The exit taxation can represent a significant financial burden when you move abroad as a business owner. In this blog post, we present two effective strategies for avoiding or minimizing exit taxation: residence management and changing the legal form to a partnership.

Option 1: Residence and Domicile Management

One of the most effective methods for avoiding exit taxation is to maintain residence or habitual abode in Germany. This requires thoughtful residence management.

Residence and Domicile Management

Through effective residence and domicile management, you can ensure that you are considered tax resident in Germany, even if you spend a significant part of your time abroad.

For example, you can avoid exit taxation but remain fully liable to tax in Germany, meaning you must declare your worldwide income in Germany.

Residence and domicile management is therefore not suitable for you if you have no interest in being tax resident in Germany or if you deliberately want to move abroad for tax reasons.

Among other things, this can be implemented through the following strategies:

Maintaining residence in Germany: It is sufficient if you own an apartment in Germany or have access to an apartment that you can use at any time. This can be your own house, a rented apartment, or even a room with relatives or friends.

Center of life or habitual residence in Germany: If you are tax resident in multiple states, i.e., for example, have a residence both in Germany and abroad, you must have your center of life or habitual residence in Germany. This means that your closer personal or economic ties remain in Germany or that you primarily stay in Germany. Family plays a significant role here.

What is crucial is that you can prove to the German tax authorities that your residence, center of life, or habitual residence is actually in Germany. This requires careful documentation of your stays and activities. We can work together with you to develop a strategy for how this can be achieved.

Option 2: Changing the Legal Form to a Partnership

Another way to avoid exit taxation would be, for example, changing from a corporation to a partnership. This can be particularly advantageous if you want to shift your business activities abroad without remaining liable to tax in Germany.

Conversion of a GmbH to a Partnership

Partnerships are not subject to exit taxation. By converting, you can avoid a high tax burden arising from your move out of Germany. The GmbH & Co. KG offers more flexibility. By transferring your GmbH shares into a holding GmbH & Co. KG, the tax rights remain in Germany, as the GmbH & Co. KG is still tax resident in Germany as a commercial enterprise. Various special features must be observed, including checking whether a double taxation agreement exists with the exit state and to what extent a substantial business operation must be maintained in Germany. This approach can prevent exit taxation. However, future profits (operating profits and capital gains) from the company are generally taxable in Germany. The conversion requires careful planning and implementation and can be associated with higher costs and administrative effort.

Conclusion

Avoiding exit taxation requires careful planning and strategic decisions. Whether you choose effective residence and domicile management or, for example, a change in legal form, it is important to consider your individual situation and possibly seek professional advice to find the best solution for you.

If you want to learn more about avoiding exit taxation or need professional support in implementing your strategy, contact us for a personalized consultation. Together we will find the optimal solution for your tax situation. We look forward to hearing from you! Book your initial consultation!