How to avoid taxation when moving out of Germany

There are many reasons why people or companies want to leave Germany. These can be economic reasons, personal dissatisfaction with the conditions here or simply the desire for a different climate.

When shareholders of corporations move their residence abroad, tax obligations may arise. With our solutions, you can effectively avoid exit taxation.

In Germany, the regulations on exit taxation are laid down in the Foreign Tax Act. The regulations ensure that assets abandoned in Germany can be claimed for tax purposes even if the owner of the assets has moved his main residence or habitual abode abroad. Shareholders of corporations who hold at least one percent of the shares at the time of the departure are particularly affected. In addition, they must have been subject to unlimited tax liability in Germany for at least seven years within the last twelve years.

When calculating the exit tax, a fictitious capital gain is assumed, which is calculated from the market value of the shares at the time of the exit. An exception exists if the departure abroad is only temporary and the taxpayer returns to Germany within seven years. The period can be extended to twelve years upon application, but the shares may not be sold during the stay abroad.

Everything you need to know about exit taxation, from how it is calculated to strategies for avoiding it:

The exit taxation is relevant for all those who:

✅ were subject to unlimited tax liability in Germany in the past 7 years and.

✅ own at least 1% in a domestic or foreign corporation and

✅ are planning to move to EU & non-EU countries and

✅ have no intention of returning.

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The exit tax is:

✅ not a separate type of tax, but a special form of income tax;

✅ payable even if your German company remains in Germany;

✅ due directly. A deferral in 6 instalments within one year is only possible against a security deposit.

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Calculation of the exit tax:

✅ Business value as basis for calculation: 13.75 x average profit of the last 3 years.

✅ Business value minus investments = fictitious proceeds of sale.

Income tax is payable on 60% of this amount.

Calculation example: Mrs Müller has founded a GmbH with a share capital of 25,000 euros. After a few years, she earns 100,000 euros a year. Ms Müller is currently planning to move to Cyprus. The value of the company in relation to the exit tax is estimated by the tax office at 1.375 million euros.

In the previous example of Mrs. Müller, the supposed profit from the sale is 1.35 million Euros. This is 60 % of 780,000 Euros, which is now subject to income tax. If the tax rate with wealth tax is at most 45 %, an exit tax of 351,000 euros arises.

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How to avoid exit taxation

✅ Planned return: If you return to Germany within 7 or 12 years, no tax is due.

✅ Valuation in your favour: Provide the tax office with a realistic valuation by an expert if the value of the shares is lower than the tax office's estimate.

✅ Disposal of the shares, e.g. sale of the shares before the move, transfer of shares, transfer of business as part of a succession arrangement, family foundation, liquidation.

✅ Retention of shares with restructuring, e.g. conversion of the corporation into a partnership, involvement of a partnership, sale of the company to a holding company abroad.

In cooperation with our cooperation partners both in Germany and in the destination country, we determine the most effective strategy to legally avoid exit taxation. Do not hesitate to contact us.

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