GERMANY Law and Practice Contributed by: Christian von Oertzen and Philipp Windeknecht, Flick Gocke Schaumburg
of 15% (plus the solidarity surcharge of 5.5% of the corporate tax liability). Exit Tax If an individual of any nationality who has been resi - dent or has had a place of habitual abode in Germany for at least seven out of the last 12 years emigrates, the unrealised gain on any shareholding in excess of 1% will be charged to income tax, according to Sec - tion 6 of the German Foreign Tax Act (FTA). However, the exit tax lapses with retroactive effect upon the re-establishment of German unlimited tax liability for a maximum period of 12 years (“temporary absence”). A limited tax deferral is possible in this case. The current FTA exit taxation regime has applied since 1 January 2022. Following the amendment, the payment can now be made in seven interest-free instalments. The German tax authorities published a decree in 2025 on the application of the returnee provision above in cases of substantial distributions from the sharehold - ing covered by the FTA. Distributions made after 16 August 2023 by corporations whose shareholders are subject to exit taxation trigger immediate exit taxation regarding the shares if the distributions exceed one quarter of the fair market value of the corporation. In 2023, a 2011 relocation case to Switzerland that applied the previous legislation, which did not provide for a permanent, interest-free tax deferral for reloca - tions to non-EU/EEA countries, was ruled on by the Federal Fiscal Court, which held that such a tax defer - ral is applicable. Therefore, the Federal Fiscal Court is expected to rule in favour of a permanent, interest-free tax deferral in EU/EEA cases. The German tax authori - ties issued a decree in 2025 that the ruling will only be applied to relocation cases to Switzerland prior to 2022. However, no adaptation of the current exit taxation is in sight. Moreover, the German tax authorities pub - lished a decree in 2023 on the application of the exit tax: in the case of temporary absence, the exit tax only lapses with retroactive effect if Germany’s right of taxation is directly re-established exactly at the time of departure.
If a German citizen who has been an income tax resi - dent in Germany for at least five of the last ten years moves to a country that is classified as a low-tax juris - diction while retaining significant economic interests in Germany, the individual will be subject to extended limited income tax liability for ten years. This means that the individual will be subject to German income tax on a more extensive list of German income sourc - es than other non-residents. Furthermore, extended limited inheritance tax liability will apply for the same period. If the emigrant makes gifts or dies during this period, the class of assets that are treated as German assets (and therefore subject to inheritance tax even if the donor and donee are non-resident) is widened, pursuant to Section 4 of the FTA. This is in addition to the standard five-year inheritance tax shadow. A further German exit tax may be triggered if, for example, a limited partner of a German GmbH & Co KG that does not qualify as a permanent establish - ment under the relevant double tax treaty terminates their German residence. The rules imposing ongoing tax liabilities on emigrants are subject to the application of any relevant double tax treaty in Germany’s wide treaty network. In 2024, Germany also introduced an exit tax on inter - est and shares in investment funds in case the historic acquisition costs per fund unit/share class exceeds the amount of EUR500,000. The above rules on the deferral of payment of the exit tax apply also to the exit tax in shares of investment funds. These new pro - visions in the German Investment Tax Act are applica - ble to cases from 31 December 2024. Transfers at death and gratuitous transfers are subject to federal inheritance and gift tax under the Inherit - ance and Gift Tax Act (IGTA). In Germany, the estate is not subject to inheritance tax, but the acquisition of the respective heir or lega - tee is; they are ultimately liable for tax on their individ - ual share of the estate. Inheritance tax also depends on the family relationship between the decedent and the heirs. Gift and Inheritance Tax General tax principles
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