Section 6 AStG · International Shareholdings
German exit tax: Section 6 AStG when moving out of Germany
A person who leaves Germany while owning a substantial interest in a corporation can trigger German tax on an unrealized capital gain even though no shares have been sold. Section 6 AStG treats certain departures and transfers as a deemed sale at fair market value. The rules are especially relevant for entrepreneurs, startup founders and shareholders of German GmbHs or U.S. corporations.
Basic principle
Germany can tax a deemed capital gain when a shareholder leaves the country
German exit taxation under Section 6 AStG is designed to preserve Germany's ability to tax appreciation in certain substantial shareholdings when Germany's future taxing right is lost or restricted because of a move or comparable event.
The law generally treats the shares as if they had been sold at fair market value. The taxable deemed gain is therefore based on the difference between the fair market value of the shares and their German tax basis.
Section 6(1) AStG
Three types of events can trigger German exit tax
Section 6 AStG is not limited to the classic move out of Germany. Certain gifts and other events restricting Germany's future taxing rights can also fall within the provision.
- termination of unlimited German tax liability by giving up German residence or habitual abode
- transfer without consideration to a person who is not subject to unlimited German taxation
- exclusion or restriction of Germany's right to tax a future capital gain
- valuation generally at fair market value
- tax can arise without corresponding liquidity
Section 17 EStG
The rules apply to shareholdings within the scope of Section 17 EStG
German exit tax is linked to shares within the meaning of Section 17(1) sentence 1 EStG. For an individual, a key question is therefore whether the person directly or indirectly held at least 1% of a corporation at any time during the preceding five years.
The provision can apply to both German and foreign corporations. It can therefore cover shares in a German GmbH or AG as well as shares in a U.S. corporation.
German GmbH
Founders and shareholders of German GmbHs can become subject to Section 6 AStG when leaving Germany.
U.S. Corporation
Shares in a U.S. C corporation can also constitute a qualifying substantial shareholding.
U.S. LLC
For an LLC, the German entity classification must first establish whether the LLC is treated as corporation-like or transparent.
1% threshold
Even a minority interest can trigger German exit tax
Section 6 AStG does not require majority ownership. A participation of at least 1% within the scope of Section 17 EStG can be enough.
The percentage on the departure date is not the only relevant figure. If the taxpayer held at least 1% at any time during the relevant five-year period, later dilution below 1% does not automatically eliminate Section 17 EStG exposure and therefore may not eliminate the exit-tax issue.
Seven out of twelve years
Section 6 AStG generally requires at least seven years of German tax liability within the preceding twelve years
German exit tax generally applies to individuals who were subject to unlimited German income taxation for an aggregate period of at least seven years during the twelve years preceding the triggering event.
The seven years do not necessarily have to be consecutive. The aggregate period of unlimited German tax liability within the twelve-year lookback period is relevant.
Moving into Germany
Value created before moving to Germany can later become relevant for German exit tax
The seven-out-of-twelve-years rule is particularly important for international entrepreneurs who move to Germany while already owning valuable company shares.
If the individual remains in Germany long enough and later leaves again, Section 6 AStG can generally apply to the unrealized appreciation existing at that later departure date. The German tax basis and the potential consequences of a future departure should therefore be reviewed already when moving into Germany.
Fair market value
The shareholding must be valued at the relevant exit date
Because there is no actual sale, there is often no directly observable transaction price. The fair market value of the shares must therefore be determined for German tax purposes.
For privately held companies, the valuation can become the economically most important part of the exit-tax calculation.
- review the most recent financing round
- consider current financial forecasts
- apply appropriate income or market-based valuation methods
- distinguish preferred and common shares
- consider liquidation preferences
- analyze vesting and transfer restrictions
- document the value at the actual departure date
Startup valuation
The valuation in the last funding round is not automatically the tax value of founder shares
Startup financing rounds are often completed using preferred shares while founders continue to own common shares. The price paid in the latest funding round can therefore be an important valuation indicator, but it does not necessarily represent the fair market value of the founder's shares without adjustment.
Liquidation preferences, anti-dilution rights, voting rights, vesting, transfer restrictions and the probability of an exit can all affect a defensible valuation.
Tax basis
Exit tax applies to the unrealized gain, not simply to the gross value of the shares
In simplified terms, the deemed capital gain is the fair market value of the shares less their German tax basis and other items that may be relevant under Section 17 EStG.
For founders, the original tax basis can be very low. If the value of the business has increased substantially, this can produce a large deemed gain.
Tax calculation
The deemed gain generally follows the rules of Section 17 EStG
Because Section 6 AStG is linked to Section 17 EStG, the deemed gain of an individual is generally taxed under the German partial-income method.
In principle, 60% of the tax gain is taxable at the individual's regular progressive income tax rate. The actual tax burden therefore depends on the amount of the gain and the taxpayer's other income.
Example
Simplified exit-tax example
A founder owns 20% of a corporation. The German tax basis in the shares is EUR 20,000. At the time of departure, the fair market value of the shareholding is EUR 1,020,000.
Fair Market Value
EUR 1,020,000
Tax Basis
EUR 20,000
Deemed Gain
EUR 1,000,000 before application of the partial-income method and other individual tax items.
Section 6(4) AStG
German exit tax can generally be paid in seven annual installments upon application
The assessed tax attributable to the deemed gain can generally be paid in seven equal annual installments if the taxpayer applies for the installment regime.
The installments are generally interest-free. The German tax authorities will, however, generally require security for the deferred amount.
- seven equal annual installments
- application required
- first installment generally due one month after the tax assessment is issued
- subsequent installments generally due on July 31 of each following year
- installments generally interest-free
- security is generally required
No automatic EU deferral
The current installment regime generally applies regardless of the destination country
Under the rules applicable since 2022, the ordinary installment regime no longer generally distinguishes between a move to an EU/EEA country and a move to a third country in the way the former regime did.
The seven-year installment arrangement can therefore also be requested for a move to the United States. Conversely, a move within the EU does not automatically result in an indefinite interest-free deferral.
Early acceleration
Certain events can make the remaining exit tax immediately payable
The installment regime is subject to statutory conditions. Outstanding installments can become due early if specified events occur or if ongoing reporting obligations are violated.
Sale
A later sale of the shares can accelerate the remaining exit-tax liability.
Transfer
A transfer of the shareholding can also constitute an acceleration event.
Missed Installment
Failure to pay an annual installment on time can cause the remaining amount to become due.
Reporting Obligations
Failure to comply with statutory notification requirements can jeopardize the installment regime.
Insolvency
The taxpayer's insolvency can also trigger acceleration under the statute.
Large Distributions
Distributions or returns of capital exceeding the statutory threshold can cause outstanding tax to become due.
Reporting
The installment regime creates ongoing German reporting obligations
Section 6(5) AStG requires specified acceleration events to be reported to the competent German tax office, generally within one month.
In addition, the taxpayer generally has to provide the tax office with the current address each year by July 31 and confirm that the shares continue to be attributable to the taxpayer or relevant legal successor.
Return to Germany
Exit tax can cease to apply where the move abroad is only temporary
If the departure is based on a temporary absence and the taxpayer again becomes subject to unlimited German income taxation within seven years, the exit-tax claim can cease to apply under Section 6(3) AStG if the statutory requirements are satisfied.
On application, the tax office can extend the return period by up to five additional years if the intention to return continues to exist.
Conditions for relief
The shareholding cannot be changed freely during the temporary absence
The return rule is subject to several requirements. Simply moving back to Germany does not necessarily eliminate the tax claim.
- unlimited German tax liability is re-established within the relevant period
- the shares generally have not been sold or transferred in the meantime
- the shares have not been contributed to business assets in a harmful manner
- distributions and returns of capital remain within the statutory limits
- Germany's later taxing right is restored at least to the required extent
Intent to return
A genuinely temporary foreign assignment should be documented from the beginning
If the taxpayer already expects to return to Germany after several years, the intention to return and the expected duration of the stay abroad should be documented contemporaneously.
The return rule should also be coordinated with the payment regime under Section 6(4) AStG. Depending on the circumstances, a payment deferral linked to the return provision can require separate analysis.
Germany → United States
Moving from Germany to the U.S. is a typical German exit-tax case
If a German entrepreneur or startup founder moves to the United States while holding shares within the scope of Section 17 EStG, Section 6 AStG should be reviewed before the move.
This applies both to shares in German companies and to shares in a U.S. corporation held during German tax residence.
German GmbH
A move to the United States can trigger a deemed gain on shares in a German GmbH.
Delaware C Corporation
A German-resident founder of a Delaware corporation can also fall within Section 6 AStG.
Future Startup Exit
If a company sale is expected after the move, valuation, German exit tax and later U.S. taxation can interact significantly.
Germany–U.S. tax treaty
The treaty does not automatically eliminate German exit tax
German exit tax arises from a deemed disposal connected with the loss or restriction of Germany's taxing rights. The fact that the taxpayer moves to the United States and becomes U.S. tax resident does not by itself prevent Section 6 AStG from applying.
For Germany–U.S. cases, German exit-tax rules, Section 17 EStG, the Germany–U.S. tax treaty and the U.S. taxation of a later actual sale should be analyzed together.
Basis mismatch
A German exit-tax event does not automatically produce the same tax basis in the United States
This is one of the most important issues when moving from Germany to the United States. Germany may tax a deemed gain based on fair market value at the departure date. That does not automatically mean the United States will use the same value as the taxpayer's U.S. tax basis for a later actual sale.
Without coordination, a timing and basis mismatch can create significant double-taxation issues: Germany taxes an unrealized gain on departure while the United States may later calculate the actual sale using a different basis.
U.S. founder moving to Germany
The reverse move can create a future German exit-tax exposure
A U.S. founder can move to Germany while already owning a U.S. corporation. The company may continue to appreciate during the period of German residence. If the founder later moves back to the United States or to another country, German exit tax can arise once the statutory residence-period requirement has been met.
The shareholding should therefore be documented and, where appropriate, valued when the founder initially moves to Germany. Historical U.S. tax basis records should also be preserved for future cross-border calculations.
Green card & U.S. citizenship
German exit tax and U.S. tax status are separate analyses
Whether an individual is a U.S. citizen, Green Card holder or becomes U.S. tax resident only after the move does not change the basic statutory requirements of Section 6 AStG.
The U.S. status is, however, highly relevant for later U.S. taxation, tax basis, foreign tax credits and potentially separate U.S. expatriation rules. Dual-resident taxpayers and Green Card holders therefore require coordinated analysis of both systems.
Pre-move planning
German exit tax should be calculated before the move, not after departure
Before leaving Germany, valuation, ownership structure, liquidity, sale planning and the destination country can still be incorporated into the tax planning.
Once German residence has been given up, the triggering tax event may already have occurred.
- determine German residence and the tax departure date
- identify Section 17 shareholdings
- apply the seven-out-of-twelve-years test
- determine fair market value
- model the German exit-tax liability
- plan installments and possible security
- review tax basis in the destination country
- consider a future company sale
Restructuring
A restructuring shortly before departure is not automatically tax-neutral
Before an international move, founders often establish holding companies, transfer shares or simplify corporate structures. Such steps can be useful but should be reviewed separately before implementation.
A share exchange, contribution, gift or transfer to a foreign company can itself trigger a tax realization event or affect the later exit-tax calculation.
Gifts
A gift of shares to a person abroad can also trigger Section 6 AStG
Section 6 AStG expressly covers a transfer without consideration of a qualifying shareholding to a person who is not subject to unlimited German taxation.
A gift of company shares to a child living abroad can therefore create German income-tax consequences under Section 6 AStG in addition to possible German gift-tax issues.
Foreign corporations
The location of the company does not protect against German exit tax
The decisive issue is not whether the company was formed in Germany or abroad. Section 6 AStG focuses on the shareholder's German tax position and on the qualifying shareholding.
A German taxpayer can therefore face exit tax on shares in a German GmbH as well as shares in a U.S. corporation, UK Ltd., Dutch BV or another comparable foreign corporation.
Multiple shareholdings
Each qualifying shareholding must be valued separately
If an individual owns interests in several companies, each shareholding should be tested separately under Section 17 EStG and Section 6 AStG.
Valuation, tax basis and unrealized appreciation can differ significantly between companies. One highly successful company may produce a substantial deemed gain while another investment may be worth less than its historical tax basis.
Liquidity planning
The tax calculation is only part of the problem — funding the liability can be equally important
A private startup shareholding can be worth several million euros on paper while the founder has little available cash. Financing the exit-tax liability can therefore become a central planning issue.
The installment regime, possible security requirements, planned distributions, secondary sales and a later liquidity event should be modeled together.
Review process
How a German exit-tax position is analyzed
Determine the tax departure date
We review when German residence and habitual abode end and which country becomes the taxpayer's treaty residence.
Identify relevant shareholdings
German and foreign corporations as well as direct and indirect ownership percentages are mapped.
Apply Section 17 EStG
The ownership history during the preceding five years and particularly the 1% threshold are reviewed.
Apply the seven-out-of-twelve-years test
The taxpayer's periods of unlimited German income-tax liability are documented.
Determine fair market value
The shares are valued at the relevant departure date, taking into account the specific economic rights of each share class.
Calculate the deemed gain
Fair market value, tax basis and the Section 17 EStG rules are combined to determine the German exit-tax base.
Plan payment options
The seven-year installment regime, security requirements and potential return-to-Germany relief are reviewed.
Coordinate the destination country
Tax basis, later sale, treaty issues and foreign tax treatment are coordinated with the German exit-tax position.
Documents
Information typically required for a German exit-tax calculation
Cap Table
Current and historical ownership percentages, including financing rounds.
Acquisition Documents
Formation documents, share purchases, capital contributions and other basis information.
Funding Rounds
Valuations, preferred shares, liquidation preferences and financing terms.
Financial Information
Financial statements, current management accounts, forecasts and business plans.
Residence History
Periods of unlimited German income-tax liability within the preceding twelve years.
Destination Country
Planned move date, future tax status and, where applicable, existing U.S. tax basis.
Common mistakes
What is often overlooked under German exit tax
Reviewing only German companies
Section 6 AStG can also apply to substantial interests in foreign corporations.
Underestimating the 1% threshold
A relatively small minority interest can be sufficient, and the historical ownership percentage matters.
Ignoring the seven-out-of-twelve-years rule
The duration of unlimited German tax liability is a separate statutory requirement.
Using the last funding valuation without analysis
Preferred and common shares can have materially different economic values.
Assuming an EU move is automatically deferred
The current rules generally use an application-based seven-year installment regime.
Ignoring post-departure reporting
Annual and event-driven notifications can be critical to maintaining the payment regime.
Ignoring U.S. tax basis
A German deemed sale at fair market value does not automatically create the same basis for U.S. tax purposes.
Calculating only after the move
By then the triggering event may already have occurred and important planning opportunities may have been lost.
Related guidance
Related topics
Frequently asked questions
German exit tax under Section 6 AStG
What is German exit tax?
What ownership percentage can trigger German exit tax?
Does German exit tax apply only to German GmbHs?
Can German exit tax apply to a U.S. LLC?
How long must I have been subject to German tax?
Do I need to actually sell my company?
How is the company valued?
How is the deemed gain taxed?
Can German exit tax be paid in installments?
Does the installment regime also apply when moving to the U.S.?
Is tax automatically deferred indefinitely when moving within the EU?
What happens if I later return to Germany?
Can the return period be extended?
Can I sell the shares during the temporary absence?
What reporting is required after leaving Germany?
Does the Germany–U.S. tax treaty prevent German exit tax?
Will the U.S. automatically step up my tax basis to the German exit value?
Can a gift of shares to a child living abroad trigger German exit tax?
When should German exit tax be reviewed?
Germany–U.S. Tax Planning
Are you planning to move out of Germany?
We review Section 6 AStG and Section 17 EStG, historical ownership, the seven-out-of-twelve-years test, company valuation, the partial-income method, installment payments and the return-to-Germany rules. For moves to the United States, we coordinate German exit tax with U.S. tax basis, treaty issues and taxation of a later actual sale.
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