Leaving Germany is usually approached primarily from an organizational and personal perspective: terminating a lease, planning the move, and settling into life abroad. Tax issues often take a back seat or are only considered afterwards. This can have serious consequences. From a tax perspective, leaving Germany is not simply a change of location. Instead, such a move can trigger highly individual tax consequences that depend on the specific circumstances and are determined by the domestic tax laws of the countries involved, as well as the provisions of applicable double taxation treaties.
The greatest risks generally arise not from complex technical details, but from common misconceptions. Ideally, these issues should be considered as part of the relocation planning process well before departure.
Below, we address some of the most common misconceptions about leaving Germany that we frequently encounter in our advisory practice:
“The deregistration with the local authorities determines the tax date of my departure”
In practice, leaving Germany is often equated with deregistering with the local residents’ registration office. From a tax perspective, however, this view is incomplete.
Unlimited tax liability is instead based on the actual circumstances, particularly whether an individual maintains a tax residence within the meaning of Section 8 of the German Fiscal Code (AO) or a habitual place of residence under Section 9 AO. A tax residence – and therefore unlimited tax liability – may continue to exist if a home remains permanently available to the individual.
In an international context, additional factors must be considered. The assessment does not depend on individual criteria alone but rather on the overall picture of the individual’s personal and economic circumstances.
Against this background, deregistration with the residents’ registration office in Germany and registration in the new country of residence merely serve as indications and are not decisive on their own.
“Leaving Germany is always a clearly identifiable point in time”
Leaving Germany is often understood as a clearly identifiable event, such as a specific moving date. For tax purposes, however, this is not necessarily always the case. Although a departure from Germany is ultimately a specific legal event, the relevant point in time does not always coincide with an event that is immediately apparent to the taxpayer.
This is particularly relevant for individuals with internationally connected lifestyles. Their center of vital interests may gradually and progressively shift abroad, for example due to longer and more frequent stays abroad, changes in family ties, or the relocation of economic activities.
In such cases, tax residence is generally determined according to the rules of the applicable double taxation agreement, particularly based on the individual’s center of vital interests. To avoid later disputes regarding the relevant date of departure, especially where issues such as exit taxation may arise, it is advisable to monitor and document the relocation of one’s center of vital interests from the outset.
“Leaving Germany automatically ends Germany’s right to tax my income”
Another common misconception is the assumption that Germany no longer has any role in taxing ongoing income after an individual has moved abroad.
While unlimited tax liability often ends upon departure, this does not mean that income can no longer be taxed in Germany. Instead, the decisive factor is whether the income continues to have a connection to Germany (for example, rental income from German real estate). If this is the case, the individual will generally remain subject to limited tax liability in Germany under Section 49 of the German Income Tax Act (EStG). The relevant question is therefore not only where the individual resides, but also where the income originates.
Which country has the right to tax specific income is additionally determined by applicable double taxation agreements. Depending on the circumstances, Germany may continue to have the right to tax income in whole or in part despite the individual’s departure or its taxing rights may be restricted.
Special attention is required in cases where no double taxation treaty exists. In such situations, only the domestic tax laws of the respective countries apply, which may, in certain cases, result in taxation in both countries.
In addition, under certain circumstances, extended limited tax liability (erweiterte beschränkte Steuerpflicht) under Section 2 of the German Foreign Tax Act (AStG) may apply and extend the scope of German taxation for up to ten years after departure. A similar issue arises with gifts and inheritances: These may also remain subject to German taxation for several years after an individual has moved abroad.
Leaving Germany therefore does not automatically “shift” income abroad for tax purposes. Instead, each source of income as well as potential gifts and inheritances must be reviewed individually and ideally planned in advance.
“Only realized gains can be taxed”
Many of our clients assume that only actual profits that have been realized are relevant for tax purposes. In the context of leaving Germany, however, this assumption is incomplete.
Although tax law generally focuses on realized transactions, certain situations – particularly involving business interests and corporate structures – may trigger tax consequences solely as a result of the move abroad. This can occur even if no asset is sold and no cash proceeds are received (so-called “dry income”).
If Germany’s right to tax certain assets is restricted or eliminated as a result of the relocation, this may trigger what is known as a tax exit (Entstrickung). This concept primarily concerns assets that were previously subject to German taxation, such as intangible assets including trademarks, know-how, or customer relationships. If these assets are removed from the scope of German taxation – for example, through a transfer abroad or a restructuring – the increase in value embedded in those assets may become taxable even though no sale has taken place.
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In addition, specific statutory provisions exist that implement this principle in certain situations. A prominent example is the German exit tax (Wegzugsbesteuerung) under Section 6 AStG, which provides for a deemed disposal of significant shareholdings (generally more than 1 percent) in corporations at the time of departure. Under recent changes in the law, similar effects may also arise for privately held investment funds and ETFs if certain ownership thresholds or acquisition cost limits are exceeded.
“Leaving Germany is complete once the move is finished”
Leaving Germany is often viewed as a clearly defined one-time step. From a tax perspective, however, it regularly involves both preceding and subsequent consequences.
Even before the move takes place, important questions need to be addressed, such as which assets may be affected and what tax consequences may arise as a result.
After departure, individuals often continue to have tax obligations toward the German authorities, particularly in the form of tax returns, cooperation obligations, and documentation requirements. Follow-up issues, such as those relating to later disposals of assets, may also remain relevant for many years.
Leaving Germany is therefore not an isolated event, but rather a process with continuing tax implications. Those who consider and plan the tax consequences of their departure at an early stage are better able to manage these consequences and avoid unfavorable outcomes.
WINHELLER advises you on relocation abroad
Do you have questions about these or other potential pitfalls associated with leaving Germany? Please feel free to contact us. Our team has extensive experience with all aspects of relocating abroad and the related tax implications.
