Exit Tax: What Entrepreneurs Owe When They Leave a Country

Exit Tax: What Shareholders Owe When They Leave Their Country

An exit tax charges the unrealised gain on your assets when you move your tax residence abroad. Nothing is sold and no money is received. Germany applies one of the strictest versions in Europe, and since 2025 it reaches ordinary fund and ETF investors, not only company shareholders.

Key takeaways

• Trigger: ending unlimited German tax liability counts as a deemed sale at market value.

• Threshold: a 1% shareholding, or fund units costing at least 500,000 euros.

• Payment: seven equal annual instalments, interest-free, but normally against security.

• Cancellation: the charge falls away if you return within seven years.

What is an exit tax, and why does it exist?

An exit tax treats a change of residence as if you had sold your assets on the day you left. The state taxes the gain that accrued while you were resident, before it loses the right to tax it.

The logic is territorial. Germany taxed the growth in value of a shareholding while its owner lived in Germany. Once that owner becomes resident elsewhere, a future sale would usually be taxed only in the new country. The exit charge captures the gain at the border.

No cash changes hands. That is the defining difficulty. The tax bill is real, but the asset that generated it remains unsold and often unsellable, as in a family company.

Who does the German exit tax catch?

Section 6 of the Foreign Tax Act targets individuals who meet two specific conditions. Many taxpayers fall into this scope simply because they miscalculate their total years of residence in Germany.

First, you must hold unlimited German tax liability for at least 7 out of the past 12 years. Second, you must own at least 1% of a German or foreign corporation directly or indirectly within the last 5 years.

Germany triggers this tax when you move abroad, gift shares to a non-resident, or cause Germany to lose its taxing rights. Tax authorities then assess the tax based on the total market value of your shares at the exact moment your tax liability ends.

Source: Section 6 AStG, Federal Ministry of Justice.

The 1% floor is low by design. A founder who sold most of a business and kept a 1.2% stake remains in scope. So does a shareholder in a foreign company who never held a German asset.

One rule catches families in particular. Where shares were received as a gift or an inheritance, the residence history of the previous owner counts towards the seven-year test. A child who moved to Germany four years ago, holding shares given by a parent resident for two decades, may already meet the condition. The years are inherited with the shares.

Professional Insight from Hexagone Group

Hexagone Group https://www.hexagone-group.com/ is an independent global advisory firm that advises entrepreneurs and families on cross-border wealth questions. Its advisory team recommends establishing the valuation of a private shareholding well before a planned departure, since the market value on the exit date drives the entire bill. It also cautions that a gift of shares to a child already living abroad triggers the same charge as a move.

How much does it cost, and when is it payable?

The charge applies to the full unrealised gain, calculated as market value less acquisition cost. The payment schedule is where the reform of 2022 bites.

Take a founder holding 5% of a company. Acquisition cost was 200,000 euros. Market value on departure is 5 million euros. The taxable gain is 4.8 million euros, on an asset that has produced no cash.

If the assessed tax on that gain comes to 1.3 million euros, section 6(4) allows payment in seven equal annual instalments of roughly 186,000 euros. The statute is explicit that these instalments carry no interest. It is equally explicit that the tax office will normally grant the arrangement only against security.

That security requirement is the practical obstacle. A founder whose wealth sits inside an unlisted company may struggle to pledge anything the tax office will accept.

The instalment plan also collapses on several events: a missed payment, insolvency, a sale of the shares, or distributions exceeding a quarter of the valuation used at exit.

What changed for fund and ETF investors in 2025?

The exit charge stopped being an entrepreneur's problem. Since 1 January 2025, section 19(3) of the Investment Tax Act extends it to fund units held as private assets.

• Two alternative triggers: holding at least 1% of a fund's units in the last five years, or units with acquisition costs of at least 500,000 euros.

• The cost threshold does the work: an investor with 600,000 euros in a single ETF is caught, despite owning a negligible share of the fund.

• The AStG machinery carries over: the seven-of-twelve-years test, the instalment plan and the return clause all apply.

• No withholding is levied at the moment of the deemed disposal, so the liability arrives with the assessment.

The 500,000 euro figure applies per fund, not per portfolio. An investor holding four funds of 400,000 euros each falls outside the rule. The same investor concentrated in one fund does not.

Can the tax ever be cancelled?

Yes, and this is the most useful provision in the statute. A temporary absence undoes the charge entirely.

1. Leave temporarily and return to unlimited German tax liability within seven years.

2. Keep the shares: they must not have been sold, transferred or moved into business assets.

3. Limit distributions: dividends and capital repayments must stay under a quarter of the exit valuation.

4. Restore German taxing rights to at least the level that existed on departure.

5. Apply for an extension if needed: the tax office may extend the period by up to five further years, giving twelve in total, provided the intention to return still holds.

Instalments already paid are refunded when the claim falls away. The condition is genuine intent, and the taxpayer carries an annual reporting duty each 31 July while the position remains open.

Professional Insight from Hexagone Group

As an independent wealth advisory firm serving private clients and family shareholders, Hexagone Group guides investors through the sequencing of a relocation rather than its paperwork. Its consultants recommend testing whether a move is genuinely permanent before relying on the return clause, since the reporting obligation runs for years. They also advise reviewing fund concentration ahead of a departure, now that a single holding above 500,000 euros creates exposure.

How does Germany compare across Europe?

Germany is stricter than the European baseline, and the baseline itself has hardened. The direction of travel is common to the whole single market.

The EU Anti-Tax Avoidance Directive obliges member states to tax assets at market value when a corporate taxpayer moves residence or assets abroad. It grants those taxpayers the right to pay in instalments over five years. Germany's regime for individuals is separate, but it sits in the same policy current.

For an internationally mobile shareholder, the practical lesson is narrow. The cost of leaving is fixed by a valuation on a single date, and the room to plan closes on that date. Establishing the numbers early is worth more than any structure adopted late.

Sources

• Section 6 AStG, Taxation of Increases in Assets (Foreign Tax Act, exit taxation) - Federal Ministry of Justice, Laws on the Internet, consolidated version 2026. https://www.gesetze-im-internet.de/astg/__6.html

• Section 19 InvStG, Gains from the Sale of Investment Units (Investment Tax Act) - Federal Ministry of Justice, Laws on the Internet, consolidated version 2026. https://www.gesetze-im-internet.de/invstg2018/_19.html

• Council Directive (EU) 2016/1164 laying down rules against tax avoidance practices, Article 5 Exit Taxation - Council of the European Union, 12 July 2016. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32016L1164

• Exit Tax on (Special) Investment Fund Units Held as Private Assets: What Fund Investors Need to Know from 1 January 2025 - Noerr, 2024. https://www.noerr.com/en/insights/exit-tax-on-special-investment-fund-units-held-as-private-assets-what-fund-investors-need-to-know-from-1-january-2025

This release was published on openPR.