German exit tax: Investment assets now included

If a natural person who is subject to unlimited tax liability in Germany gives up his or her domestic residence or habitual abode in Germany, he or she is subject to German exit tax under the Foreign Tax Act. Under the new rules, this now also includes investment assets. The Ecovis experts explain the details.

Exit tax currently applies to taxpayers who hold at least 1% of the shares in a domestic or foreign corporation (e.g. GmbH or Limited) in their private assets. If the shareholder emigrates, German fiscal authorities presume that the shares have been sold, often resulting in a high tax burden. Since there is no liquidity from an actual sale, payment of the income tax due can be inconvenient (dry income). Exit tax also applies when residency according to Art. 4 of the OECD Model Tax Convention is transferred from Germany to another country on the basis of a double taxation agreement.

Get support from internationally experienced tax advisors if you plan to give up your residence in Germany.

Sabine Scholz, Tax consultant, ECOVIS BLB Steuerberatungsgesellschaft mbH, Munich, Germany

German exit tax expansion

The Annual Tax Act 2024 has now extended the rules for exit tax on investment units under the German Investment Tax Act. This includes, in particular, fund units or units in special investment funds.

The exit tax now also applies to investment assets if

• at least 1% of the issued investment units were held directly or indirectly within the last five years prior to the emigration, or
• at the time of emigration, the acquisition costs of the investment units held directly or indirectly in an investment fund amounted to at least EUR 500,000.

For shares in special investment funds, there is no minimum threshold for the investment participation or for the acquisition costs.

Investment funds as part of business assets are not subject to exit taxation. The new regulation applies to all departures after 31 December 2024. Losses will not be taken into account in the context of exit tax.

What those affected should consider

Individuals planning to move to Germany (possibly for a limited period of time) should be informed about the issues relating to German exit taxation. As a preventive measure, assets can, for example, (in advance) be reallocated to harmless asset classes (e.g. real estate, free float shares under 1% participation in capital).

For further information please contact:

Sabine Scholz, Tax consultant, ECOVIS BLB Steuerberatungsgesellschaft mbH, Munich, Germany
Email: Sabine.Scholz@ecovis.com