Germany–Switzerland · Moving abroad
Section 2 ErbStG · Five-year rule · BFH II R 5/20Inheritance and gift tax after moving to Switzerland
Leaving Germany and taking up residence in Switzerland does not necessarily end German inheritance and gift tax liability. For German nationals, unlimited tax liability may generally continue for five years after departure. During this period, Germany may also tax Swiss assets, including real estate, securities portfolios and shareholdings. Only after this period does the focus usually shift to limited tax liability for German domestic assets.
Personal tax liability
A change of residence alone does not determine German inheritance tax liability
When moving from Germany to Switzerland, the first question is whether the donor, deceased or recipient continues to qualify as a German resident for inheritance and gift tax purposes (“Inländer”) under section 2 of the German Inheritance and Gift Tax Act (ErbStG).
If such a personal connection exists, the acquisition is generally subject to unlimited German inheritance or gift tax liability. This may also cover assets located exclusively in Switzerland.
Only once unlimited tax liability no longer applies is it necessary to assess whether Germany may continue to impose tax on German domestic assets under limited tax liability.
Section 2(1) no. 1, second sentence, point (b) ErbStG
German nationals may continue to qualify as German residents after moving abroad
The German Inheritance and Gift Tax Act extends the definition of a German resident for German nationals who have given up their residence in Germany.
A German national who has not yet lived permanently abroad for more than five years without maintaining a residence in Germany may continue to qualify as a German resident for inheritance and gift tax purposes.
Unlimited German tax liability may therefore continue even though the person is already living in Switzerland.
- German nationality is required
- The German residence has been given up
- Permanent residence abroad has not yet exceeded five years
- No new residence has been established in Germany
- Both inheritances and gifts may be covered
- Assets located entirely in Switzerland may also be affected
The rule does not apply to everyone moving to Switzerland
This particular five-year rule expressly depends on German nationality. A person who is not a German national and leaves Germany completely therefore requires a different assessment.
Timing
Departure → Years 1 to 5 → Afterwards
The passage of time is central to succession planning. The same transfer of assets may be treated differently shortly after departure than several years later.
German residence ends
First establish the actual date on which the German residence was given up and permanent residence abroad began.
Continued unlimited tax liability
For German nationals, section 2(1) no. 1, second sentence, point (b) ErbStG may continue to bring the worldwide acquisition within German taxation.
Assess limited tax liability
Once the period of continued personal tax liability has expired, Germany may still impose tax where the acquisition includes German domestic assets under section 121 of the German Valuation Act (BewG), or another personal connecting factor exists.
The exact period must be determined from the facts
Planning should not simply rely on calendar years. Relevant factors include the actual cessation of German residence, permanent residence abroad, and the date of the subsequent gift or death giving rise to the inheritance.
German and non-German nationals
Nationality changes the assessment after departure
| Situation | German national | Non-German national |
|---|---|---|
| German residence has been given up | Assess the five-year rule under section 2(1) no. 1, second sentence, point (b) ErbStG | This particular nationality-based five-year rule generally does not apply |
| Residence is now exclusively in Switzerland | Unlimited German tax liability may nevertheless continue | Generally no continued liability solely because of the former German residence |
| Swiss assets | Generally within the scope of German tax during the period of continued liability | Generally outside limited tax liability where no other German connecting factor exists |
| German domestic assets | Limited tax liability may apply even after the period has expired | Limited tax liability may also apply |
Assess the donor’s and recipient’s nationality separately
Unlimited tax liability generally requires only one relevant personal connecting factor, either on the part of the deceased or donor, or on the part of the recipient. Both sides of the transaction must therefore be examined separately.
Scope of German taxation
Unlimited tax liability generally covers the entire acquisition
If unlimited tax liability continues under section 2 ErbStG, German taxation is not restricted to German assets.
Assets in Switzerland may also form part of the taxable acquisition. These may include Swiss real estate, bank accounts and securities portfolios, receivables and interests in Swiss companies.
Swiss real estate
A property located entirely in Switzerland may be subject to German gift tax under extended unlimited tax liability.
Swiss securities portfolio
A portfolio held with a Swiss bank may also form part of the acquisition taxable in Germany where unlimited tax liability applies.
Swiss AG shares
Interests in a Swiss corporation may likewise fall within the scope of German taxation.
Tax liability and valuation are separate questions
The fact that a Swiss asset is taxable in Germany does not determine the value at which it must be recognised. Valuation must subsequently follow the German valuation rules applicable to inheritance tax.
Inheritance or gift
The domestic five-year rule covers both, but international coordination differs
Section 2 ErbStG is relevant both to acquisitions on death and to gifts. At the international level, however, the two situations differ considerably.
| Question | Inheritance | Gift |
|---|---|---|
| Five-year rule under section 2 ErbStG | Generally relevant | Generally relevant |
| Worldwide acquisition covered by unlimited tax liability | Generally yes | Generally yes |
| Germany–Switzerland inheritance tax treaty | Assess separately | Generally does not apply to ordinary gifts |
| Swiss tax | Assess the allocation of taxing rights and the method of relief under the treaty | Assess cantonal gift tax separately |
| Section 21 ErbStG | Relevant where no overriding treaty provision prevents its application, or where the treaty provides for a tax credit | Assess whether qualifying Swiss gift tax can be credited |
For an inheritance, the analysis must go beyond section 2 ErbStG
If the domestic assessment initially establishes a German right to tax, an inheritance involving Switzerland also requires an assessment of the special Germany–Switzerland inheritance tax treaty. The treaty may restrict domestic taxing rights or determine how double taxation is prevented.
The position is different for an ordinary gift
The Germany–Switzerland inheritance tax treaty generally does not cover ordinary lifetime gifts. If Swiss gift tax is also imposed, section 21 ErbStG must be considered in particular when determining German tax relief.
Leading decision
BFH II R 5/20: moving to Switzerland does not shield a subsequent gift from German tax
A mother and son move to Switzerland, followed by a transfer of Swiss real estate
In the case decided by the German Federal Fiscal Court (BFH), both the mother and her son were German nationals. They had given up their German residences and moved to Switzerland in November 2011.
In December 2011, the mother transferred a property located in Switzerland to her son. In connection with the transfer, a lifetime usufruct under Swiss law was created in her favour.
Although both individuals were already living in Switzerland and the transferred asset was also located there, the gift remained subject to unlimited German gift tax liability.
This followed from extended unlimited tax liability under section 2(1) no. 1, second sentence, point (b) ErbStG.
The BFH upheld the rule. It held that extended unlimited gift tax liability infringes neither the general principle of equality nor the free movement of capital under EU law.
The location of the property was not decisive
The case is particularly important in practice because the donor, recipient and property already had strong connections to Switzerland. Germany’s right to tax resulted from personal tax liability within the five-year rule.
The decision has implications beyond Swiss real estate
The same underlying question of personal tax liability arises for other assets, including Swiss securities portfolios, shareholdings, receivables and other foreign assets.
After the period of continued liability
German domestic assets then become decisive
Once the five-year period has expired, unlimited German inheritance and gift tax liability generally ends if neither the donor or deceased nor the recipient has another personal connecting factor to Germany.
This does not mean, however, that Germany can no longer have any right to impose tax.
Under section 2(1) no. 3 ErbStG, limited tax liability applies where the acquisition consists of German domestic assets within the meaning of section 121 BewG, or includes a claim to their transfer.
German real estate
German real estate qualifies as German domestic assets and may therefore remain taxable after the period of continued personal liability has ended.
German corporation
Certain shareholdings in corporations with their registered office or place of management in Germany may qualify as German domestic assets.
Assets connected solely with Switzerland
Swiss real estate, Swiss bank portfolios and typical interests in Swiss companies generally do not become German domestic assets merely because a person previously lived in Germany.
Five years having elapsed does not automatically mean there is no German tax
Before a transfer, it remains necessary to assess whether the assets concerned fall within any of the categories listed in section 121 BewG.
Practical examples
How the expiry of the period may affect typical assets
| Asset | During the five-year period | After continued liability ends |
|---|---|---|
| Swiss real estate | Generally within the scope of German tax where unlimited tax liability continues | Generally does not qualify as German domestic assets merely by being located in Switzerland |
| Portfolio held with a Swiss bank | Generally included in the worldwide acquisition | Generally no limited tax liability arising solely from the portfolio being held with a Swiss bank |
| Shares in a Swiss AG | Generally taxable where unlimited tax liability applies | Typically not German domestic assets unless a specific German connecting factor exists |
| German real estate | Already covered by unlimited tax liability | Generally continues to qualify as German domestic assets under section 121 BewG |
| Qualifying shareholding in a German GmbH | Generally taxable where unlimited tax liability applies | May continue to qualify as German domestic assets under section 121 BewG |
Swiss gift tax
When Switzerland also imposes tax during the five-year period
A gift may be taxable in Germany under the German five-year rule and simultaneously be subject to gift tax under the applicable Swiss cantonal law.
Because the special Germany–Switzerland inheritance tax treaty generally does not cover ordinary gifts, any double taxation usually has to be addressed outside the treaty.
Swiss gift tax and section 21 ErbStG
In II R 54/09, the Federal Fiscal Court considered a case in which the donor lived in the canton of Ticino and made cash gifts to her son, who was subject to tax in Germany.
The decision confirms that qualifying foreign gift tax may generally be credited against German tax under section 21 ErbStG where the statutory requirements are met.
A tax credit does not automatically provide full relief
The requirements of section 21 ErbStG, the assets concerned, the Swiss tax assessed and paid, and the German tax burden must all be examined in the specific case.
Distinguishing the rules
The ErbStG five-year rule is different from exit taxation under section 6 AStG
When moving to Switzerland, two entirely different tax systems are often confused: continued inheritance and gift tax liability, and exit taxation under section 6 of the German Foreign Tax Act (AStG).
| Section 2 ErbStG | Section 6 AStG | |
|---|---|---|
| Type of tax | Inheritance and gift tax | Income tax |
| Trigger | A subsequent acquisition by inheritance or gift | In particular, the end of unlimited tax liability where qualifying shareholdings are held |
| Subject matter | Assets acquired by the recipient | Appreciation in the value of certain corporate shareholdings |
| Timing | Death or completion of the gift | Generally at departure or upon another statutory trigger |
| Five-year rule | A special period of continued liability for German nationals | A different system with its own requirements |
Both systems may be relevant to the same relocation
Someone who holds relevant corporate shareholdings and later intends to transfer assets to the next generation must examine both income tax exit taxation and continued inheritance and gift tax liability separately.
Succession planning
Why the timing of a gift after departure can be decisive
Anyone already planning a permanent move to Switzerland should consider major asset transfers together with the timing of the relocation.
A gift made a few months after departure may be fully within the scope of German tax under extended unlimited tax liability. Once the statutory period of continued liability expires, the German tax position for assets connected solely with Switzerland may change fundamentally.
Departure
Document the date and actual cessation of German residence.
Individuals
Check the nationality, residences and periods of stay of the donor and recipient.
Assets
Classify Swiss and German assets separately.
Timing
Compare the tax consequences of transferring assets during and after the period of continued liability.
Tax planning must consider more than the five-year period
Changes in value, personal allowances, Swiss cantonal taxes, German domestic assets, valuation and, where applicable, exit taxation under section 6 AStG must also be included in the overall planning.
Assessment sequence
Assess an inheritance or gift after departure in eight steps
Residence
Establish when German residence ended and Swiss residence began.
Nationality
Check whether the donor, deceased or recipient holds German nationality.
Period
Determine the exact period covered by the five-year rule under section 2 ErbStG.
Tax liability
Establish whether unlimited or limited German tax liability applies.
Assets
Distinguish Swiss assets from German domestic assets under section 121 BewG.
Type of acquisition
Distinguish inheritances from gifts because the treaty treatment differs.
Switzerland
Assess Swiss inheritance or gift tax at cantonal level.
Relief
Assess the treaty or section 21 ErbStG for relief from double taxation.
Documentation
Information needed for the assessment
Departure date
Deregistration, giving up the home, rental or purchase documents and the actual move.
Nationality
The nationality of everyone involved in the acquisition.
Swiss residence
The start of the stay, residence and, where applicable, cantonal tax documentation.
Asset overview
Real estate, portfolios, company interests, receivables and other assets.
German assets
In particular, real estate, businesses and shareholdings that may qualify as German domestic assets.
Swiss tax
Cantonal assessments and proof of payment for transfers already completed.
Frequently asked questions
Inheritance and gift tax after moving to Switzerland
Does German inheritance tax liability end when I move to Switzerland?
Does the five-year rule apply to everyone leaving Germany?
Can Germany still tax Swiss real estate after departure?
Does this also apply to a portfolio held with a Swiss bank?
What happens after the five-year period expires?
Does German real estate remain taxable after the period expires?
Are Swiss AG shares German domestic assets after the five-year period?
Does the Germany–Switzerland inheritance tax treaty apply during the five-year period?
Does the inheritance tax treaty also apply to gifts?
What did the BFH decide in II R 5/20?
Can Swiss gift tax be credited against German tax?
Is the five-year rule the same as exit taxation?
Should I simply wait five years before making a gift?
Further reading
Relocation, inheritance & gifts between Germany and Switzerland
Germany–Switzerland tax advice
Have you moved to Switzerland and are planning an inheritance or gift?
We assess German tax liability after departure, the five-year rule under section 2 ErbStG, German domestic assets under section 121 BewG, Swiss real estate, portfolios and shareholdings, the Germany–Switzerland inheritance tax treaty, potential Swiss gift tax and credits under section 21 ErbStG, and the distinction from exit taxation under section 6 AStG.
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