Moving abroad brings a sense of new beginnings and fresh perspectives. However, for entrepreneurs and private individuals with substantial capital holdings, it can also entail a less welcome consequence: the so-called exit taxation, internationally known as “Exit Tax”.
Due to recent changes, this topic has gained even more relevance. We explain what exit taxation entails, who is affected, and which new regulations you should be aware of.
CONTENT
- The concept of the “exit tax”
- German exit taxation (§ 6 AStG)
- Current provisions on exit taxation (as of May 2025)
- What Changes Came into Effect at the Beginning of 2025?
- How exit taxation works
- International dimension: Exit tax and Double Taxation Agreements (DTA)
- EU law as a possible lifeline
- Be prepared – Protect your assets!
The concept of the “exit tax”
Before we take a closer look at the specific regulations in Germany, it is worth briefly considering the overarching concept. The idea of an “Exit Tax” or emigration tax is not new on the international stage. Many countries pursue the aim of preventing taxpayers from avoiding taxation on domestically accrued but unrealised assets (so-called hidden reserves) by relocating abroad.
Imagine you have held shares in a company for several years, and their value has risen considerably. As long as you do not sell these shares, the gains in value are generally not taxed.
However, if you transfer your tax residence to a country that taxes such gains at a lower rate—or not at all—the original country may miss out on collecting taxes if you sell the shares only after moving.
To prevent precisely this scenario, many countries have established mechanisms that assume a kind of fictitious disposal of these assets upon emigration and tax the hidden reserves accrued up to that point: an “Exit Tax”.
The specific design of these rules varies from country to country.
German exit taxation (§ 6 AStG)
In Germany, the term “exit taxation” refers to specific legal provisions that address this matter. Essentially, the German state treats the act of leaving the country as a fictitious sale of certain assets and taxes the notional gain that arises from it.
Exit taxation in Germany primarily focuses on two main areas. Firstly, it concerns shares in corporations, mainly governed by § 6 of the Foreign Tax Act (AStG) and § 17 of the Income Tax Act (EStG). Secondly, as of 1 January 2025, shares in certain investment funds and special investment funds held as private assets are also subject to this specific form of exit tax.
Other assets may also have tax implications when moving abroad, but they generally do not fall under this specific exit taxation for private capital and fund shares.
Current provisions on exit taxation (as of May 2025)
The current legal situation regarding exit taxation is the result of various stages of development, including the tightening of rules through the ATAD Implementation Act several years ago and the most recent extensions at the beginning of 2025.
The “classic” exit taxation for capital shareholdings (§ 6 AStG)
This form of emigration tax applies to natural persons who hold shares in corporations. You are affected if the following conditions are met:
- You were subject to unlimited tax liability in Germany for at least seven years within the twelve years prior to leaving.
- You hold shares in a domestic or foreign corporation in which you had a direct or indirect participation of at least 1% at any time within the five years prior to leaving (substantial participation according to § 17 EStG).
Not only the physical act of moving abroad triggers exit taxation, but also other circumstances such as the gratuitous transfer (gift or inheritance) of the shares to persons who are not subject to unlimited tax liability in Germany.
If the conditions are met, a fictitious disposal of your shares at market value is assumed at the moment your unlimited tax liability in Germany ends or upon certain other events that restrict Germany’s right to tax. The resulting fictitious capital gain is then subject to the German exit tax.
The gain is taxed according to the partial-income procedure (60% of the gain is subject to tax) at your personal income tax rate plus solidarity surcharge and, if applicable, church tax, which often results in an effective tax burden of approximately 28% on the gain from exit taxation.
Deferral Rules and Their Tightening
The tightened deferral rules, which have been in place for several years now, stipulate that exit tax is generally due immediately. While it may be paid in seven equal annual instalments upon request, this is typically only permitted with the provision of collateral and accrual of deferral interest.
An important exception to this form of exit tax applies in cases where there is a proven intention to return: If you are planning only a temporary absence (up to seven years, in exceptional cases extendable to a maximum of twelve years) and can credibly demonstrate this, the tax may be deferred without interest and without instalments.
What Changes Came into Effect at the Beginning of 2025?
With the 2024 Annual Tax Act, exit taxation was extended to include investment fund units held as private assets. These changes have been in effect since 1 January 2025.
Until now, investment funds held as private assets were not subject to exit taxation under § 6 AStG. With the new provisions in the Investment Tax Act, fund units held in private ownership are now also covered.
The change aims to put a stop to a popular structuring practice: many taxpayers had transferred their corporate holdings into investment funds to avoid exit taxation.
Who Is Affected by the New Fund Taxation Rules?
For regular public investment funds (such as ETFs and other Chapter-2 funds), exit tax applies if you, as a private investor:
- Held at least 1% of the fund units at any time in the five years prior to your departure, or
- Own fund units of the same investment fund with acquisition costs of at least 500,000 euros.
For special investment funds (Chapter-3 funds), the legislator has not applied such thresholds. Here, all privately held units are considered “significant cases” and are subject to exit taxation.
Important: These regulations apply exclusively to fund units held as private assets, not to those held as business assets.
How exit taxation works
If you meet the criteria mentioned, German tax law assumes a fictitious disposal of your corporate shares at the moment of your emigration. Although you actually retain your shares and do not sell them, the tax office treats the situation as if you had sold the shares at their current market value.
The difference between the current market value of your shares and their original purchase price is considered a fictitious capital gain and is subject to German income tax.
In this context, the partial-income procedure is applied, under which 60% of the calculated gain is taxed at your personal income tax rate. In addition, the solidarity surcharge and, if applicable, church tax are levied.
The exit tax becomes effective in the assessment period in which your unlimited tax liability in Germany ends—usually when you give up both your place of residence and habitual abode in Germany.
International dimension: Exit tax and Double Taxation Agreements (DTA)
Many affected individuals hope that a Double Taxation Agreement (DTA) with the new country of residence will neutralise the German exit tax. However, this is a misconception. Exit taxation as such is generally not prevented by a DTA.
The challenge is to avoid actual double taxation if the new country of residence also wants to tax the same capital gains upon a later real disposal.
For this purpose, DTAs provide mechanisms such as crediting the German exit tax, or Germany aims to ensure that the new country of residence only taxes the value increases that arise after the move.
EU law as a possible lifeline
The compatibility of the tightened German exit taxation with EU law remains a matter of debate. The strict deferral rules could potentially represent a disproportionate restriction of EU freedom of movement.
The European Court of Justice (ECJ) has already emphasised in several rulings: National exit taxes must not excessively restrict freedom of movement. Whether the current German regulations would withstand renewed judicial scrutiny remains to be seen.
Be prepared – Protect your assets!
Germany makes it more difficult from a tax perspective for entrepreneurially active individuals to move abroad, while countries like Spain are actively targeting exactly these individuals with programmes such as the Beckham Law or the Golden Visa.
The combination of exit taxation under § 6 AStG and the new fund rules in the Investment Tax Act further complicates the situation. Adding to this are strict deferral requirements.
Here’s how we support you concretely:
- We examine your situation in detail.
- We assess what the exit tax would mean for you financially.
- We develop sensible, legal strategies for you.
- We support you with practical implementation and communication with the tax authorities.
Arrange a non-binding consultation with our experts at Global Tax Saving today.
