Entrepreneurs of all kinds who want to emigrate to Spain have to face the issue of tax easing. Because Germany would like to secure the taxes on the company value created up to the time of the move – the so-called hidden reserves – because otherwise the taxation right would be transferred abroad. However, this represents a considerable financial expense for many entrepreneurs. It is often so high that it leads to the fact that you prefer to leave the move. However, this is precisely what European law understands and actually prohibits by a restriction on the free movement of persons. The German legislator has so far, however, little disturbed. Therefore, it is time for us to show once again, this time using the example of Spain, how one can emigrate without an exit tax. And as a special icing on the cake, we describe how you even benefit from the so-called Lex Beckham.

1. Emigration to Spain without an exit tax – Introduction

Spain is a great holiday destination. We Germans love to spend our holidays in the sunny south on the Iberian Peninsula. However, a certain risk often arises after some time. Namely, that the more we stay there, less and less we want to leave. So many of us decide to leave Germany and move entirely to Spain. If you do this as a retiree or pensioner, it is even usually quite uncomplicated. But what if you want to emigrate to Spain as an entrepreneur?

2. emigrating to Spain: Attention Exit tax!

Spain is a member state of the European Union. This is quite practical, because it means that the general freedom of movement of all EU citizens also applies to this country. Spain, like Germany, is a sovereign state. And this means that you levy taxes according to your own regulations – just like Germany. However, if we as German entrepreneurs want to move abroad, we encounter on the one hand the Spanish tax law, which is foreign to us, and on the other – and even more seriously – the German foreign tax law with its various regulations that require tax easing.

This has the following background. If you are taxable in Germany and sell your own company here, whether it is a sole proprietorship, a partnership or a corporation, then the hidden reserves uncovered are subject to local taxation quite regularly. But if you move abroad and only then make the sale, the taxation, due to the tax liability transferred abroad, would now take place abroad instead of in Germany. And this is something that no state wants to make happen so easily, because it means that it practically abandons its taxation right and completely waives the potential tax it is entitled to. This is why in Germany (as in many other countries) there is tax easing for such cases, which is known as the exit tax for corporations.

emigrating to Spain: the problem with the exit tax

3.1. Taxation of the enterprise value at the time of departure

Now you may wonder what the problem with the exit tax is. In fact, it is quite serious. After all, the hidden reserves of a company are usually revealed via a sale, so that a reliable tax base for taxation is obtained. But if there is no sale at all, the legislature must look for other ways to determine the tax at an appropriate level.

Therefore, he has relied on the assumption that a company usually generates a certain return. This return can be accepted lump sum and then in connection with the profit of the company also determine its value. In order to compensate for fluctuations, this evaluation procedure takes the average profit of the past three years. This is multiplied by a factor of 13.75 (the factor is a measure of the return) and gets the value of the company. This can then be used quite regularly to determine the exit tax.

3.2. Unequal treatment of EU citizens in the application of exit taxation

3.3. Exit tax is a tax based on a fiction

The much more serious fact, on the other hand, is that the tax is levied, although in fact there is no real profit at all. In other words, as a shareholder, you have to reach into the private coffers to pay the tax. It is questionable whether all those affected can afford this financially. Especially when you have been able to do excellent business for just three years, the exit tax is very high. Although German tax law provides for a deferral of the tax over a period of seven years in order to alleviate this massive disadvantage, the tax burden still remains onerous.

3.4. Exit tax: how the Bundesfinanzhof judges it

So pressing that it can be said that the payment of the exit tax restricts the free movement of persons just as massively. The fact that this is likely to violate European law is obvious. Therefore, the recent decision of the Bundesfinanzhof (BFH) in a similar case, the so-called Wächtler case, is sensational. Although emigration to Switzerland is the focus of the legal dispute here, and thus the free movement agreement with this country instead of European law, the underlying legal principle is the same. And the judgment of the BFH also clearly states that the collection of the exit tax in its currently regulated form constitutes a violation of applicable law. Although the judgment recognises that a setting of the exit tax is lawful (for the purpose of safeguarding Germany’s tax sovereignty), it also notes that it should be accompanied by a deferral without notice and without interest.

4. emigrating to Spain without an exit tax: this is how it works

4.1. General options for avoiding the exit tax

Now there are several options to emigrate to Spain without an exit tax. One of them is that you remain tax resident in Germany by spending less than half of the year in Spain. Spain, unlike Germany, regulates its income tax liability solely over the duration of the stay in Germany; The residence is irrelevant. So as long as you still have a residence in Germany, you can use these differences in the definitions of the respective tax liability to avoid both the German exit tax and the income tax in Spain.

Of course, this is only a minor substitute for a full-fledged move to Spain. So let’s consider how we can manage the emigration to Spain without an exit tax. In fact, a whole range of design possibilities are available for this purpose. Be it a transfer of the company’s shareholding to a family foundation, the conversion into a double-storey holding structure or the establishment of a silent partnership with its own GmbH, they all allow avoidance of the exit tax according to § 6 AStG.

4.2. Emigration to Spain with Lex Beckham without an exit tax

4.2.1. How the Lex Beckham was developed

A very special variant, which is only possible with Spain, we would also like to introduce you. It goes back to the time when the famous English professional footballer David Beckham moved to a Spanish football club. In order to make the move to Spain tax-palatable, Spain adopted a special tax law, which is since then known as Lex Beckham. For example, Spain allowed foreign specialists who sign a local employment contract to pay flat-rate tax on their wages or salaries earned in Spain at only 24%. All other income, however, remained exempt from further taxation in Spain. In Spain, the principle of world income also applies.

4.2.2. How we can emigrate to Spain with the Lex Beckham without an exit tax

In the meantime, however, this regulation has been tightened up in some points. It is now only valid for the year of application and the following five years. In addition, certain upper limits on income generated in Spain now apply. But all this is not an obstacle for us, and so we develop a very special design model from it. Because of this special arrangement and its influence on the double taxation agreement (DTA) with Germany, it is achieved that Germany retains the right to taxation, on the one hand, provided that the person concerned still has a place of residence there, but on the other hand Spain also considers its residence in Germany to be fulfilled, so that it comes within the scope of Lex Beckham. In any case, the legal basis for the collection of the German exit tax is missing.

Taxation in Spain and Germany: no double taxation

But what goes along with this is double taxation in Germany and Spain, which is fortunately avoided by the DTA, with Spain charging the income tax paid in Germany on its own. Since you move to Spain not so much for reasons of tax avoidance but for private reasons, this aspect should at best be of secondary importance. It is important in this context that the move to Spain could actually take place without an exit tax.

4.2.4. Restrictions on the use of Lex Beckham

However, there are also some points in this solution that need to be considered. For example, this regulation only applies as long as you do not earn any commercial income as a taxable person in Spain. Anyone who is involved in a GmbH & Co. KG in Germany, for example, and thus generates commercial income, cannot make use of this special regulation. In addition, the aforementioned time limit applies. Anyone who moves back to Germany afterwards can only make use of this special arrangement after ten years.

5. emigrate to Spain without an exit tax – Conclusion

As you can quickly see, moving German entrepreneurs to Spain is anything but easy. At least those who want to emigrate to Spain without an exit tax must carefully consider which design best serves their own goals and purposes. If the stay lasts only a few years, you can also think about the use of the Lex Beckham regulation. If, on the other hand, the final departure to Spain is decided, you have to think about more special designs.

Or, wait until the BFH judgment from the Wächtler case is implemented in its consequences in national tax law. However, as so often, this can fail due to a lack of insight on the part of the German legislature. Because it could well be that one takes the view that the judgment in terms of guardians only has an impact on the exit tax for moves to Switzerland. But if you want to emigrate to an EU foreign country and defend yourself against the exit tax, you would also have to lead a long-standing legal battle against the German Treasury. And this is something that legislators can assume will take a lot of time to finalize. Time that he can use to continue to set and collect exit tax.