🇩🇪Exit Tax: Tax on Departure When Changing Tax Residency (Germany, Canada, France)

Concept

A change of tax residency is rarely free. Many developed countries see a departing resident off with an exit tax: the state taxes the unrealized appreciation of assets as if you had sold them on the day you left. The logic is simple — the country where the capital grew does not want to lose the right to tax that gain merely because the owner has changed address.

Germany: Wegzugsteuer

Germany's Wegzugsteuer (§6 AStG) targets shareholdings in corporations. If a person who has been a German tax resident for at least seven of the previous twelve years holds at least 1% of a company's capital and leaves, they are deemed to have sold that stake at market value — and pay tax on the paper gain without having received a single euro for it. The 2022 reform abolished the old open-ended, interest-free deferral for moves within the EU/EEA: the tax may now be paid in seven equal annual installments without interest, though usually against security. From 1 January 2025 exit taxation was extended to units in investment funds as well — where over the previous five years the holding in the fund reached 1% or the value of the units exceeded €500,000.

Canada: departure tax

Canada applies a deemed disposition (section 128.1 ITA): on emigration a resident is treated as having sold almost all assets at market value and immediately reacquired them, and the resulting gain is taxed as an ordinary capital gain. Part of the property — Canadian real estate and pension accounts, for instance — is carved out, and payment of the tax on the remaining assets can be deferred until an actual sale by posting security and without interest. In substance this is the same exit tax under a different name.

France: l'exit tax

France's exit tax (article 167 bis CGI) applies to those who have been resident for at least six of the last ten years and hold shares worth more than €800,000 or a stake of at least 50% in a company's profits. The unrealized gain on such holdings is taxed at a flat rate (the PFU of 12.8% plus social contributions). On a move to another EU/EEA country payment is deferred automatically (sursis de paiement), and if the securities are held long enough after departure — from two to five years depending on the size of the portfolio — the tax is dropped altogether.

USA: covered expatriate

The United States has its own version — the covered expatriate regime under §877A. It catches anyone who renounces citizenship or long-term green-card status (held in eight of the last fifteen years) and crosses one of the thresholds: net worth of $2 million or more, or an average annual income tax over the past five years above the indexed amount — $206,000 for 2025 and $211,000 for 2026 (Rev. Proc. 2025-32). Such a person is then treated as having sold all their worldwide property at market value the day before departure, though the first tranche of gain is excluded — $890,000 for 2025, $910,000 for 2026. The American tax is triggered by giving up citizenship or a green card, whereas in Europe a change of tax residency is usually enough for an exit tax to apply.

ATAD: exit tax for companies

Exit taxation was devised not only for individuals. The EU Anti-Tax Avoidance Directive (ATAD, Article 5) has, since 2020, required Union states to tax unrealized gains when a company moves assets, a permanent establishment, or its very tax residency abroad. The value of the transferred property is fixed at market price and the difference from its book value is taxed as corporate profit. On a move within the EU/EEA a company may spread the payment over five equal annual installments. The logic is the same as for personal exit tax: the state takes tax on the gain created on its territory before it leaves its jurisdiction — and holding structures are especially sensitive here.

How the CJEU rewrote exit tax

Personal exit tax was once nearly buried by the Luxembourg court. In de Lasteyrie du Saillant (C-9/02, 2004) the CJEU held that immediate collection of the tax on departure was a disproportionate restriction on freedom of movement. A careful line of cases followed: National Grid Indus (C-371/10, 2011) allowed the tax to be assessed at the moment of exit but barred collecting it there and then; DMC (C-164/12, 2014) accepted that a five-year installment plan was proportionate. The most telling is Wächtler (C-581/17, 2019): a German entrepreneur moved to Switzerland, and the court held that under the EU–Switzerland free-movement agreement he could not be subjected to rules harsher than those for a move within the EU. It was this pressure that forced Germany to replace lump-sum collection with a seven-year installment plan.

Planning the exit

Exit tax does not cancel a move, but it requires you to do the arithmetic in advance. Sometimes it is cheaper to realize the gain before leaving, while your own rate still applies; sometimes to wait out the "shadow" period after the move so that a relief kicks in; sometimes to pack the assets into a holding company in advance or change the composition of the portfolio. Direction matters too: "soft" jurisdictions with favorable regimes for new residents — the Italian flat tax or the Swiss lump-sum tax — smooth the entry where the country of departure has already taken its share. But even a convenient harbor does not cancel the exit tax on the departure side, so the exit is planned from both ends at once.

Sources

• ATAD