What is exit tax and who is affected?

Wegzugsteuer is one of the more dangerous traps for higher-net-worth expats, mostly because it stays under the radar until quite late in a move.

It applies under §6 AStG (German Foreign Tax Act) when an individual who has been subject to unlimited German tax liability for at least seven of the past twelve years gives up that liability — typically by moving abroad — and holds at least 1% in a corporation. That threshold is low enough to catch many founders, executives with employer equity, and people with significant private holdings, including unlisted ones.

When the trigger applies, the German tax authorities effectively treat the move as if the shares had been sold at fair market value on the day you give up unlimited tax liability. Tax is calculated on the unrealised gains and falls due even though no actual sale happened — finding the cash to pay can be a real problem on its own.

Various deferral options exist, especially for moves within the EU/EEA, and the rules have been reformed several times over the past few years, so the current rule set always needs to be checked rather than relied on from memory.

The most useful thing to know about Wegzugsteuer is simply that it exists. Anyone with founder equity, employer equity exceeding 1%, or significant private shareholdings should put this on the agenda 1–2 years before any planned move. By the time the boxes are packed, the planning options are essentially gone — and a tax bill that could have been deferred or restructured suddenly becomes unavoidable.