The Germany Exit Tax: Who Pays and How It’s Calculated

Germany’s exit tax, or Wegzugsbesteuerung, applies to the unrealized gains of significant shareholdings when a person terminates their German tax residency. Governed by the German Foreign Tax Act (AStG), its purpose is to tax the appreciation in value of these assets that occurred while the owner was a resident. The law prevents individuals from avoiding German capital gains tax by moving to a low-tax jurisdiction before a sale.

It functions by creating a “deemed” sale of the shares at their market value at the moment tax residency ends. As of 2025, this tax also applies to certain holdings in investment funds. The tax is triggered by the change in tax status, not the physical act of moving, and applies even if the shares are not actually sold.

Determining Taxpayer Liability

An individual is subject to the exit tax by meeting a specific set of conditions for residency, ownership, and a triggering event. A person must have had unlimited tax liability in Germany for at least seven of the last twelve years before their departure. Unlimited tax liability is established by having a domicile or habitual abode in Germany.

For corporate shares, the tax applies to individuals who hold a substantial interest, defined as owning at least 1% of a company’s share capital at any point within the five years preceding the move.

Effective January 1, 2025, the exit tax also applies to investors holding shares in investment funds, including common ETFs. For these assets, the tax is triggered if the investor holds at least 1% of the fund’s shares or if the shares were acquired for €500,000 or more.

The final condition is a triggering event that ends the individual’s unlimited tax liability in Germany. The most common trigger is relocating one’s residence and center of life interests to a foreign country. Other events include gifting the qualifying shares to a non-resident or transferring them into a foreign trust.

Calculating the Exit Tax Liability

Calculating the exit tax begins with determining the deemed capital gain, which is the Fair Market Value (FMV) of the shares at the time of exit minus their original acquisition cost. For publicly listed companies, the FMV is the stock market price on the date of departure. For private companies, valuation is more complex and relies on recognized business methods to establish an arm’s-length price.

For corporate shares, Germany’s partial-income method (Teileinkünfteverfahren) applies. Under this rule, 40% of the calculated capital gain is exempt from tax, and the remaining 60% is considered taxable income. This amount is added to the individual’s other German-sourced income for their final year and is subject to their personal progressive income tax rate, which can be as high as 45%, plus a 5.5% solidarity surcharge on the tax amount.

The tax treatment for investment fund shares differs. The gain on these shares is subject to a flat tax of approximately 26.4%, which includes the solidarity surcharge. Different partial exemption rules may also apply depending on the type of fund.

To illustrate, if shares acquired for €500,000 have an FMV of €1,500,000 upon departure, the deemed gain is €1,000,000. Applying the partial-income method for corporate shares, 40% (€400,000) is tax-free, and the remaining 60% (€600,000) is the taxable amount.

Deferral and Relief Provisions

When a taxpayer moves to another European Union (EU) or European Economic Area (EEA) member state, the tax liability is still calculated, but payment can be deferred. Upon formal application, the tax office may grant an interest-free payment plan of seven equal annual installments, though it may require security or collateral for approval.

The deferral is not unconditional and can be revoked, making the entire remaining tax debt immediately due. Revocation is triggered if the taxpayer:

• Sells the shares or a substantial portion of them
• Moves from the new EU/EEA country to a third country
• Fails to meet annual reporting requirements to German tax authorities
• Declares personal bankruptcy

A relief measure is the “return provision,” or Rückkehrerregelung. If a taxpayer re-establishes tax residency in Germany, the original exit tax assessment can be retroactively canceled. This provision applies if the return occurs within seven years, a period which can be extended by another five years upon request. The taxpayer must still hold the shares and re-establish unlimited tax liability. This provision also applies to the exit tax on investment fund shares.

Filing and Payment Procedures

The deemed capital gain from the shares must be declared in the individual’s final German income tax return. This is filed with the local tax office (Finanzamt) that was responsible for the taxpayer before their relocation, and this step is mandatory even if the tax will be deferred.

If eligible for deferral, the taxpayer must submit a formal application for the installment plan, as it is not granted automatically. The tax office will review the application and, if approved, issue a notice outlining the payment schedule.

For cases where the tax is immediately payable, such as for moves to countries outside the EU/EEA, the taxpayer will receive a formal tax assessment notice from the Finanzamt detailing the amount due and the payment deadline.