Are you planning to leave Germany and wondering what tax consequences this could have for you? The Exit taxation is a key issue for many expatriates, especially if you hold significant stakes in domestic corporations. This regulation applies if you move your place of residence abroad and Germany thereby loses the right to tax your assets, in particular the so-called hidden reserves. The aim of exit taxation is to prevent tax evasion.

In this article, you will find out what exit taxation is, who it affects and how you can best prepare for a move abroad to avoid unpleasant tax surprises.

The most important facts in brief:

• Exit taxation explainedIt applies if you leave Germany and hold significant shares in corporations or, in the case of a sole proprietorship, transfer assets abroad.
• Legislative changes from 2024New regulations affect the taxation of relocations and require careful planning.
• Calculation of the taxThe tax is based on a notional sale of the shares or the company value at the time of departure.
• Tax avoidanceStrategies such as selling shares before the move, paying in installments or deferring the tax burden can help to reduce financial burdens.
• Double taxation agreementMoving to a country with a double taxation agreement can offer tax advantages.

What is exit taxation?

The Exit taxation comes into force when you leave Germany and fulfill certain conditions. It is intended to prevent assets from being transferred abroad without Germany being able to exercise its right of taxation. This primarily affects people who Significant investments in corporations hold or Sole proprietorwho take economic goods abroad.

Who is subject to exit taxation?

1. Residence in GermanyYou must have lived in Germany for at least seven consecutive years.
2. Participation in corporationsYou own more than 1 % of the shares in a corporation, such as a limited liability company.
3. No intention to returnIf you have no reasonable expectation of returning to Germany in the near future, the exit tax applies.

Impact of legislative changes from 2024

The new regulations, which came into force in 2024, made significant changes to exit taxation:

1. Abolition of indefinite deferralThe indefinite deferral option for EU/EEA relocations has been abolished.
2. Payment by installmentsTaxpayers now have the option of paying the tax burden in installments over seven years.
3. Extended return policyThe deadline for returning to Germany has been extended to seven years (in special cases up to 12 years).

These changes require even more precise planning, especially for entrepreneurs who hold significant stakes in corporations.

Calculation of exit taxation

The exit tax is calculated on the basis of a fictitious sale of your shares in corporations or the value of your sole proprietorship. Here are the steps:

1. Determine market valueDetermine the current market value of your shares or the company at the time of departure.
2. Deduction of acquisition costsThe original acquisition costs of the shares are deducted from the market value.
3. Taxation of the notional profitThe resulting profit is taxed at the personal tax rate.

Example:

A GmbH shareholder who wishes to move abroad has made an average profit of EUR 186,500 in the last three years. The value of his shares is multiplied by a factor of 13.75 to determine the notional capital gain:

• 186,500 euros × 13.75 = 2,564,375 euros
• Of which 60 % are taxable: EUR 2,564,375 × 0.60 = EUR 1,538,625
• With a personal tax rate of 40 %, this results in a tax burden of EUR 615,450.

Effects of exit taxation from 2024

The new regulations from 2024 include a number of tightening measures:

• Payment in installments and deferralThe tax can be paid in seven annual installments, but only with a security deposit. Indefinite deferrals have been abolished.
• Shortened deadlinesThe period for tax liability on departure has been shortened from ten to seven years.

Tax avoidance strategies

There are various strategies for reducing the tax burden or avoiding exit taxation:

1. Sale of shares before the moveIf you are planning to sell your shares anyway, it may be advantageous to do so before you move away to avoid the tax burden.
2. Payment by installmentsYou can apply to the tax office for payment in installments to spread the financial burden.
3. Moving to a country with a double taxation agreement (DTA)Moving to a country with a DTA with Germany can help to avoid tax disadvantages.
4. Deferral of taxApply for a deferral to spread the tax burden over several years.
5. Low valuation of hidden reservesA precise valuation of hidden reserves can reduce the tax burden.

Exit taxation in Germany is complex and can have significant financial implications. If you are planning to leave Germany and hold significant interests in corporations, careful planning is essential to avoid tax traps. New rules have been in force since 2024 that require an even closer look at the issue.

Special regulations apply to relocations to EU/EEA states or third countries. Moving to a country with a double taxation agreement can bring tax advantages, while relocations to third countries are often subject to stricter requirements.

Always consult an experienced tax advisor to develop the best strategies for your individual situation and avoid unexpected financial burdens.