Exit taxation: What Germany will still collect when saying goodbye – and who it will affect
Exit taxation: What Germany will still collect when saying goodbye – and who it will affect
When you leave Germany, you don't just take your suitcase and family with you – the tax authorities often take a hefty measure again. Exit taxation is built for exactly this purpose: it taxes capital gains that have not yet been realized just because someone moves abroad.
In addition, there are additional mechanisms for private individuals, such as extended limited tax liability and extended unlimited tax liability in inheritance and gift tax law.
The whole thing is complex – here is the essence, clear, understandable and journalistically clean.
1. What is exit taxation anyway?
Core idea:
Germany wants to ensure that hidden reserves (i.e. capital gains that have not yet been taxed) on certain assets are still taxed in Germany before someone emigrates and Germany loses its right to tax.
Germany wants to ensure that hidden reserves (i.e. capital gains that have not yet been taxed) on certain assets are still taxed in Germany before someone emigrates and Germany loses its right to tax.
That's why the tax office treats the move as if you had sold your shares on the day you moved away – even though you keep them.
2. Who is affected?
The exit taxation according to § 6 AStG affects
- :Natural persons who
- have been subject to unlimited tax liability in Germany for at least 7 years in the last 12 years
- and who hold or have held at least 1% of a corporation in private assets (GmbH, AG, Ltd., etc.)
- and who transfer their residence abroad.
This creates a fictitious capital gain.
3. What is taxed – and what is not?
Covered:
- Investments ≥ 1% in corporations
- From 2025 also certain investment funds/ETF shares in private assets
(e.g. large ETF custody accounts from approx. €500,000 acquisition costs)
Not covered:
- Normal shares with less than 1% participation
- Real estate in private assets
- Cash assets, precious metals, vehicles, collectibles, etc.
4. How is the tax calculated?
- Market value of the shares on the day of departure
- minus acquisition costs / book value =
- fictitious capital gain
is taxed like a real sale according to § 17 EStG.
Problem:
You have to pay tax – without any inflow of money.
You have to pay tax – without any inflow of money.
Since
the ATAD Implementation Act (2022), the rules have been stricter:
- an indefinite deferral is almost non-existent.
- In EU/EEA countries, payment in instalments is possible – but only under conditions (collateral, notifications, cooperation).
- If you return to Germany within 7 years (extendable to 12), the tax can be waived retroactively.
Special case Switzerland:
According to case law, there are still special rules for old cases before 2022, but only on application.
According to case law, there are still special rules for old cases before 2022, but only on application.
6. Private individuals without GmbH shares: What applies here?
6.1 Extended limited tax liability (§ 2 AStG)
Applies to German citizens who:
- have been taxable in Germany in the last 5 out of 10 years
- , emigrate to a low-tax country,
- and continue to have economic interests in Germany.
Result:
Germany can continue to tax significant parts of income for up to 10 years after moving away.
Germany can continue to tax significant parts of income for up to 10 years after moving away.
6.2 Extended unlimited tax liability (ErbStG)
Applies to inheritance/gifts
- :Germans who transfer or receive assets within 5 years of moving away.
Germany can then tax the entire world wealth.
7. Typical stumbling blocks
- Participations ≥ 1% (exit tax liability)
- Large ETF/fund holdings from 2025
- Emigration to low-tax countries → risk up to 10 years after departure
- Real estate & income in Germany → remains taxable
- Asset transfers within 5 years
- Fictitious tax without cash flow
- Politically and legally highly variable situation
8. Conclusion
Exit taxation has been massively tightened in recent years.
It affects not only entrepreneurs, but increasingly also private individuals with larger portfolios.
It affects not only entrepreneurs, but increasingly also private individuals with larger portfolios.
Anyone who emigrates seriously must check:
- Type of shareholdings Target
- country
- Asset structure
- Dates Inheritance
- /gift rules
- Tax liability under the AStG
Without professional preparation, emigration quickly becomes a tax explosive trap.
Note for entrepreneurs: A Cyprus Ltd does not automatically reduce the German tax burden
Many entrepreneurs today assume a simple model:
"I set up a Ltd in Cyprus – and no longer pay taxes in Germany."
"I set up a Ltd in Cyprus – and no longer pay taxes in Germany."
This is wrong in this form and can be dangerous from a tax point of view.
1. Substance decides – not the postal address
A Cypriot company is only recognized by German tax authorities as truly Cypriot if actual economic activities take place there, including:
- Management is actually located in Cyprus
- Decisions are made locally
- functioning office structure
- employees in Cyprus
- bank account, contracts, operations in Cyprus
- real economic purpose
Only then does the double taxation treaty take effect and taxation takes place in Cyprus.
2. Lack of substance leads to German taxation
If the actual management remains in Germany, the so-called place of management rule applies for tax purposes:
- The foreign company is considered taxable in Germany, even if it is formally registered in Cyprus.
- Profits are then taxable in Germany – including possible subsequent taxation, interest and, if necessary, criminal proceedings if there is a suspicion of an abuse of structure regulation (§ 42 AO).
- CFC taxation under the AStG can also apply if the Cypriot company generates predominantly passive income or is predominantly tax-motivated.
In short: A "letterbox Ltd" is treated like a German company for tax purposes.
3. "Shifting profits abroad" does not work
Without substance, clear operational activity and verifiable decision-making structures, any relocation of profits abroad is
- not legal,
- not risk-free,
- and is highly likely to lead to a readjustment in Germany.
The tax office now checks here very consistently - even retroactively.
4. Recommendation: It doesn't work without international tax planning
Entrepreneurs should always:
- have the double taxation agreement Germany-Cyprus,the
- substance requirements,the
- AStG,as
- well as the rules on exit taxation
professionally examined.
A Ltd in Cyprus can make extreme sense from a tax point of view – but only if the foreign structure is built up cleanly and actually has operational reality.
Author: Tom Weyermann / MF-Redaktion / L&P Laywer Ltd
References (summarised)
Legal bases & legal texts:
- § 6 Foreign Tax Act (AStG) – Exit taxation
- § 2 AStG – Extended limited tax liability
- § 17 EStG – Sale of shareholdings
- § 2 ErbStG – Extended unlimited tax liability ( Inheritance/Gift)
- ATAD Implementation Act (2022)
- Annual Tax Act 2024 (Extension to investment funds/ETFs from 2025)
Case law:
- Federal Fiscal Court rulings on exit taxation and return rule
- ECJ "Wächtler" – Deferral modalities in EU/EEA
- FEDERAL FISCAL COURT 2023/2024: Confirmation of the 5-year rule in the ErbStG
Administration:
- BMF letter on the application of Section 6 AStG
- BMF instructions on deferral/instalment payment
- BMF letter on old cases in Switzerland (interest-free deferral)
These sources form the current, legally secure basis for the content presented (as of 2025).
