Relocating from Germany

If you decide to return to your home country from Germany or to relocate to another country, a careful analysis of tax consequences is a must. Germany and your new destination will have specific tax regulations that apply at the time of the relocation and afterwards.

If you hold shares or interest in companies or if you are a sole proprietor, the relocation can lead to the recognition of built-in capital gains, triggering exit taxes. Hence, it is important that you factor in the resulting tax liabilities now – provided that they cannot be avoided. If your destination country does not grant step-ups, you might be better off staying in Germany. In some cases, you can avoid exit taxes by returning to Germany within a designated period of time. But this requires that you take certain actions before leaving Germany and plan your return in advance.

Gift and inheritance taxes can also apply when relocating from Germany. The unlimited tax liability in these areas does not necessarily end with your German residency; you may have to take into account the life planning of yours heirs.

In addition to exit taxes, specific German tax provisions can make your life difficult in other ways. You may need to restructure your assets early on.

If you have some choice in your future country of residence, careful planning can result in tax advantages, but you should always keep in mind that non-tax factors can play an important role as well. Your total tax burden is only one criterion for your decision. My comprehensive approach drawing on advice from experts both in Germany and your destination country helps you avoid tunnel vision.

Compliance in your future country of residence can be very complex. This is particularly true for partners in a German “GmbH & Co. KG”. If the tax authorities of your new country deem the company to be fiscally transparent, the determination of the tax base can become an annual nightmare. Add this to the taxes that exceed the foreign tax credit and the idea of living abroad may lose its luster. If you already reside abroad, returning to Germany or moving to another country can provide relief, but the tax consequences and resulting compliance regulations should be carefully considered before you make your decision.