The Complicated German Exit Tax

German Exit Tax 2026: A Guide for Expats and Entrepreneurs

The complicated German Exit Tax 

The dream of relocating abroad – whether for personal reasons, to tap into new markets, or to enhance your quality of life – is within reach for many entrepreneurs and investors. However, those wishing to leave Germany permanently face one of the most complex hurdles in German tax law: the German Exit Tax (Wegzugbesteuerung) under Section 6 of the Foreign Tax Act (AStG).

In this guide about the German Exit Tax, we explain the current regulations (as of 2026), the drastic tightening of laws in recent years, and legal strategies to minimise your tax burden or optimally prepare your “fiscal exit”.

What is the German Exit Tax?

The German Exit Tax is a protective mechanism employed by the German state. Its purpose is to prevent hidden reserves (unrealised capital gains) in corporations from flowing abroad untaxed when a shareholder departs.

As soon as a shareholder relocates their residence, the tax office assumes a fictitious sale of their shares. No actual transaction takes place, and yet tax becomes due on the increase in value. This is referred to as “Dry Income”—income that is recorded for tax purposes even though the taxpayer receives no liquid funds from an actual sale to pay the tax.

The Legal Basis of the German Exit Tax: Section 6 AStG

The objective of this section is to secure Germany’s right of taxation. Germany seeks to tax the value growth generated during the period the entrepreneur was subject to unlimited tax liability in the country. Since this right usually ends upon relocation, the state treats the gains as realised at the moment of departure.

Who is Affected? (The Criteria)

Not every expatriate is affected. The tax liability is triggered by three central conditions:

  1. Duration of Tax Liability: The individual must have been subject to unlimited tax liability in Germany for at least seven years within the last twelve years.
  2. Substantial Shareholding: The departing individual must have held at least a 1% stake in a corporation (e.g., GmbH, AG, or comparable foreign companies) at any time within the last five years.
  3. Termination of Tax Liability: The individual gives up their residence or habitual abode in Germany.

Important: Even if a residence is formally maintained, the German Exit Tax can be triggered if, under a Double Taxation Agreement (DTA), the right to tax capital gains is assigned to another state.

Special Situations: Gifts and Inheritance

The exit tax does not only apply to physical relocation. The gratuitous transfer of shares (via gift or inheritance) to a person abroad can also trigger the tax if it restricts Germany’s right of taxation.

Calculation: How Much Does the Departure Cost?

The assessment basis is the fictitious capital gain. This is calculated as the current fair market value of the shares minus the original acquisition costs.

The Partial Income Procedure (Teileinkünfteverfahren)

Gains are not taxed in full. The Partial Income Procedure applies:

  • 60% of the gain is taxable.
  • 40% remains tax-free.
  • The taxable 60% is subject to the individual’s personal income tax rate (up to 45%).

This results in an effective tax burden of approximately 25% to 27% on the total capital gain (plus the solidarity surcharge and, if applicable, church tax).

Visual Note: Market Value – Acquisition Costs = Hidden Reserves. 60% of Hidden Reserves x Personal Tax Rate = Exit Tax Liability.

The Challenge of Business Valuation for the Purpose of Calculation of the German Exit Tax

Since there is no actual sale price, the company’s value must be determined. The tax authorities often use the simplified earnings value method (vereinfachtes Ertragswertverfahren). In times of low interest rates, this frequently leads to unrealistically high valuations. Entrepreneurs should counteract this early on by employing expert valuers to prove a realistic fair market value.

Recent Tightening: The Paradigm Shift from 2025

Following the ATAD Implementation Act and the Annual Tax Act 2024, the situation has become significantly more restrictive.

  1. Elimination of Indefinite Deferral of German exit Tax

Previously, those relocating within the EU could achieve a chronologically unlimited and interest-free deferral of the tax. This regulation has been abolished. The tax is now due immediately. Upon application, payment can be made in seven annual instalments. However, the tax office usually requires collateral (e.g., bank guarantees or pledging of shares), which can significantly impact the entrepreneur’s liquidity.

  1. Extension to Investment Funds and ETFs (From 2025)

A significant innovation is the inclusion of investment units in the exit tax. Previously, it was a popular strategy to move assets into funds to circumvent Section 6 AStG. This loophole has been closed.

  • Shareholding Threshold: Applicable from a 1% stake in the investment units.
  • Acquisition Cost Threshold: If the acquisition costs of the fund units exceed €500,000, the exit tax also applies.
  • Special Investment Funds: Tax relevance is generally assumed here, regardless of the stake or costs.

Strategies for Avoidance or Mitigation of the German Exit Tax

Despite the strict rules, there are legally sound ways to optimise or entirely avoid the burden.

  1. The Returnee Rule (Temporary Absence)

If the relocation is planned as temporary from the outset, the tax assessment can be waived.

  • Standard Period: Return within seven years.
  • Extension: Upon application, this can be extended to up to twelve years if professional reasons exist.
  • Benefit: It is no longer necessary to explicitly prove an “intent to return” at the time of departure; the actual return is what counts.

  1. Gifting Before Relocation

Transferring shares to close relatives before moving can significantly reduce the assessment basis. By utilising gift tax allowances (renewable every 10 years), assets can be redistributed tax-efficiently.

Recipient

Tax-Free Allowance (Gift)

Spouse / Civil Partner

€500,000

Children

€400,000

Grandchildren

€200,000

Parents / Grandparents

€20,000

By gifting shares before relocating, the departing individual’s stake may drop (potentially below the 1% threshold), meaning the exit tax would no longer apply to that portion. The original acquisition costs are carried over by the recipient.

  1. Utilising Double Taxation Agreements (DTAs)

Some DTAs offer protective mechanisms. It must be checked on a case-by-case basis whether the method for avoiding double taxation (exemption or credit method) in the target country is advantageous.

  1. Maintaining a German Residence

Anyone who keeps a flat or house in Germany that is “suitable for living” and actually uses it remains subject to unlimited tax liability. This prevents the exit tax from being triggered. Caution: This results in worldwide tax liability in Germany and carries the risk of double taxation if the target country also claims taxation rights.

  1. Independent Valuation Expert vs. Standard Formula

Do not leave the valuation of your GmbH to the tax office’s estimates. A qualified expert can often prove that the actual market value is significantly lower than the earnings value calculated by the tax office, which directly reduces the tax burden.

Administrative Obligations and Risks

Relocation must be actively reported to the tax office in accordance with Section 6 (1) AStG. Failure to comply with this reporting obligation risks not only high back-payments and interest but also criminal consequences for tax evasion.

German Exit Tax Summary Checklist for Expats:

  • Check Deadlines: Was I tax-resident for 7 of the last 12 years in Germany?
  • Shareholding Check: Do I hold $\ge$ 1% in a corporation or fund units worth > €500,000?
  • Business Valuation: Arrange an expert valuation early.
  • Deferral Application: Prepare for instalment payments (and collateral) in good time.
  • Structuring: Review gifts or restructuring at least 1–2 years before relocating.

 

Conclusion

The German Exit Tax in 2026 is a highly complex matter that leaves no room for error. Due to the new regulations regarding investment funds and the abolition of indefinite deferral, meticulous planning over several years is essential.

It is not surprising that more and more Germans, both employees and entrepreneurs, are leaving Germany.
Many are choosing Cyprus, and not just because of the many tax advantages. If you are considering relocating your business to Cyprus, we would be happy to advise you.

Shanda Consult supports you in making your international move tax-secure. We analyse your shareholding structure, evaluate risks according to current law, and find individual solutions to secure your assets for the future.

The information contained in this publication does not constitute legal, tax, or other professional advice. This publication is not intended to serve as a substitute for obtaining professional tax advice from a qualified accountant or tax solicitor.

We make no representations, warranties, or guarantees that the content contained in this publication is accurate, complete, or up to date.

Source Note: This guide is based on the legal status as of 22 February 2025, taking into account developments for the year 2026, specifically the AStG, ErbStG, and current case law of the Federal Fiscal Court (BFH).

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Disclaimer:

The information provided in this article is for general informational purposes only and does not constitute legal, financial, or tax advice. While we strive to ensure that the information presented is accurate and up to date, tax laws and regulations are subject to change and may vary based on individual circumstances. We strongly recommend consulting with a qualified tax advisor or legal professional before making any financial or business decisions based on the information provided here.

Shanda Consult does not accept any responsibility or liability for any loss or damage incurred as a result of the use of this information.
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