However, caution is advised: if you hold shares in a corporation, you must consider the so-called Exit Tax Germany. 5% VAT. Please contact us directly for an appointment
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Below, we outline the key aspects of the new regulation for holders of investment shares who leave or transfer their shares outside of Germany.
A taxpayer has paid into an ETF savings plan with €2,000 per month for 22 years.
This taxpayer would not have to pay tax if they moved away – in contrast to the holder of the significant corporate shares. Both shares held directly and those held through asset-managing partnerships are included.
To be subject to the exit tax, the person leaving must have lived in Germany for at least seven years in the 12 years prior to leaving or must have had a residence in Germany.
Failure to report may result in penalties.
Special Considerations:
In this case, the tax could at least be paid from the proceeds of sale. The problem: The shareholder did not, in fact, sell, so they did not obtain a sales price. If this is not or no longer possible, investors may consider transferring their investment shares into domestic business assets or transferring them to a foundation.
Retroactive taxation can result in unexpected financial consequences for many expats.
Leaving Germany does not necessarily mean the end of tax obligations. The tax office treats this as a deemed sale of shares and imposes a tax—typically around 30% of the assumed capital gain.
This means that the tax payment can be postponed until the assets are sold or otherwise realized.
Conclusion:
The Exit Tax in Germany is a mechanism to prevent tax avoidance by relocating assets or entities to low-tax jurisdictions. This happens, for example, when the shareholder moves abroad.
The state treats these exit cases as though the shareholder had sold his company and thus taxes this fictitious capital gain.
After 22 years, they have acquisition costs totaling €528,000. A move abroad is often deemed to have occurred when the last residence in Germany is given up.
The exit tax is also due if investment shares are given away or inherited and the recipient does not live in Germany. Even past relocations may now be subject to exit taxation in Germany. Exemptions and Reductions:
Tax planning and timely reporting are essential to avoid penalties and manage potential tax liabilities effectively.
We are currently offering an initial consultation on corporate tax at a reduced price of AED 1,250 excl. No (automatic) final withholding tax is levied.
Investors can ensure that the exit tax does not apply or is only payable in installments.
However, since the implementation of the ATAD law in 2022, new rules apply:
Those who moved abroad before the law change and benefited from perpetual deferral should be cautious.
Whether it’s studying in another country, relocating for work, or seeking a sunnier retirement, moving abroad offers many advantages. For example:
For many Germans, the dream of living abroad becomes a reality.
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In Germany, the Exit Tax (also known as “Wegzugsbesteuerung”) applies when a company, or a shareholder owning a substantial interest in a company, leaves Germany for another jurisdiction. However, according to the current version of this statute – the legality of which is highly controversial – the application for deferral is usually only granted in return for the provision of security.
The new regulation does not affect custodian banks, investment funds, or financial investment management companies.
According to the new regulation, tax is also due on gratuitous transfers to persons who are not subject to unlimited tax liability.
Additionally, the tax must be paid, among others, by individuals who move their center of vital interests abroad – even if they retain their residence in Germany.
Similar rules already apply to business investors, such as entrepreneurs, and corporations that hold their investments in business assets, independently of the new Annual Tax Act 2024.
In this article, we explain what this means, the latest regulations, and how to minimize your tax burden.
The exit tax applies when a person who is subject to taxation in Germany and holds at least 1% of a corporation moves their residence abroad. In the usual case of an equity fund, income tax of more than €50,000 would become due – without being able to pay it out of an actual cash inflow (dry income).
The affected investors are private individuals in Germany who have acquired investment shares with a purchase price of at least €500,000, such as ETFs, equity funds or bond funds, or at least 1% of the shares of an investment fund (Section 19, paragraph 3, sentence 2 of the German Investment Tax Act (Investmentsteuergesetz) in its new version, InvStG nF).
Ideally, investors spread their investments across various investment funds at an early stage so the acquisition costs of a single investment are below €500,000 and do not exceed 1% of the investment shares issued. If so, it´s best to seek professional advice early to minimize tax risks and explore possible tax planning strategies.
Contact us today for individual advice and optimize your tax strategy when moving abroad!https://www.stb-thalmeir.de/faq-en/
Shareholder Exit: If an individual who holds a substantial shareholding in a company (typically ≥ 1% of shares) leaves Germany, they may also be liable for Exit Tax on their shares.
This is crucial to understand regarding the Germany exit tax.
Previously, taxpayers moving to an EU or EEA country could benefit from “perpetual deferral.” This meant that the tax was deferred indefinitely, interest-free, and without fixed installment payments. This means that if the company has appreciated assets (such as intellectual property, real estate, etc.), the increase in value is taxed.
Taxable Event:
The Exit Tax is initiated when:
The company or the individual must report the departure and pay the tax on the appreciation of assets up to the date of the exit.