By: Eduard Fütterer

Updated: May 6, 2025

Emigrating from Germany: What Tax Law Has to Say

Leaving Germany isn't just about packing your bags, it’s also about getting your taxes in order.

Anyone planning to emigrate from Germany must navigate a complex web of tax regulations, which are often underestimated. Depending on your assets, income types, and business holdings, relocating abroad can have serious tax implications, ranging from ongoing tax liability and exit taxation to inheritance tax considerations.

This article offers a clear and comprehensive overview of the tax consequences involved in emigrating from Germany. It is especially relevant for entrepreneurs, shareholders, and high-net-worth individuals. The goal is to help readers identify risks early, avoid common pitfalls, and make informed decisions to optimize their situation.

Table of Contents

1. Effectively Ending Unlimited Tax Liability
2. The Importance of Double Tax Treaties (DTAs)
   1. Example: Key Provisions of the Germany-Cyprus Double Tax Treaty (DTA Cyprus)
3. Limited or Extended Limited Tax Liability
4. Exit Taxation, Business Closure, and Unwinding of German Tax Jurisdiction
5. Business Valuation
6. Additional Tax Tasks After Emigration
7. Inheritance and Gift Tax After Emigration
8. Additional Tax Tasks After Emigration
9. Conclusion

Effectively Ending Unlimited Tax Liability

In most cases, relocating abroad ends your unlimited tax liability in Germany (§ 1 para. 1 of the Income Tax Act, EStG). However, this only applies if you no longer maintain a residence or habitual abode in Germany. A simple change of address isn’t enough, as Boris Becker famously learned the hard way.

The “Key Access” Rule

Despite officially relocating to Monaco, Becker still had access ("key power") to a penthouse apartment in Munich. This alone was enough for the German tax authorities to classify him as still fully taxable in Germany, ultimately leading to a conviction for tax evasion.

To avoid such a situation, you must give up all personal access to any property in Germany. This includes handing over the keys and, ideally, renting out any previously owner-occupied home on a long-term basis.

The 183-Day Rule

Additionally, make sure you don't spend more than six months per year in Germany, even across multiple visits. Otherwise, you risk being classified as having a "habitual abode" in Germany under the so-called 183-day rule.

Following these guidelines can successfully terminate your unlimited German tax liability.

The Importance of Double Tax Treaties (DTAs)

A key question when moving abroad is: Which country has the right to tax which types of income?

The answer often lies in a double taxation agreement (DTA) between Germany and your new country of residence. These bilateral treaties determine which state has the taxing rights for various types of income, such as employment, pensions, business profits, or capital gains.

Example: Key Provisions of the Germany–Cyprus Double Tax Treaty (DTA Cyprus)

What does the tax situation look like for those relocating to Cyprus? Here’s a brief overview of some important provisions under the Germany-Cyprus Double Taxation Avoidance Agreement:

Rental Income from Real Estate (Article 6 DTA)

Germany retains the right to tax income from real estate located within its borders. In Cyprus, this income is generally exempt from taxation, provided it has been effectively taxed in Germany.

Dividends (Article 10 DTA)

Dividends paid by German companies to individuals residing in Cyprus may be subject to a maximum withholding tax of 15% in Germany. Cyprus either credits this withholding tax or exempts the dividend entirely from further taxation.

Interest and Royalties (Articles 11 and 12 DTA)

Interest and royalty payments are generally taxable only in the recipient’s country of residence. Germany does not levy any withholding tax on interest or royalties for Cyprus-based individuals, making Cyprus particularly attractive for those with significant capital income.

Capital Gains (Article 13 DTA)

Gains from the sale of real estate may be taxed in the country where the property is located, in this case, Germany. This also applies to shares in companies whose assets consist primarily of real estate; Germany retains the taxing rights on these disposals.

Income from Self-Employment (Article 14 DTA)

Income from freelance or self-employed work, such as consultants, doctors, or lawyers, is typically taxed only in the country of residence (Cyprus).

However, suppose the individual maintains a fixed base in Germany (like an office or clinic). In that case, Germany has the right to tax the income attributable to that establishment.

Income from Employment (Article 15 DTA)

In general, employment income may be taxed in Germany. However, there's an exception if all of the following conditions are met:

• The individual's stay in Germany does not exceed 183 days within a 12-month period,
• The salary is paid by an employer based outside Germany, and
• The remuneration is not borne by a permanent establishment or fixed base in Germany.

Pensions and Retirement Income (Article 18 DTA)

Company pensions or retirement benefits from Germany may still be subject to German taxation under certain circumstances, especially in the case of government pensions or public sector retirement benefits.

No Special Protection Against Exit Tax

The Germany-Cyprus DTA does not include any provisions that would override Germany's exit taxation rules (§ 6 AStG - see section 4 below). This means that Germany retains the right to apply notional taxation on shares in corporations when a person relocates to Cyprus.

Conducting a thorough analysis of your income sources and how the DTA applies in each case is essential, especially when moving to Cyprus. While Cyprus offers significant tax advantages, such as the Non-Domiciliate regime for capital income, these benefits must be carefully aligned with German tax obligations.

Limited or Extended Limited Tax Liability

Limited Tax Liability - § 1 para. 4 EStG

After deregistering from Germany, individuals may become subject to limited tax liability if they continue to receive German-source income. Section 49 of the German Income Tax Act (EStG) outlines the types of income that remain taxable in Germany under this rule.

Typical cases include:

• Income from a business located in Germany
• Freelance or self-employed work carried out within Germany
• Rental income from property situated in Germany
• German pensions

Extended Limited Tax Liability - § 2 AStG

Even after leaving Germany, if you maintain economic interests in the country, such as domestic income or substantial assets, or if Germany considers you connected to a low-tax jurisdiction, you may become subject to extended limited tax liability.

This special regime can remain in effect for up to ten years after emigration, expanding the list of taxable income beyond what's covered under § 49 EStG. Examples include:

• Business income earned without a fixed place of business abroad
• Interest from savings or fixed-term deposits with German banks
• Dividends and capital gains from the sale of shares held in German brokerage accounts
• Private asset sales (e.g., vehicles, gold, or cryptocurrencies) if sold within one year of acquisition

The extended limited tax liability rule applies only if your total German-source income under limited tax liability exceeds €16,500 in a calendar year. This threshold is intended to reduce administrative burdens on both taxpayers and the German tax authorities.

However, this does not affect standard limited tax liability: those types of income are taxable from the very first euro.

With careful planning and smart structuring, it is often possible to minimize or even completely avoid limited and extended tax liability after moving abroad.

Exit Taxation, Business Closure, and Unwinding of German Tax Jurisdiction

Exit Taxation - § 6 AStG

One of the most critical tax issues for entrepreneurs is exit taxation. This applies when an individual holds at least 1% of the shares in a corporation (e.g., GmbH shares). German tax law treats this upon relocation as a fictitious sale, triggering a tax liability even though no actual sale has occurred.

Unwinding of German Tax Jurisdiction (Entstrickungsbesteuerung)

Closely related is the concept of "Unwinding of German Tax Jurisdiction," which applies to business assets that are removed from German tax jurisdiction due to relocation abroad (so-called "Entstrickung"). This can also occur when a business is transferred abroad and regulated under § 4 para. 1, sentence 3 EStG and § 12 KStG. In both cases, any hidden reserves must be disclosed and taxed, creating a potential liquidity trap for business owners who may owe substantial tax without realizing any cash flow.

Business Sale or Closure - § 16 EStG

The sale or closure of a business also triggers an "Unwinding of German Tax Jurisdiction," meaning hidden reserves must be disclosed and taxed. A special rule applies to entrepreneurs who determine their profits using the simplified cash basis method (§ 4 para. 3 EStG). The business assets must be revalued under standard accounting rules (§ 4 para. 1 or § 5 EStG). This makes it mandatory to prepare a closing balance sheet (§ 16 para. 2 sentence 2 EStG).

When selling or winding up a business, three types of gains must typically be calculated:

1. Ongoing profits up to the date of the sale or closure
   
2. A transition gain (if switching from cash accounting to balance sheet accounting)
   
3. The capital gain from the sale or closure itself — this is the only one eligible for preferential tax treatment under the "one-fifth rule" (§ 34 EStG)

Exit taxation, business disposals, and "Unwinding of German Tax Jurisdiction" often lead to complex and far-reaching tax consequences that are not always obvious in advance.

That's why developing the right exit strategy well in advance and in close consultation with a tax advisor is essential.

Business Valuation

Before selling, closing, or relocating a business, it is necessary to value its assets, as this forms the basis for exit taxation or the "Unwinding of German Tax Jurisdiction."

There are generally two ways to determine the business's value:

1. A comprehensive valuation report by a certified auditor using market-standard methods to calculate the exact value.
   
2. A simplified earnings value method under §§ 199–203 of the German Valuation Act (BewG).
   

The choice of method depends on the size of the business and the desired level of effort.

For small businesses with profits under €150,000, the simplified method is often more advantageous. It allows for relatively straightforward ways to reduce the calculated business value.

A detailed expert valuation is usually recommended for larger companies with higher earnings.

Therefore, entrepreneurs should consider well in advance whether a sale, a transfer to a holding structure, or continuing the business abroad is the right path.

In such cases, it's also highly advisable to coordinate with a tax advisor in the destination country to ensure the most effective tax strategy across borders.

Tax Reporting Obligations Before and After Emigration

Entrepreneurs are required to complete several formal notifications and filings in connection with their emigration, including:

• Deregistration from the local residents registration office (Einwohnermeldeamt)
• Notification of the formation of a foreign company, if established before leaving Germany (not recommended!)
• Disclosure of cross-border tax arrangements (§ 138 AO), though whether this applies in the case of pure emigration is still legally debated
• Notification to the tax office and trade office of any business closure or relocation abroad
• Submission of Form WA-ESt as part of the final German income tax return

The German tax office uses Form WA-ESt to inquire about all of the above topics. It's crucial to provide truthful and complete information, as incorrect or misleading statements could lead to accusations of tax evasion or negligent tax understatement, both of which must be strictly avoided.

Inheritance and Gift Tax After Emigration

Unlimited Inheritance Tax Liability

Even after emigration, Germany may retain inheritance and gift tax jurisdiction. If you receive or make a gift within five years of leaving Germany, you may still be fully subject to German inheritance tax law. Mainly if the assets are located in Germany or you retain German citizenship (§ 2 ErbStG).

Extended Limited Inheritance Tax Liability

If the donor or deceased falls under extended limited tax liability as defined in § 2 para. 1 sentence 1 AStG also extends the scope of German inheritance and gift taxation (§ 4 AStG).

In practice, this means that inheritances or gifts made within ten years of emigration may trigger German tax, even on foreign assets, if the income from those assets would have been considered German-source income under unlimited income tax liability.

This longer-lasting tax connection is often overlooked and should be carefully factored into emigration and estate planning, especially for high-net-worth individuals.

Additional Tax Tasks After Emigration

Even after relocating abroad, several important tax-related responsibilities remain:

• Filing your final German income tax return
• Submitting ongoing tax returns if you continue to earn income from German sources
• Establishing a new center of life abroad, including a rental agreement, local bank account, and integration into a social network
• Documenting your new habitual residence

Conclusion

Emigrating from Germany is more than just a change of address, it’s a complete shift in your tax framework, with numerous obligations and potential pitfalls, particularly for entrepreneurs and high-net-worth individuals. Topics such as ending unlimited tax liability, exit tax and unwinding of German tax jurisdiction, extended limited tax liability, and even the often-overlooked inheritance tax rules after emigration clearly show moving abroad is far from trivial.

Early planning, ideally 12 to 24 months before your move, is the key to a successful, tax-efficient relocation. This is the only way to take advantage of legal structuring opportunities, avoid unexpected tax burdens, and ensure full compliance with both German and international obligations.

If you’re considering a move to Cyprus, don’t hesitate to contact us. Let’s examine your current situation and develop a personalized exit strategy that will make your transition smooth, secure, and worry-free.

That way, you can enjoy your new life abroad, including the tax benefits, without unpleasant surprises from your former home.