Online we often read about interesting approaches to avoiding extended limited tax liability under Section 2 of the German Foreign Tax Act (Außensteuergesetz, AStG). However, not all arrangements deliver what they promise. For example, contrary to reports on the internet, moving to a normal tax country such as Austria and then moving to Dubai is unfortunately not a solution.
What tax criteria apply to people moving abroad?
The so-called extended limited tax liability is a special provision of the German Foreign Tax Act (Section 2 AStG). It applies to German citizens who:
- have been subject to unlimited income tax liability in Germany for at least five of the last ten years prior to moving away,
- are moving to a so-called low-tax country or a country without a fully effective double taxation agreement (DTA) with Germany,
- and continue to have significant economic interests in Germany.
If these conditions are met, the person concerned remains liable for tax in Germany for certain types of income for up to ten years after moving away – beyond the normal limited tax liability. This means that the person moving away is still required to file tax returns in Germany for ten years.
Taxation of crypto gains despite moving abroad
According to the German tax authorities, this provision applies, for example, to taxpayers who derive crypto income from private sales transactions (trading).
So, for example, anyone who moves to Dubai, buys cryptocurrencies there, and sells them within a year must pay tax on this income in Germany – even if they no longer have their residence or habitual abode in Germany and even if they assumed that their move meant they no longer had anything to do with the German tax authorities.
Moving via Austria as a stopover – does it work?
A popular “trick” that you occasionally hear about on YouTube is to first move to Austria (a normal tax country) and then, after a certain period of time, move on to a low-tax country, such as Dubai. The hope is that the stopover in Austria will interrupt the ten-year period or prevent the application of Section 2 of the Foreign Tax Act.
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But this is incorrect. If a taxpayer first moves to a normal tax country and then to a low-tax country, the income from the second move until the end of the ten-year period is subject to extended limited tax liability. This means that even if you move to Austria first, extended limited tax liability can still apply from the time you move to Dubai – for the remainder of the ten-year period.
Be cautious with supposedly “clever” arrangements
Extended limited tax liability is a powerful tool that expatriates often underestimate. Arrangements such as the detour via Austria are not suitable for permanently avoiding tax liability. As soon as you later move to a low-tax country such as Dubai, with which Germany has not concluded a double taxation agreement, tax liability may apply again – provided that the other requirements are met.
WINHELLER advises with tax expertise
Extended limited tax liability is complex and can have significant financial consequences, even if it rarely applies in practice. An individual review of your asset structure and tax residency is essential. Feel free to contact us – we will provide you with comprehensive and legally sound advice.
