Entrepreneurs and investors are increasingly mobile and frequently change their place of residence across national borders.
If you hold business participations, relocating from Germany can trigger surprising negative tax consequences. Exit taxation (Wegzugsbesteuerung) is governed by § 6 AStG. Exit taxation applies to you if both of the following conditions are met:
- You hold a substantial participation within the meaning of § 17 EStG. This means you hold at least 1% of the shares in a corporation (Kapitalgesellschaft). This may be a German GmbH or Aktiengesellschaft, but also a foreign corporation. This also applies if the shareholding is below 1% at the time of departure, provided it reached at least 1% at some point during the previous five years.
- In the 12 years prior to departure, you were subject to unlimited income tax liability in Germany for at least 7 years.
Tax Consequences
The tax office taxes you as though you had disposed of your business participations at the time of departure. You therefore pay real tax on a notional disposal gain ("dry income" taxation).
Example: You relocate with your family from Germany to France. Some years ago you acquired a 15% stake in a GmbH for 100,000 euros. The stake has since increased in value to 900,000 euros. The tax office levies income tax on a notional disposal gain of 800,000 euros.
In addition to departure itself, there are other events that can trigger exit taxation, for example the transfer of company shares to a non-resident taxpayer by way of gift.
The current version of § 6 AStG no longer distinguishes between departure to an EU country and departure to a third country.
§ 6 AStG offers only limited options for mitigating the tax consequences of exit taxation:
- You may apply for the exit tax to be paid in 7 instalments.
- If you are only leaving Germany temporarily and return within 7 years, the tax liability lapses retrospectively under certain conditions.
We assess whether you face the risk of exit taxation. We advise on options for avoiding exit taxation entirely. If this is not possible, we find ways to minimise your tax burden.