The new exit tax will apply from 2022. It applies when shareholders of corporations give up their unlimited tax liability in Germany by moving abroad. This results in some significant changes in the legal situation regarding the still current exit tax. In future, the new exit tax will also apply if such a shareholder moves to an EU/EEA member state. In addition, you have to pay the new exit tax in any case. Instead of the previous regulation, which allowed an unlimited deferral, now a deferral over seven years takes place. The regulation on the intended return to Germany has also undergone changes. It has now regularly increased to seven years, but it may also be extended to twelve years.

Like any other state, Germany has a legitimate interest in collecting taxes. This also includes taxes paid by shareholders of a corporation on the capital gains on the sale of their company. A prerequisite for the collection of this tax is that the shareholder is taxable without restriction in Germany. This is usually the case if you have a residence in Germany. However, if you give up residence in Germany and move abroad, you lose the unlimited tax liability in this country. So, for example, you could move as a GmbH shareholder to a country that would not collect taxes on the sale of the German GmbH and sell the GmbH from there. In any case, in theory this would be tax-free in Germany due to the lack of unlimited tax liability. With the departure of the GmbH shareholder, Germany loses the taxation right on the sales profit of the GmbH.

That this can by no means be in the sense of Germany is clear. So Germany, like many other states, has created the legal conditions in order to still be able to claim the potential profit from the future sale of the GmbH. However, it had to be taken into account that there is no way to arrange for the shareholder living abroad to pay the tax. After all, the German jurisdiction applies only within Germany. In other words, a different approach has been chosen, namely the introduction of an exit tax which is due at the time of departure; This process is also called tax easing.

The exit tax now applies directly when such a shareholder leaves. This involves assessing the limited company at the time of the departure and thus determining the potential profit that the moving shareholder could expect in the event of a sale. But this is a purely fictional gain. In fact, the shareholder did not receive any money. So how do you pay the tax?

So far it has been the case that one had to distinguish to which state a shareholder affected by the exit tax moved. If this was an EU or EEA member state, then you could apply for a deferral of the tax. The term was basically unlimited, as long as you could prove that you were unable to pay the exit tax. Otherwise, you could at least request a deferral over a period of five years. If, on the other hand, you moved to another country (third country), you had to pay the exit tax immediately.

In addition, there was a regulation that led to the deferred tax being completely eliminated when a shareholder returned. If you had already paid part of the tax, you received a refund. But they had to move back to Germany within five years. If it could be proven that the move abroad had professional reasons, then the tax office also allowed a longer return period of up to ten years on request.

By the way, the basis for the exit tax was § 6 AStG. The exit taxation itself, however, took place within the framework of income tax law.

From 01.01.2022, a new legal situation for the exit taxation is now to be applied. For this purpose, the legislature amended several regulations at the end of June 2021 with the ATADUmsG. In particular, § 6 AStG is affected. Furthermore, the new exit tax should have no influence on the tax practice applied so far. Thus, an existing protection is given here for all those who move abroad before 31.12.2021.

Now let’s see what has been planned for the new exit tax. Several changes were introduced into the Foreign Tax Act. Thus, the new exit tax should now also apply when moving to an EU/EEA country. This abandons the distinction between EU/EEA member states and third countries. This requires a serious consequence. For now it does not matter to which country one moves away; The new exit tax is effective in any case.

At least the possibility of a deferral remains. But now this is possible over a period of seven years. Nor is it necessary to provide proof that immediate payment of the exit tax is impossible. In fact, however, the duration of the deferral was changed in all cases where a move to an EU/EEA country took place, because this was previously possible under the mentioned conditions without restriction. In other words, you always have to pay the new exit tax from 2022, but you can always use the possibility of a deferral.

Another change in the External Tax Act concerns the return of a shareholder affected by the new exit tax. Here it now applies that if you return within seven years with a refund of the already paid exit tax can be expected. If there are professional reasons for staying abroad, you can extend this duration to up to twelve years by applying to the tax office. Of course, you must also be able to prove these professional reasons concretely in order to be able to use this option. In addition, the tax office must already declare the intention of a planned return to Germany at the time of departure in order to be able to make use of this option.

What is also added is the volume of profit distributions that a shareholder living abroad can receive without the new exit tax. If the profit distributions amount to 25 % of the common value of the company, the new exit tax is due immediately in full or, if partial payments have already been made under the deferral, in the remaining amount. We should therefore pay particular attention to this in future.

On the other hand, the legislator has abolished the complex regulation with regard to value changes that occur during the deferral. Even if, for example, a GmbH should assume a different value within the deferral period, the amount of the new exit tax remains unchanged.

As already mentioned, Germany already levied an exit tax. In the meantime, however, the European Union saw a need to tighten the exit taxation in its member states. It responded to tax avoidance practices that led to far-reaching tax losses. In order to curb these practices and thus prevent their abuse, the EU issued the Anti-Tax Avoidance Directive (ATAD for short). Their standards are mandatory for the member states and their partners in the EEA. In order to implement these changes at national level, the Federal Government has initiated the ATADUmsG. In the meantime, the Bundestag and the Bundesrat have adopted the amendment to the law, so that Germany has fulfilled its obligations as a member state of the EU in this regard.

Although it has complied with the requirements to improve the German exit tax, it remains unclear whether these changes are actually compliant with European law. But this is a separate topic that should be examined in a separate article.

Although some previously used avoidance strategies are obsolete due to the new legal situation, there are still a few options.

First of all, you can still use the old options to avoid the exit tax until the end of 2021. If you can implement this plan, you benefit from the conservation of existing stocks. One such possibility is to move to an EU country before the new exit tax takes effect. In this way, one can still make use of the previously unlimited deferral. But if you want to move to a third country at a later date, you can do so without losing the deferral. This is achieved by choosing a third country for a second home with which the EU country in which you currently live does not have a double taxation agreement. Because of this, the taxation right in the EU country is still preserved. However, the third country should ideally not levy taxes, otherwise one would be subject to double taxation in both states.

If, on the other hand, you do not want to move abroad until next year, then you can consider whether you will first transfer the company shares to a family foundation in Germany. However, it should be remembered that the transfer of shares is accompanied by a gift tax. The same applies, of course, to a transfer of shares to a family foundation in Liechtenstein. In contrast to the family foundation in Germany, the inheritance tax recurring in this country every 30 years is saved. But the design model Liechtenstein Family Foundation can only be used until the end of the year.