Notes and Hacks on Germany's Exit Tax

Disclaimer as always: I’m not a tax advisor, and this is not tax advice. I’m simply sharing my notes with you so that you’ll hopefully save some time when researching your own exit tax situation in Germany (likely with a tax advisor).

Cool! With that out of the way, let’s get right into it. What is Germany’s exit tax?

Germany’s Exit Tax

As always, I like to simplify things greatly to make them easier to understand.
In the broadest sense, Germany’s exit tax applies to you if:

You hold more than 1% in a corporation (Kapitalgesellschaft). In simple terms, these often are limited liability companies e.g. a GmbH. But this is not limited to your holdings of German companies – it covers all your holdings of corporations >1%, e.g. a UK Ltd, a Singaporean Pty Ltd, a US Inc., you get the idea.
You are self-employed or run a business which is not a limited liability company (= Personengesellschaft), e.g. a as a sole proprietor (Einzelunternehmen) or as a GmbH & Co. KG.
You privately hold more than 500k€ worth in one ETF (this is new in 2025!).

Now there are some interesting distinctions, too.
Germany’s exit tax does not apply to you if:

You’re simply an employee somewhere and don’t have any sort of business and are not self-employed.
You are self-employed, but as a freelancer (Freiberufler), in simple terms “selling time for money”, e.g. as a consultant, software developer, etc.; in contrast to “selling goods”, e.g. software, which would not be a Freiberufler and would create an exit tax situation again.
You privately hold ETFs, but none of those positions are above 500k€ (it’s the purchasing price which counts, not the current value).

Let’s discuss the ETF situation first, because it’s probably the simplest.

Germany’s Exit Tax On ETFs

Starting in 2025, Germany has further increased the scope of its exit tax. While the exit tax only covered company holdings and self employment (in the broadest sense) in the past, it now also covers private holdings, specifically funds, including ETFs, in a brokerage account.

Why? From what I gather, it apparently was a tax loophole for super rich people to essentially move their own company holdings into a soon-to-be-created ETF (?) which would then be owned by them (??) and not covered by exit tax.

Anyway, it seems that normal private individuals who are simply saving up for their retirement somehow got caught in the crossfire (.. great, thank you). The idea here is this:

The exit tax applies to you on funds / ETFs where the purchase value is >= 500k€.

That’s it. So let’s say your brokerage account has holdings of €1M and it looks like this:

€1M iShares MSCI World
Nothing else.

Then yes, these holdings are hit by Germany’s exit tax. Now, if instead your brokerage account looks like this:

€333k iShares MSCI World
€333k xtrackers MSCI World
€333k Invesco MSCI World

.. then this is not subject to Germany’s exit tax. So yeah. I don’t really know what the people were thinking when they created this new law, but in any case, I guess you know what you’d have to do. Importantly, it’s the purchase price which counts, not the current valuation. So, in your brokerage account, you need the check the column which mentions the actual price you paid for those ETF shares some years ago when you purchased them. That has to be below €500k for each of your holdings. If not, sell them and balance things out.

So that’s “solved”. Moving on to the stuff I have no clue about, before moving on to even more interesting stuff..

Exit Tax On Self-Employment And Partnerships

I’m currently not self-employed and don’t have any parts in partnership companies (Personengesellschaften), therefore my knowledge here is very limited.

When leaving Germany as a tax resident, the idea here would be that you have to do something called an “Entstrickung”. This mostly boils down to getting a valuation for your assets and then paying tax on those as if you had sold those. So let’s say you’re self-employed selling software subscriptions (SaaS), then you’d have to get a dude or dudess to write up a valuation of your assets (the software) and you’d pay tax on those. Yeah, it sounds messy.

Especially where do those “assets” end? If you’re doing consulting, technically you shouldn’t be subject to exit tax because you’re a freelancer / “Freiberufler”. But maybe you do have assets? Your website? Your consulting client list? Sales funnels? I have no clue. Good luck figuring this out.

No more knowledge on this topic. I’ll move on to something I’ve done much more research on: When you own shares of corporations (Kapitalgesellschaften).

Exit Tax On Holdings Of Corporations

The most common case is this: You’ve founded a limited liability corporation (GmbH) in Germany and you own more than 1% of the shares, typically 100% if it’s entirely owned by you, or 33% or 50% if you have cofounders, you get the idea.

What would happen if you naively left Germany, without preparing anything for your exit tax situation?

The financial authorities would take the average earnings of the past 3 years, multiply that by 13.75 (an insane multiple), and that would be the valuation.
On that valuation, you’d pay ~28.5% in taxes (long version: 40% are tax-free, 60% are taxed at your personal tax rate, I assume this would be ~42-45% if you’ve already been receiving a salary).

Let’s look at an example. You’ve got a small GmbH neatly chugging along and making a consistent €100k of earnings every year.

€100k earnings * 13.75 multiple of financial authorities = €1,375M valuation
€1,375M valuation * 28.5% estimated tax rate = ~€392k exit tax.

So you’d pay almost €400k in exit tax for your company. That’s a pretty crappy situation, given that you’re not receiving any “income” at this stage, i.e. it’s not like you’ve sold your company and can use a part of those profits to pay for your exit tax. No, you keep you company and have to pay the exit tax.

So that’s the most common situation. There are all sorts of variations to this, too.

Holding Corporations

Let’s assume you own 100% of a holding corporation (typically a UG or GmbH) which itself owns 100% of your actual corporation (typically a GmbH). How does exit tax apply here?

In short, it only applies to your personal holdings, i.e. you owning more than 1% of the holding corporation. However! The value of that holding corporation includes the value of the actual corporation inside it, so.. this doesn’t result in any sort of benefit as the total sum subject to exit tax is still the same, and the process is the same, too. It’s actually slightly more complicated because now you have to calculate the value of your holding company and all its holdings.

Taking this thought further, owning a holding corporation actually might be a net drawback here. Why? Because, let’s say, you’re as semi-intelligent as I am and do some angel investments through your holding company. If your goal was to optimize your German tax situation – great idea! If, however, your goal now shifts to optimizing your exit tax situation – terrible idea! Because.. remember the 1% rule?

Let’s assume you privately do an angel investment and receive 0.5% of a company in return. Cool. Not subject to exit tax because it’s less than 1%.
However, let’s assume you do an angel investment through your holding company. You own 100% of your holding company which owns 0.5% of your angel investment. Bad luck. Exit tax applies to your ownership of your holding company and all its holdings, so the value of your angel investments is included.

It’s a bit ironic that many German tax optimizations like holding companies suddenly look like terrible ideas when considering their exit tax implications. Who would’ve thought.

Anyway, onwards. I already talked about valuations a bit, and we learned about the crazy 13.75 multiple which the German financial authorities use. This calculation actually assumes a company is profitable, which, you know, is kind of a rare thing if you’re living in the Berlin startup bubble, where startups get millions of venture capital (VC) Euros without making any significant profit. So, yeah.. what about those?

Exit Tax Valuation of VC-Funded Corporations

Let’s assume you do the typical Berlin hipster-founder startup career path:

You find a co-founder in a fancy entrepreneur bootcamp and found a GmbH, each of you owns 50%.
You create a shiny Powerpoint presentation and get one million Euros from VC investors for 10% of your company.
As always, the startup blogs pick up on this and post pictures of you posing in black jumpers in front of your fancy, empty office. They note that the valuation of your company is “ten million Euros” which technically is correct, because you just sold 10% of your company for one million Euros
(my VC / dilution math might not be 100% correct, but you get the idea)
You run your company for a few years and optimize for hyper-growth, because that’s what VCs like to see, however your company is not profitable and making losses every year.
You want to leave Germany for various reasons – maybe because your partner is from another country, or maybe because you’re tired of the non-existent public administrative infrastructure in Berlin (just saying).

So that’s the situation. How will the financial authorities value your startup? Will they take their usual factor of 13.75, which would result in a negative value as you’re making losses (will they pay you “exit tax money”?), or will they take the valuation from your VC funding round (which is rather inflated)?

I’ve talked to a few people about this, and the consensus seems to be that they indeed take the VC funding valuation. This is crazy for all sorts of reasons:

Most VC-funded startups fail, so there’s a ~95% likelihood it might be worth €0 in 5 years or so. However, this is not taken into account. It’s the valuation at the time of you leaving Germany which counts.
VC valuations tend to be rather inflated anyway. If your startup is valued €10M after a funding round, it’s usually not the case that random people message you and want to buy some shares at that crazy valuation.

So yeah. It’s the VC valuation which seems to count. The learning here is that if you’re in a VC-funded startup, your exit tax situation in Germany is not great. Or, well, the better learning would be that if you consider building a VC-funded startup, you should probably leave Germany before taking on the funding (or, you should be 100% committed to staying in Germany for the rest of your life).

Okay, so we’ve learned so far that:

The exit tax on corporations sucks.
The valuation is either 13.75 x earnings if it’s profitable, or the VC valuation is you got VC money.
On this (inflated) valuation, you’ll pay ~28.5% taxes.

So that’s a terrible situation so far.

Luckily, there are strategies to “optimize” this. Usually, they are “sold” by tax advisors with hourly rates upwards of €400. Some of it is available for free on YouTube, so here are my notes.

Tax “Optimization” Strategies For Exit Tax On Corporations

Strategy #1: Low Valuation, Pay The Tax

The interesting thing here is that you’re not bound to the 13.75x valuation. Apparently, even the financial authorities assume here that this factor is not always realistic. Instead, in the real market, many businesses are valued by a factor of 4-6 or so. Here’s the rough procedure:

Find someone who will assess the value of your business (tax advisor, auditor, etc.).
Arrive at a valuation which is lower than 13.75.
Pay the exit tax on that valuation.

There are like a million sub-aspects here which might be worth considering, e.g. how coupled is your business to you as a person? The fact that you’re moving abroad might already reduce the value of your business. How much of a CEO salary are you paying yourself? If you’re paying yourself a low salary, consider paying yourself a market rate instead and see whether your company is still profitable.

Another way to think of this would be “what would another company pay for your business” if you would try to get acquired. I would wager that in almost all cases it’s lower than a multiple of 13.75.

Let’s do another example calculation with out numbers above:

Your business has average earnings of €100k / yr for the past 3 years.
However, you haven’t been paying yourself a salary!
If you’d pay yourself a CEO salary (market rate of €120k / yr?), your company would actually not be profitable.
Accordingly, it’s valuation is zero / negative.

As always, I’m simplifying and exaggerating here, but you get the idea.

So that’s the strategy. In my research, this seems to be by far the simplest one. I like simple strategies. All others further below will be more complex, so brace for impact (and high tax advisor invoices).

Strategy #2: Convert GmbH to GmbH & Co. KG

This is a complex strategy and my research and knowledge here is very limited. Roughly speaking, here’s how it works:

You convert your GmbH to a GmbH & Co. KG. Legally, a GmbH & Co. KG is a partnership and not a corporation, so it’s not subject to exit tax.
However, this comes with prerequisites: You must prove that your GmbH & Co. KG continues to operate in Germany, e.g. by having a local Managing Director and renting local office space. Also it has to operate in a way of “Gewerbe”, so it must be more than a holding company and actually sell services, products, etc.
Also, the earnings of the GmbH & Co. KG are now no longer taxed with the corporate tax rate of ~30%, but instead with your personal tax rate. And this will be your German personal tax rate, even if you’ve moved abroad. So you’ll have to continue to file a German tax return and pay German taxes on your earnings from this company.

All in all, it’s a complex setup and my gut feeling here is that it’s only useful if your company would be worth millions and you have pretty huge earnings every year. I’d say this is mostly out of scope for most “small” GmbH owners.

By the way, there are all sorts of sub-aspects here:

What if your GmbH is in a holding company, as mentioned earlier? Converting the GmbH would be useless here as your holding company still is a GmbH. But.. can you convert your holding-GmbH into a holding – GmbH & Co. KG? The answer is yes, but the prerequisites will make this very hard.
As mentioned further above, your holding – GmbH & Co. KG will need a local managing director, local office space and it has to sell products or services. All of that doesn’t apply to “normal” holding companies, so this is only really viable for huge holding companies (think of family offices where the holding companies themselves have employees).
It gets even more complex: If you’re moving to a country which doesn’t have a double-taxation agreement with Germany, this strategy would actually work! In other words, you could do the conversion here and the prerequisites wouldn’t apply to the GmbH & Co. KG. What a mess. And this is where my knowledge ends.
What if your GmbH is in a holding company, and you want to move it out of the holding company so that you privately own it, and then convert it to a GmbH & Co. KG, then liquidate the (empty) holding company? In principle, this might work, because then you as an individual now only own a GmbH & Co. KG which most likely fulfills the prerequisites. The process of “moving out” your company from your holding would likely involve you “buying” it from your holding company, and your holding company would ultimately pay ~25% capital gains tax on that when paying out those “earnings” to you. It’s complicated. I have no clue.

Strategy #3: German Family Trust

The idea here is to set up a German family trust and then transfer all your shares of corporations into the trust. Now you’re no longer affected by exit tax, because a trust has no formal “owners” as it only owns itself.

From what I’ve heard, this is only really viable if you’re very rich, because the overhead of setting up and maintaining a trust is high.

Strategy #4: Foreign Family Trust (Usually Liechtenstein)

This is simply a variation of strategy #3. Instead of moving your shares into a German trust, you move your shares into a foreign trust which is set up e.g. in Liechtenstein (I’ve also heard about Singapore).

Sounds complex and expensive, and probably is.

Strategy #5: “Atypische Stille Beteiligung”

This is some sort of contorted construct where you purchase weird additional shares in your corporations, making exit tax not apply to your company as a whole. Probably as complicated as it sounds. At the very least, this will make the tax return situation of your company more complicated.

Strategy #6: Genossenschaft, Verein

I’ve only heard one person mentioning these strategies on YouTube. It sounds a bit like the “family trust for poor people”. The idea here is that the legal entities of a German “Genossenschaft” (collective) and “Verein” (club / association) don’t have legal “owners”, similar to a trust. So you’d found a Genossenschaft or Verein and then move all your companies into that.

I haven’t looked far into this, but my gut feeling here is that you might be entering a huge legal gray area. Well, I mean.. we already entered that legal gray area when we started talking about family trusts in Liechtenstein, but just saying. I’m not sure how “bulletproof” this concept would be compared to the family trust. There’s a certain likelihood that the financial authorities might disagree with all of this because you’re essentially abusing the whole concept of collectives and clubs. But, then again.. the same could be said for the family trust. So this is just a long way of saying “it sounds very weird, it might work, but I really have no clue, and it still sounds very weird”.

Conclusion: Germany’s Exit Tax Sucks

And those are all my notes. I hope they’re helpful for you! And, as mentioned like a hundred times already, this is not tax advice and should only serve as a starting point for your own research and seeking out professional advice. So, in that spirit, I hope I saved you some time.

A few personal words, if I may: I think Germany’s exit tax sucks. I do understand the motivations – sure, it might sound reasonable to tax people who leave the country because they’ll essentially no longer be paying taxes in Germany. But my bigger point is about the second-order effects it has, the “chilling effects”:

German founders will become very hesitant before taking on VC funding, because it will lock them into Germany for an indefinite time. Want to move to the US to expand your business? Good luck.
German would-be-founders will become very hesitant to found a business at all if they’re considering the possibility of moving to another country in a few years (e.g. for family reasons). So they’ll stay employees forever and don’t go on to found a business at all.

Both of these effects are terrible for the German economy, which is in dire need of new, innovative companies and hasn’t seen a success like the US FAANG companies in decades. And this is on top of the already significant drawbacks of founding a German GmbH: The high corporate tax rate of 30% only buys you non-existent digital infrastructure where you have to fill out paper forms and send them via snail mail, and you are faced with lots of overhead, including detailed bookkeeping requirements.

Compare this to:

Founding a US LLC: Essentially no bookkeeping requirements, 0% tax rate if the founder is non-American and resides abroad (crazy!).
Founding a Pte Ltd in Singapore: Huge tax exemptions for startups and flat tax rate of 17% afterwards, good digital infrastructure.
Founding an Estonian OÜ: Tax rate of 0% if you keep money in the company, and only pay 22% on dividends, world-leading digital infrastructure.

So.. building “tax walls” around German companies is probably the wrong way to prop up the economy. With many companies nowadays being remote-first tech companies, they can now go “shopping” in the global marketplace of jurisdictions on where to set up shop. And Germany doesn’t score well there.

That’s it! Leave a comment below if you have any questions! 🙂

Notes and Hacks on Germany’s Exit Tax