Germany Exit Tax (Wegzugsteuer): What Shareholders Must Know Before Leaving

Overview: The Wegzugsteuer Under Section 6 AStG

Germany's exit tax on capital gains — the Wegzugsteuer — is set out in section 6 of the Außensteuergesetz (AStG), the Foreign Tax Act. It operates as a deemed disposal of qualifying shareholdings at market value at the point a German tax resident emigrates, triggering an immediate income tax charge on the unrealised gain even though no actual sale has taken place.

The Wegzugsteuer was fundamentally reformed by the ATAD Implementation Act (ATADUmsG) of June 2021, with effect from 1 January 2022. The reforms extended the scope of the tax, tightened the deferral conditions, and brought the German rules into closer alignment with the EU Anti-Tax Avoidance Directive (ATAD) Article 5 exit tax provisions. The 2022 changes significantly reduced the practical utility of exit tax deferral strategies that had been available under the pre-2022 regime.

Which Shareholdings Are Caught

Section 6 AStG applies to shareholdings in corporations (Kapitalgesellschaften), both German and foreign, where the following conditions are met:

1. 1% threshold: The individual holds, or has held at any point in the five years before departure, at least 1% of the share capital of the corporation
2. German residence: The individual has been German tax resident for at least seven of the preceding twelve years
3. Triggering event: A triggering event occurs — primarily, the individual ceasing to be German tax resident by emigrating

The 1% threshold is low, meaning that even minority shareholders in private companies, or investors who accumulated a modest stake in a listed company, can be within scope.

The €17,385 Small Business Exception

Section 6(2) AStG provides a de minimis exception where the total deemed gain would result in a tax charge of €17,385 or less. This is a relatively narrow exception that will not shelter most significant shareholdings. It is calculated by reference to the actual tax that would arise, not by reference to the gain itself, so the relevant income tax rate (including the solidarity surcharge and potentially church tax) is applied to determine whether the exception applies.

Calculating the Exit Tax

The exit tax is calculated as follows:

1. Market value of the shareholding at the date of departure
2. Less: acquisition cost of the shares
3. Equals: deemed gain
4. Multiplied by: applicable income tax rate (partial income method — Teileinkünfteverfahren — which taxes 60% of gains from corporate shares, with an effective rate of approximately 26.375% including solidarity surcharge)

For a shareholding with a market value of €5 million and an acquisition cost of €500,000, the deemed gain is €4.5 million. Under the partial income method, €2.7 million (60%) is subject to income tax. At the top marginal rate of 45% plus 5.5% solidarity surcharge, the effective tax on the full gain is approximately 28.5% — a tax charge of approximately €1.28 million arising on a gain the individual has not yet realised.

EU/EEA Deferral: The Old Position vs Post-2022 Reality

Before January 2022, individuals emigrating to EU or EEA member states could obtain automatic interest-free deferral of the Wegzugsteuer for an indefinite period, on the basis that this was necessary to comply with the EU freedom of establishment provisions. The European Court of Justice (ECJ) had confirmed this requirement in cases including Case C-470/04 N v Inspecteur van de Belastingdienst and its German application.

The 2022 reform introduced a new deferral system that applies equally to EU/EEA and third-country departures:

Departure Destination	Deferral Availability	Interest
EU/EEA (pre-2022)	Automatic, indefinite	None
EU/EEA (from 2022)	Instalment over 7 years on request	1.8% p.a. from year 2
Third countries (from 2022)	Instalment over 7 years on request, with security requirement	1.8% p.a. from year 2

The elimination of automatic indefinite deferral for EU/EEA departures fundamentally changed the planning landscape. An entrepreneur emigrating from Germany to the Netherlands under the pre-2022 rules could defer the Wegzugsteuer indefinitely without interest, with the tax only becoming due on an actual sale. Under the 2022 rules, the tax is spread over 7 annual instalments regardless of whether the shares are sold.

Third-Country Rules and Security Requirements

For departures to non-EU/EEA countries — including the UAE, Singapore, UK (post-Brexit), Switzerland, and the United States — the 7-year instalment option is available but requires:

1. Adequate security (bank guarantee, pledge of shares, or other approved collateral) covering the deferred tax amount
2. Annual reporting to the German tax authority confirming that the shares have not been sold and the conditions for deferral are maintained
3. Immediate accelerated payment if the shares are sold, transferred, or the individual ceases to meet the deferral conditions

The security requirement is a practical obstacle. A bank guarantee for €1.28 million has an annual cost that can easily reach €15,000-25,000 depending on the institution and the creditworthiness of the applicant. This cost runs for up to seven years — adding €100,000-175,000 to the effective cost of the emigration.

Interaction with Pillar Two

The OECD's Pillar Two Global Minimum Tax (GloBE rules), implemented in Germany through the Mindeststeuergesetz of December 2023, adds a further layer of complexity for shareholders in groups within scope of Pillar Two. The deemed disposal under section 6 AStG creates a taxable event that may also need to be reflected in the Pillar Two effective tax rate calculation for the group — potentially creating additional top-up tax obligations at group level.

For closely held corporate groups with international shareholders, the interaction of the Wegzugsteuer with the group's Pillar Two position should be modelled before any emigration event is triggered.

Planning Strategies for German Shareholders

Sell Before Emigrating

If a sale of the company is planned within the next 2-3 years, the Wegzugsteuer analysis may favour completing the sale before emigration. The tax charge on an actual disposal by a German resident is the same as the deemed disposal — but the liquidity is available to pay it, there is no instalment deferral cost, and the security requirement does not apply.

Restructuring Shareholding Before the Triggering Event

If the shareholding can be reduced below 1% before departure — through a partial sale, a capital restructuring, or a gift to a family member (noting the gift itself may trigger the tax on the portion transferred) — the remaining holding may fall outside section 6 AStG scope. This requires very careful analysis of the five-year lookback period.

Timing Departure for End of Tax Year

The Wegzugsteuer is triggered at the date of departure. German tax years run on the calendar year. Departing in January rather than December gives an additional twelve months before the first instalment is due and may allow planning around anticipated changes in the value of the shareholding.

Using German Holding Structures

Shares held through a German GmbH holding company rather than directly are subject to different rules. A transfer of shares between related entities at fair market value within Germany does not trigger section 6 AStG in the same way — the Wegzugsteuer attaches to the individual's direct shareholding, not to corporate-held shares. Reorganising a direct shareholding into a corporate structure before emigration (on a tax-neutral basis under sections 20-25 of the UmwStG reorganisation tax regime) can defer or reshape the exit tax exposure.

HPT Group advises German shareholders and internationally mobile entrepreneurs on cross-border restructuring and emigration planning. The Wegzugsteuer analysis is a critical component of any departure plan for individuals with German-resident shareholdings above 1%. For a pre-departure analysis of your Wegzugsteuer exposure and the available mitigation options, contact our international tax team or apply for a consultation.