Die Deutsche Wegzugbesteuerung und wie man damit umgeht

German exit taxation and how to deal with it

Some people who want to emigrate and read that the German departure tax is due on emigration, first get a fright or perhaps immediately anger and of course many question marks. But what does exit taxation actually mean? We will shed some light on this uncertainty in this article.

The purpose of exit taxation is to ensure that the German tax system remains fair and that no tax avoidance is enabled by moving away from Germany.

German exit taxation applies in situations where a person transfers his or her residence or habitual abode from Germany to another country. It is intended to ensure that previously untaxed assets and income arising in Germany are taxed appropriately before they leave the country.

The taxation of hidden reserves, such as gains from the sale of real estate or securities, as well as the taxation of certain income that can be generated even after leaving Germany, is intended to ensure that these assets and income are not removed from the German tax system.

However, exit taxation may also result in a significant tax burden for the taxpayer, as taxation may be based on unrealized gains. Therefore, it is important for taxpayers to find out early about the impact of moving away on their tax liability and, if necessary, take appropriate steps to reduce their tax burden.

It should be noted that the exit taxation may also depend on the provisions of the respective double taxation agreement (DTA) that exists between Germany and the destination country of the exit. DTAs may contain provisions designed to prevent double taxation or reduce the tax burden.

But what exactly is exit taxation and which countries does it affect

Many people who want to emigrate think that the exit tax is due when they want to move their business abroad. This is not the case. The tax is due when individuals who are liable to tax hold shares in a corporation and wish to move their residence abroad. The exit tax is not a separate tax like gift tax, inheritance tax or similar, but it counts as a variant of income tax. Even if you hold shares in a foreign company, this tax is due when you relocate your residence from Germany.

This concerns shares in corporations subject to German exit taxation and the so-called exit tax. Exit tax is a de-stratification tax that applies to business assets and the transfer of assets of a company. In simple terms, Exit Tax is a form of taxation that is levied in some countries when a person moves his or her residence or tax domicile to another country. This tax aims to ensure that the state does not suffer significant tax losses when assets or income leave the country.

The assessment or collection of this tax shall be made as follows: Often, the value of the assets at the time of departure is estimated and compared to the value at the time of acquisition or a previous valuation. The difference is then taxed.

The exit tax may have a significant impact on individuals seeking to leave the country, particularly those holding significant assets or unrealized gains. It is therefore advisable for taxpayers planning to move away to find out in advance about the applicable tax rules and, if necessary, look for possible solutions.

Massive change in exit taxation since the year 2022

Previously, the taxpayer had the possibility to apply for a deferral of the tax when leaving Germany. This was usually granted to him and he had the possibility to pay the exit tax in installments usually over 5 years. This, too, is now no longer possible since 2022. A deferral is now only possible against a corresponding security deposit. However, even with this type of deferral, the exit tax must be paid within one year.

The factual situation in the case of a temporary change of residence

The “flimsy” positive is if you are planning to go abroad only for a short period of time (i.e. temporarily), for example. To establish a branch abroad, then according to the tax authorities, no exit tax would be payable.

But, yes, yes, here it comes. This temporary stay is limited to 7 years (with the option to extend), which is certainly feasible in itself. But, you still have to pay the exit tax and you will get it back after your stay abroad. The individual tax authorities do have a certain amount of leeway in their decisions, for example. That you deposit your house, if it has a suitable value, as collateral, or other objects of value.

TIP 1: In the case of a temporary stay, you come back to Germany for half a year before submitting the tax return at which the departure tax would then be due, complete your tax return and are exempt from the departure tax. After a few months, you leave and the game starts all over again.

TIP 2: Do not leave the valuation of your assets, whether investment or otherwise, to the tax office. Use an appraiser for this purpose, because it is fully profitable.

TIP 3: Sell your shares before moving out of Germany. But be careful, taxes are again due on this sale. Have the cheaper way determined.

TIP 4: Consider whether you have the option of transferring your shares, e.g. to a third party. Within your family. But beware, gift tax may come into play here.

TIP 5: Think about whether a succession plan would be an option for you under certain circumstances

TIP 6: Have you ever considered a family foundation?

TIP 7: Even liquidation, which sounds worse than it is, is worth considering.

TIP 8: Sale of the company to a holding company or other company name abroad. However, a different type of tax is then incurred here in Germany.

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