosing the right strategy and support you with the implementation. Here you can find more information about our services.
Planning emigration: Seek tax advice early
Emigrating from Germany is associated with complex tax implications. Therefore, it is essential to seek comprehensive and timely information and to obtain professional advice. Careful planning and consultation can help you avoid unwanted tax burdens and optimize your emigration for tax purposes.
We at GoMovin offer you comprehensive advice on all tax aspects of emigration. Our experts are familiar with the specific taxation issues of emigrants and help you fulfill all tax obligations while minimizing your tax burden. We support you in planning your emigration, preparing your tax return, and choosing the right strategy to avoid or minimize exit tax. Find out more about our advisory services here.
The legislation concerning exit tax is constantly changing. Therefore, it is important to stay informed about new laws and regulations regularly to avoid any tax disadvantages. Particularly concerning relocations to Switzerland, adjustments to German tax law may be expected in the future. We at GoMovin closely monitor developments in tax law and keep you informed about all relevant changes. Plan your emigration with us now and benefit from our expertise. Contact us today to start your personalized consultation and optimize your emigration for tax purposes. Register for free and receive an immediate initial assessment of the renovation needs of your property.
Further useful links
rnd.de offers you an insight into how emigration can have financial impacts.
dr-rozanski.de explains the conditions under which tax liability might persist despite moving abroad.
t-online.de informs you about how to avoid double taxation when emigrating.
Rose & Partner outlines the extended limited tax liability and other tax aspects of emigration.
Kanzlei Mauss provides detailed information on the calculation and payment of the exit tax.
Handelsblatt presents strategies on how to circumvent the exit tax on your private assets.
Ecovis RTS explains what you need to consider for tax returns after moving away from Germany.
FAQ
What are my tax obligations when I emigrate from Germany?
Even after leaving, you may still be subject to limited and extended limited tax liability if you continue to earn income from Germany or are a German citizen living in a low-tax country. The exit tax may be due if you hold shares in corporations.
What is the exit tax and how can I avoid it?
The exit tax affects individuals with at least 1% shares in corporations. You can avoid it through a temporary stay abroad (less than 7 years), a professional valuation of the shares, or a conversion into a partnership.
How long do I remain liable for taxes in Germany after emigrating?
The unlimited tax liability ends when you move your residence and centre of life abroad. However, the limited tax liability may continue if you still earn income from Germany. The extended limited tax liability applies to German citizens in low-tax countries for up to 10 years.
What should I consider for the tax return in the year of emigration?
You must declare both your German and foreign income in your tax return. Foreign income can affect the tax rate on domestic income (progression clause).
How do double taxation agreements (DBAs) affect my tax obligations after migration?
DBAs determine which country can tax the income. They can reduce tax obligations in Germany by allowing either a credit for foreign tax or an exemption from German tax.
What changes with the Annual Tax Act 2024 regarding the exit tax?
The Annual Tax Act 2024 introduces changes from 2025 regarding taxation of income from investment funds when leaving Germany, to close tax loopholes.
How can GoMovin assist with tax planning for my emigration?
GoMovin offers comprehensive advice on all tax aspects of emigration, supports in the preparation of the tax return, and helps with the choice of the right strategy to avoid or minimise the exit tax.
What should I be aware of with inheritance and gift tax after emigration?
German citizens are treated for tax purposes as if they had never emigrated, if they live abroad for less than five years. In this case, they are subject to the unlimited inheritance and gift tax liability.
