A relatively simple solution regarding exit tax consists of having a so-called "intention to return" to Germany. Put simply, you do not pay exit tax if you return to Germany within 12 years (see below).
This is mainly relevant for a move outside the EU, since for a move within the EU, the exit tax can usually be deferred indefinitely without interest anyway.
This is mainly relevant for a move outside the EU, since for a move within the EU, the exit tax can usually be deferred indefinitely without interest anyway.
In Brief
- If you intend to return to Germany within the next 12 years (7 years + 5 years extension), you can apply to have the exit tax deferred. This means you do not pay it (for now).
- However, you pay deferral interest and must provide a security deposit. Real estate and/or securities are usually accepted as security. Ironically, the tax office often does not accept your GmbH shares, even though it valued precisely these shares very highly.
- Your intention to return does not have to have existed at the time of moving away (BFH ruling of Dec 21, 2022). In the ruling, it was therefore principally sufficient to return to Germany within five years (?).
In Detail: Deferral of Exit Tax through Intention to Return
In principle, the deferral of exit tax sounds like a simple solution, especially for people who are not "rich" enough to set up one of the complex structures (foundation, KG holding, etc.).
In my conversations with other founders, this was predominantly considered by people who co-founded a startup that was valued very highly during an investment round with venture capital investors. Since the tax office takes such (sometimes absurdly) high valuations into account, it is particularly these people who look "rich" on paper, but in reality have virtually no money in their bank accounts for any exit tax costs, as they often do not even pay themselves a salary.
So, what does the concrete implementation look like here?
You have to pay attention to a few details here: You still have to calculate your exit tax, i.e., value your company shares (simplified capitalized earnings method, tax advisor costs, etc.) and the tax office will still send you a notice fixing your exit tax at a certain sum. A deferral here therefore only means that you do not have to pay it (yet). In addition, deferral interest accrues here, i.e., the amount of your exit tax increases by a few percent every year. Furthermore, the tax office usually requires a security deposit from you (real estate, securities). Specifically, this means that you register the tax office in the land register for one of your properties or that a few securities in your portfolio are "frozen" as security (= you cannot sell them).
Step by step (+ costs):
In my conversations with other founders, this was predominantly considered by people who co-founded a startup that was valued very highly during an investment round with venture capital investors. Since the tax office takes such (sometimes absurdly) high valuations into account, it is particularly these people who look "rich" on paper, but in reality have virtually no money in their bank accounts for any exit tax costs, as they often do not even pay themselves a salary.
So, what does the concrete implementation look like here?
You have to pay attention to a few details here: You still have to calculate your exit tax, i.e., value your company shares (simplified capitalized earnings method, tax advisor costs, etc.) and the tax office will still send you a notice fixing your exit tax at a certain sum. A deferral here therefore only means that you do not have to pay it (yet). In addition, deferral interest accrues here, i.e., the amount of your exit tax increases by a few percent every year. Furthermore, the tax office usually requires a security deposit from you (real estate, securities). Specifically, this means that you register the tax office in the land register for one of your properties or that a few securities in your portfolio are "frozen" as security (= you cannot sell them).
Step by step (+ costs):
- Value company shares (approx. €5k tax advisor costs per company)
- Move away and submit tax return incl. exit tax, apply for deferral
- Provide security if applicable
- Your exit tax increases annually by deferral interest (currently base interest rate + 4.5%!)
- You return to Germany and only pay the deferral interest.
Who is this solution / arrangement suitable for?
In my research, it appeared that this solution was suitable primarily for the following scenarios:
- You are moving to a country outside the EU and plan very concretely that you will return to Germany within the next few years. In addition, you only have 1-2 shareholdings in companies (otherwise high tax advisor costs, €5k per company per move).
- Your companies are not valued absurdly high, so you do not pay absurdly high deferral interest – the tax office takes the annual profit times a factor of 13.75, i.e., with an annual profit of €100k you have a company value of €1.375 million, an exit tax of approx. €364k and thus deferral interest per year (base rate 1.27% + 4.5% = 5.77%) of approx. €21k. That is actually quite a lot! With a higher company value, you pay correspondingly higher interest.
- You have some kind of security that you can offer the tax office (ideally real estate).
As you can see, these are quite specific requirements. In particular, the deferral interest rate is relatively high, so with a higher company valuation, one really has to ask oneself whether it makes sense to pay such high annual deferral interest or whether it would be better to set up one of the more complex structures (foundation, KG holding, etc.). In the end, you have to compare the costs of the individual solutions and decide.
Besides that, it is relatively easy to figure out for whom this solution does not seem optimal:
- You move within the EU – then the exit tax is deferred indefinitely and without interest anyway.
- You have more than 1-2 corporate shareholdings – even if you want to apply for a deferral, you must have each company valued by your tax advisor, which costs €5k per company per move.
- You potentially want to return to Germany and move away again multiple times – then you pay the €5k per company valuation to your tax advisor each time and have to agree on the deferral and security deposit with the tax office anew each time. Sounds like quite a lot of bureaucratic effort.
- Your company is valued so highly that the deferral interest would be so high that other solutions seem more cost-effective.
- You sell your company beforehand.
If you return to Germany within 1-2 years, there is also a "hack", which I wrote about here, which basically consists of not submitting your tax return regarding your move until you have returned to Germany. As a result, the exit tax is incurred, but you get it reimbursed immediately. This solves a similar problem (intention to return) with the restriction that one "must" return within 1-2 years.