Inheritance tax and gift tax are usually relatively easy to leverage in Germany. In addition to allowances, facilitations for beneficiary assets and, in addition, the option to test the spare requirements, there are also many possibilities for tax design. One of these arrangements is particularly useful if you intend to leave Germany permanently anyway. In fact, it is relatively easy to avoid inheritance tax and gift tax abroad if you pay attention to some criteria. For example, both the vendor and the recipient, as well as the assets to be transferred, must be transferred abroad before the transfer takes place. As a rule, however, certain deadlines must also be observed. And the nationality of taxpayers is also important.

Avoid inheritance tax and gift tax abroad – Introduction

Inheritance tax and gift tax are two sides of the same coin. Finally, we are talking about the taxation of assets transferred free of charge from one person to another. In principle, the only essential difference is the occasion that leads to a transfer of assets: gift or inheritance. This general principle applies both in Germany and in any other country where there is an inheritance and gift tax. From this general statement it is now implicit that there are other countries that can do without these taxes in their tax law. Anyone who wants to save these taxes in this country will logically come to the conclusion that one only needs to leave Germany and thus avoid the inheritance tax and gift tax abroad. But is this really as simple as it sounds here? So let’s see if further findings follow at first impression.

2. Countries without inheritance tax and gift tax

In fact, a large number of states worldwide do not have an inheritance or gift tax. Thus, the prerequisite for the tax structure discussed here, to avoid inheritance tax and gift tax abroad, is quite feasible. For example, Austria abolished the inheritance and gift tax some time ago. Other countries where you can do without this taxation are, for example, Norway, Romania, Sweden or the United Arab Emirates (UAE). And since 2024, Spain also belongs in this league. The international trend is actually towards the abolition of the inheritance and gift tax.

Other states are more like Germany. For example, an inheritance and gift tax exists in France, Greece, the UK, Japan and the USA. These countries are therefore at best conditionally suitable for avoiding inheritance tax and gift tax abroad. In certain situations, however, lower tax amounts can be realized there than in Germany.

3.Hurdles to avoid inheritance tax and gift tax

So if you are looking for ways out when planning your own asset succession and if you want to combine them with an equally attractive relocation of the center of life abroad, you should find something quite quickly. But beware, there are some peculiarities in this project that you should definitely consider.

3.1. Avoid inheritance tax and gift tax abroad: the right passport

First of all, it is advantageous in this context to have the right nationality. More specifically, from the point of view of German tax law, every citizenship is the right one, except for one, namely the German one. For German nationals, special regulations apply with regard to inheritance and gift tax. These can be found in § 2 (1) sentence 2 number 1 letter b and c ErbStG.

If a person with a German passport emigrates from Germany and then wishes to transfer property abroad to another person by way of a gift or inheritance, then this may also be subject to the limited inheritance and gift tax liability in Germany – regardless of whether the foreign country has its own inheritance and gift tax law or has none. The same also applies to the person who is to receive a gift or inheritance abroad. Both remain subject to inheritance and gift tax in Germany despite moving abroad.

Taxation in Germany depends on when the taxable person left Germany. If the transfer of assets takes place within the first five years after the departure abroad, it remains taxable in Germany. So if you want to avoid the inheritance tax and gift tax abroad, you have to pay attention to this period of five years as a German citizen or change citizenship.

3.2. Extended limited inheritance and gift tax liability

Building on this, the legislature introduced a further tightening in § 4 AStG, namely the so-called extended limited inheritance and gift tax obligation. It shall apply beyond the five-year period for a further five years. However, it concerns only those assets that do not have a fixed connection with foreign countries. What lies behind this somewhat cryptic rewrite is quite comprehensive. This affects all assets that do not allow exclusive location abroad. For example, this applies to cash or bank balances. Since liquid funds can easily be transferred across national borders, a fixed allocation to a particular state is hopeless. The same applies to claims and claims, company shares, insurance, trademark rights and other copyrights as well as patents with a connection to Germany (exploitation in this country, for example). But also household effects, objects of art, cars, jewelry, yachts or a stud count.

3.3. Who has to move abroad to avoid inheritance and gift tax?

Now one may assume that it is sufficient if the person in whose possession the property which one wishes to transfer by inheritance or gift is resident abroad for tax purposes at the time of transfer in order to avoid the German inheritance tax and gift tax. Far from it. Because the German inheritance and gift tax obligation affects both the person. whose property is originally owned, as well as those it is to receive. So the latter person also has to emigrate abroad to avoid taxation in Germany. Both may not have a permanent residence in Germany. And here too, the question of citizenship is of crucial importance (see section 3.1.).

3.4. Where is subject to German inheritance tax and gift tax?

Those who have considered the previous requirements from the point of view of the affected persons still comprehensible, will probably find the regulation curious at the latest that all assets transferred by way of inheritance or donation are subject to German taxation – worldwide. Nevertheless, this is consistent. After all, Germany levies taxes according to the so-called world income principle. It is true that this is basically a rule aimed primarily at the taxation of income and thus applies in tax legislation in income tax law. But it is also quite easy to extend to the transfer of assets and thus the basis of inheritance and gift tax law. The fact that it can sometimes come to complex situations, for example when applying the valuation right to foreign assets, is obviously secondary.

Specifically: Avoid inheritance tax and gift tax abroad

We have presented you with the most important factors that you should know if you want to emigrate abroad as a wealthy person in order to avoid the German inheritance tax and gift tax. From this we now form a framework for action.

First of all, it applies that both the donor or the testator and the persons concerned with the increase in assets emigrate abroad. Completely. Anyone who maintains a residence in Germany remains tax-free Germany. Of course, you should then settle in a country that knows neither inheritance tax nor gift tax. In addition, you have to ensure that the assets from Germany go abroad. Otherwise, the limited inheritance and gift tax liability in Germany will apply to these domestic assets. The fact that both the decedent and the donor as well as the heir or giftee are taxable abroad alone is then irrelevant.

Well, money, jewelry, or cars can be transferred relatively easily abroad. But what about real estate or companies in Germany? They too must be transferred abroad. More specifically, ownership of these assets, which are firmly linked to Germany, must be transferred abroad. Fortunately, this is often easier than moving mobile assets, for example. For example, you can set up an asset management company abroad and transfer the ownership of immovable property in Germany to it. If a donation or inheritance is to be made via these assets remaining in Germany, you simply transfer the shares in the foreign company to the recipient.

However, the aforementioned deadlines must always be observed. German citizens are therefore bound by the German inheritance and gift tax obligation for at least five years. In extreme cases, even ten years have to be waited to avoid the inheritance tax and gift tax abroad.

Avoid inheritance tax and gift tax abroad – Conclusion

What conclusions can we draw from these considerations? First of all, it is much more complex to avoid inheritance tax and gift tax abroad than you might think. The fact that you simply leave Germany to make a tax-free transfer of assets in another country without inheritance and gift tax law is therefore already excluded. This would require at least the assets to be transferred to leave Germany. Even then, this solution would only come into question if one has a different nationality than the German one. Otherwise, you have to wait patiently for the five-year and perhaps even the ten-year period. At least for the period beyond the first five years, appropriate provisions could be made to reallocate the assets in such a way that they represent exclusively foreign assets in the sense of German tax law. A prime example of this is real estate abroad.

As you can see, this design requires some effort, but above all early planning. The German inheritance and gift tax law can be annulled relatively easily in this country. There are various possibilities for this – both those explicitly granted by the legislature and those through tax design. So if you want to tax optimize the succession of assets in a wise foresight, you should contact us immediately after our reading. Because we have both the necessary expertise and the creativity and know-how.

On the other hand, all the measures described here may still be useful, perhaps even absolutely necessary, if one intends to leave Germany anyway. In this case, it is even absolutely logical that you deal with these connections before you emigrate. After all, Germany rightly loses its taxation right by moving abroad. In terms of income, there is no taxation abroad extended for several years. And we also recommend ourselves as an active consultant for your tax interests at home and abroad.