Unlike Belgium, Germany has a tax regime that, among other things, taxes capital gains on shares for residents who leave the country after a while. It is referred to as the exit tax.
The conditions and modalities of this exit regime are now being tightened by means of a new bill. It is advisable, therefore, not to postpone any planned relocation for too long.
What is an exit tax?
Natural persons who are residents of Germany for a certain period of time and who are at least 1% shareholders in a domestic or foreign company, are deemed to realise capital gains on this shareholding when they move abroad. This fictitious realisation leads to taxation of the capital gains at a rate of approximately 30%.
What are the current conditions?
The German exit tax is only applicable if it relates to:
- A natural person who is domiciled or habitually resident in Germany for a period of at least 10 years.
- A natural person who is at least a 1% shareholder in a domestic or foreign company.
If both conditions aremet, a move abroad will result in the application of the exit tax. Although the shares have not been sold, it is assumed that capital gains have been realised. These capital gains on the shares are calculated on the basis of a calculation method stipulated by German law. In most cases, this results in a tax of approximately 30%.
At this point in time, however, payment of the exit tax can be delayed in certain situations, one of which occurs when a natural person moves from Germany to a country within the EU or the EEA.
If, for example, you move from Germany to Belgium, the exit tax is levied under current legislation, but you do not have to pay it immediately and it can be delayed for an indefinite or specific period. Moreover, if that is the case you will not have to deposit a guarantee and the payment delay is not subject to interest.
But remember that if you subsequently move to a country outside the EU or the EEA, or you sell your shares following your move, payment of the full exit tax will be due immediately.
Which conditions will apply from 1 January 2022?
Bills have recently been introduced to tighten the conditions and modalities associated with this German exit tax.
7 years instead of 10 years
Thus, it would suffice if a natural person had been domiciled or habitually resident in Germany for 7 years (over the past 12 years) for the exit tax to apply, i.e. 3 years less than today.
No more payment deferrals
The main change, however, concerns the payment delay, which will be abolished in the case of a move to a country within the EU or the EEA and replaced by payment of the exit tax in instalments over a period of seven years. Moreover, a guarantee will have to be paid immediately in the event of a move.
When does it take effect?
Initially, a retroactive implementation was foreseen, but based on the current texts, the new law will take effect on 1 January 2022. Until that date, a move will remain subject to the existing favourable regime. This means that if you have plans to relocate it would be advisable not to postpone them for too long.
Are you a resident of Germany, domiciled in Germany and considering a move abroad? The Estate Planning team would be happy to assist you with legal advice. Please do not hesitate to contact them.