Exit taxation - If you move abroad, check your taxes first!

What is exit taxation about and who is affected?

If a taxpayer in Germany - who holds shares in a corporation - moves abroad, the German state loses access to the capital gains from the shares in the corporation. That is why the tax authorities want to levy tax when the taxpayer leaves the country.

What is special about the exit tax is that it is applied to profits that have not yet been realized. The tax office implements this in the form of a fictitious sale of the shares in the company at the normal market value and applies income tax on the basis of this fictitious profit. Even if an individual moves abroad - the hidden reserves on shares held as private assets will be taxed.

 

On 24.03.2021, the German government passed the draft law on the implementation of the Anti-Tax Avoidance Directive (ATAD-Umsetzungsgesetz - ATADUmsG). Taxpayers with exit plans for 2021 should seek advice! 

When does the exit taxation take effect?

  • If the taxpayer was previously resident for tax purposes in Germany for at least 10 years
  • If they are a German citizen
  • If they held at least 1% of the shares of a corporation within the last 5 years (in Germany or abroad)
  • If they definitively give up the German residence


The starting point for the emergence of the exit taxation was the emigration of Helmut Horten, a German wealthy owner of a department store chain, in 1968. He emigrated from Germany to Switzerland. By moving away, he was able to collect the profits from the sale of his company completely tax-free. Since the German treasury had already lost tax revenues in similar cases, this formed the basis of the exit taxation. 

 

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