Exit tax is usually known in the context of corporations. But basically the exit tax on private assets is much more relevant and diverse. Actually, it is mainly a question of shareholdings in corporations that hold their shareholders in their private assets. Exit tax, which corporations cause because they are moved abroad, are much less common. In addition, there are other situations in which the exit tax is relevant. Finally, there are those connections in which, although there is no exit tax on private assets, there are still other tax implications that should also be considered when moving abroad as a natural person.

1. Exit tax on private property – Introduction

It’s a kind of romantic idea: just pack your bags and emigrate. Or even better, just stay abroad after the holiday because we liked it so much there. For entrepreneurs, however, such a request entails some hurdles. Because if you give up residence in Germany, then this has in addition to other bureaucratic obligations also tax consequences. This is due to the fact that you leave the unlimited tax liability in Germany. In this very situation, however, Father State wonders whether it is possible to raise taxes one last time before this right passes to the new home state. And since you usually only move away privately, so that your own company remains in Germany, the profit that would arise from a later company sale could accrue to the tax abroad. This would ultimately leave Germany empty.

In order to still collect taxes on the company’s previous increase in value, Germany has introduced the exit tax. But the taxation of so-called hidden reserves is only part of the scope of the exit taxation. What other factors lead to an exit taxation, we want to briefly summarize in this article.

2. Which private assets are subject to exit tax?

However, before we discuss how the German exit tax works, we briefly present all the facts that can trigger an exit tax. You will be surprised how diverse these possibilities of the Treasury are.

2.1. Exit tax on private assets – companies

In fact, we have already explained almost everything fundamental about this. However, a decisive concretization is missing. Because the exit tax, which is standardized in § 6 AStG, basically only affects corporations, above all corporations such as the GmbH and the UG, but also the AG and SE. However, cooperative members are also affected by the exit tax. If all these legal forms have their registered office in Germany and their shareholders permanently move abroad, the proportionate hidden reserves are subject to exit tax.

But if you only have to pay withholding tax for investments in corporations, has the legislature not left any loophole for partnerships? At first glance, this may seem like a logical question. Indeed, a similar regime applies to partnerships, i.e. partnerships of all kinds and sole proprietors. However, the term 'untangled tax' has been created for this purpose. Nevertheless, converting a corporation into a partnership before leaving can be a sensible measure to avoid the exit tax.

Exit tax on private assets – gifts and inheritances

Since we have already associated the exit tax with the classic case of emigration of entrepreneurs, we also consider the case that becomes relevant when transferring company shares from private assets to people abroad. Imagine an entrepreneur whose children live abroad. If the succession now occurs or a donation of the company shares is to take place, then Germany would also lose the right to tax on the hidden reserves. So what does Father State do? True, it also imposes an exit tax on inheritances and gifts that are directed abroad.

Exit tax on private assets – investment funds

In addition to corporate investments, German tax law has also known an exit tax on investment funds since 2025. Anyone who invested in funds and had acquisition costs of EUR 500,000 must also pay removal tax on the increase in value that arose up to the time of the move. This also applies, however, if you were at least 1% involved in a fund in the five years before moving abroad. In particular, passive funds are subject to this taxation, i.e. classic stock funds, real estate funds and others.

3. No exit tax on private assets, but limited tax liability

Another aspect that must be considered when moving abroad includes situations that remain taxable in Germany despite moving abroad. Strictly speaking, this does not imply an exit tax on private assets, but from a tax point of view it is a comparable measure to enable Germany to defend its tax sovereignty. That is why we are now looking at these issues.

3.1. Property in Germany

Let’s start with a very simple example: real estate in Germany is always subject to German tax liability. If the taxable person is tax resident in Germany, his income from the rental or lease of his real estate is subject to German unlimited tax liability as well as the profits resulting from a possible sale. However, if you emigrate abroad as an owner, the unlimited tax liability is eliminated because the criteria of residence and habitual residence do not apply. But the income from German sources remains taxable in Germany, only limited.

3.2. Sole enterprises

Individual entrepreneurs who run a business in Germany but live abroad are also subject to a limited tax on their profits in Germany. It is irrelevant whether you are a foreign entrepreneur or emigrate from Germany to abroad and only then set up a sole proprietorship in Germany. It is important to note that this only applies if the place of management remains in Germany. This comes into question especially if you live as a sole proprietor or sole proprietor near the border abroad and travel to the company in Germany for the management. Otherwise, the management will be relocated abroad, so that Germany loses the right to tax revenue.

3.3. partnerships

Similarly, the case is with shareholders of partnerships. Here, too, the continuation of the company in Germany leads to the limited tax liability of the shareholders who are now resident abroad.

4. No Exit Tax on Private Assets, but Extends Limited Tax Liability

The last aspect leads us to a very complex issue. The German Foreign Tax Act regulates what remains taxable in Germany when referring to cross-border tax behaviour. One principle is that you judge by the locality principle. This principle also applies to domestic real estate owned by persons taxable abroad.

Another principle is that foreign income accruing to taxable persons abroad is only taxable abroad. After all, these are excluded from taxation in Germany. This may seem trivial at first glance, but it looks very different for US citizens. It is therefore not self-evident.

The third point addressed by the German External Tax Act is thus directed at income that does not come from sources in Germany or abroad. For this purpose, the German Foreign Tax Act has created a further tax liability. In addition to unlimited and limited tax liability, there is also extended limited tax liability. It is effective when it comes to income that cannot be allocated to any country. These include interest income on bank balances as well as cryptocurrencies and shares, i.e. their dividends or capital gains. However, certain conditions apply here. On the one hand, only German citizens are affected. Secondly, you must have been unrestrictedly taxable in Germany for at least five years in the past ten years. Thirdly, you have to live in a country that has low income tax or is no longer resident in any country. And fourthly, with these types of income, you remain taxable in Germany for ten years.

In this context, what is meant by low taxation abroad? Well, § 2 AStG also provides information on this. Here the condition is considered fulfilled if a taxable person with an income of the equivalent of EUR 77,000 pays at least one third less income tax abroad than in Germany.

5. Exit tax on private assets and similar measures – Conclusion

So what is the lesson from these different ways that Germany uses to raise taxes on people who move abroad? Well, the first aspect here may be that you can be affected by several tax regulations at the same time. The second is that there are solutions for all cases. However, all framework conditions must be observed. This means that one should definitely seek the advice of tax experts. In addition, it is necessary, at least in the case of an imminent extended limited tax liability, that one proceeds as early as possible to tax design. But even if you want to be as flexible as possible with regard to the time of emigration, you should act as early as possible.