Exit Tax: Leave Germany before your business gets big
94 comments
·August 7, 2025elephant81
I dont see how you couldn't structure this with an offshore licensing deal. Ie Irish company picks up 99% of billing, German company sends Irish company license fees etc and reduce profit of German company to zero for three years.
cm2187
IANAL, but it seems it also applies to foreign companies. Who owns the irish company? Also tax authorities tend to look very carefully at these transfer pricing arrangements as you are also potentially dodging the corporate tax rate.
kleiba
I find this website to be a much clearer resource on the issue: https://www.winheller.com/en/tax-law-tax-advisory/internatio...
olieidel
True! The purpose of my post was more to zoom in on the very specific case of people with small businesses, and not explain exit tax in general.
I wrote up another post with more generic notes on the exit tax [1] which might be a better post to compare to your link.
The minor benefit of my post is that I don't have an incentive to sell you expensive tax advice, chuckle..
WalterBright
When businesses are fleeing, you're doing something very wrong.
andsoitis
In 2024, Germany’s Total Early-Stage Entrepreneurial Activity (TEA) reached 9.8%, the highest since 1999—up 25% from the average of the previous three years. Germany ranked among the top four countries seeing the fastest growth in startup activity.
Approximately 360,000 new businesses were launched across sectors like commerce, liberal professions, and agriculture in 2024. The commercial sector accounted for around 71.7%, while liberal professions made up 26.3%, and agriculture 2.0%.
A recent Bitkom study found that 26% of tech startups are considering relocating due to insufficient access to venture capital. Only 23% believe VC conditions are adequate. Still, 79% remain confident they’ll meet funding goals.
merek
There's a note at the end
> You could, of course, sell or wind down your company, which would solve all problems outlined here. But this is not an option for most entrepreneurs.
For a software business, you could presumably:
- Incorporate a company in your country of choice
- Transfer subscribers from German company to new foreign company (depending on payments provider, this can be a massive effort, for example, not a simple form field in Stripe).
- If new company incorporated in a country you want to live in, use it to obtain an investor Visa
- German company now has 0 in revenue, wind it down and leave.
devoutsalsa
Better do it properly. Western countries have tax departments that can make your life a living hell if you do it wrong. If you have enough resources to be subject to an exit tax, I highly recommend paying for proper tax advice.
FooBarWidget
> German company now has 0 in revenue, wind it down and leave.
You forgot about employees. If German employment law is anything like the Dutch one, then it means you can't wind down the company while you have employees. They may refuse to leave. Firing them may be subject to government approval, who may also refuse.
tastyfreeze
Dumb American here but that sounds like a few steps too far in employee protections. A business can't even die without government approval?
da_chicken
It's not dumb. You're not allowed to close a business in the US until you check a lot of boxes, too. You have to show you don't have outstanding debts and so on. The banks won't let you do that because it's an easy way to escape debt. That's exactly why bankruptcy is an extended legal process.
If an employee is guaranteed X months salary upon notice of layoff in the contract, that's debt you have to resolve before you legally close. If you have a 5 year lease agreement for the property, that's also debt you have to resolve. It's exactly the same idea.
em-bee
a quick check says it isn't. you only have to consider the notice period which depends on how long people have been working there. which means you can't wind down in a hurry but there is no right to refuse to leave nor any refusal from government.
eqvinox
> And then your exit tax is calculated by taking the average of the past 3 years of earnings of that company, multiplied by 13.75 (which is crazy), and then taking 60% of that which is taxed at your personal income tax rate (likely 42%; Teileinkünfteverfahren)
This does not match the results from 5 minutes of googling, not for individuals at least. What is being taxed is the shares you're holding, as if you're selling them, which results in a tax on their increase in value compared to when you've bought them. [disclaimer: I just did a quick search on this, I'm not a tax consultant or lawyer.]
I haven't looked for the regulations on companies moving their headquarters away from Germany. It's possible those rules are the above, and the author confused them with the rules for individuals.
Either way, if the author believes they're right, they should dig up some citations. There are none in that article. Is this based on advice they've received? Did they do their own research? Are they a tax consultant or lawyer? 13.75 is a very "spottable" number, how about a link to the law that has that number?
olieidel
Author here. Sure, here are the sources:
- First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
- The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
- Factor 13.75 is defined in Bewertungsgesetz (BewG), § 203 Kapitalisierungsfaktor [3]
- The tax rate of 42% is the marginal tax rate in Germany (at least below €250k income, beyond that it's 45%) - so the assumption here is that, in the year in which you leave Germany, you've already had some salary income (say, €90k) which bumps you into the marginal tax rate for any additional income on top of that.
[1] https://www.gesetze-im-internet.de/astg/__6.html
eqvinox
> - First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
You're misreading that law. It says moving away is equivalent to selling shares and that §17 EStG is applicable. Which in turn says:
(2) Veräußerungsgewinn im Sinne des Absatzes 1 ist der Betrag, um den der Veräußerungspreis nach Abzug der Veräußerungskosten die Anschaffungskosten übersteigt.
> - The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
§199 BewG says "…kann das vereinfachte Ertragswertverfahren (§ 200) angewendet werden, wenn dieses nicht zu offensichtlich unzutreffenden Ergebnissen führt."
Key phrase there being "kann". It doesn't have to. You can probably sue against it getting applied, if they're really insisting on it. And note §11 BewG says:
"…so ist er unter Berücksichtigung der Ertragsaussichten der Kapitalgesellschaft oder einer anderen anerkannten, auch im gewöhnlichen Geschäftsverkehr für nichtsteuerliche Zwecke üblichen Methode zu ermitteln; dabei ist die Methode anzuwenden, die ein Erwerber der Bemessung des Kaufpreises zu Grunde legen würde…"
So, finding a reasonable method that a buyer would use to determine the values of the shares is explicitly pointed out.
olieidel
Good points!
1. Yeah, valid - I was assuming the default case of "you founded your company in Germany and are moving away at some stage". In that case, you could deduct the initial share capital (often €25k) from the valuation, as that was your "purchase price". In most cases, that doesn't lead to a significantly different outcome.
But yeah, if you actually bought shares of an existing company at a certain (higher) price, than of course the "taxable delta" might change your calculation.
In that respect, I was wrong as I assumed everything would get taxed. This is only roughly the case when you founded the company yourself in Germany, as mentioned above. Thanks for the correction!
2. True! As mentioned in my post, you can also pay someone to assess the value of your shares, which would most likely result in a valuation lower than 13.75x. You will have the additional costs of getting that assessment though, and you'll have to convince the authorities that your assessment is closer to the truth than the default valuation which is based on 13.75x.
1R053
While that number seems to be not a general value, the "Wegzugsbesteuerung" still is significant.
https://de.wikipedia.org/wiki/Wegzugsbesteuerung
Essentially, it assumes you sell your assets at market value and taxes the difference to your expenses for it.
eqvinox
That's what I was trying to say ("What is being taxed is the shares you're holding, as if you're selling them,") … did I word that poorly/confusingly?
jansan
They basically treat you as if you sold your shares or company when leaving the country. If you run a one man company that is currently making a good profit, this can become really expensive.
olieidel
Exactly. And they, by default, use a very high multiple (13.75) for calculating the value of your shares.
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rvz
I wasn't joking at all when I previously said in [0], moves like this is how to lose and now this is another reason why tech founders do not start companies in Europe and when a company gets too big, especially in Germany.
Just don't be surprised to see a decline in tax revenue when countries like Germany chase the wealth creators out of the country with high taxes + exit taxes.
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Blackarea
Berlin wall of tax? Seriously? Nobody gets shot trying to cross the border here and it's clear that the ones who can afford a decent financial advisory will get around most of the regulations anyways. I don't see how this business economist whining belongs on hn.
alephnerd
Something I've noticed with German business law is that it is very much structured in such a way that if you aren't an incumbent player, you are essentially incentivized to be absorbed by them.
In the US we do have issues with businesses, but it's not like the Bosch, Thyssen, or Tschira family are any less unethical.
The level of hierarchy I've noticed in German firms and founders is insane to say the least. I'd love to do some quantitative research into this, but I haven't been in academia or policy for years now.
tdullien
German here. I fully agree that German companies tend to be crazy hierarchical.
fersarr
Does this apply to non-resident owners/founders (big shareholders that don't live in Germany) of German companies when they sell their shares?
Oli (Oliver? Not sure which you prefer, which I realize now I should have asked a long time ago in our first call) -
Just wanted to reiterate that I really appreciate what you have done with both OpenRegulatory and Formwork, as it was a big unlock for one of the companies I helped a few years ago as we navigated our way into the QMS / FDA / med. reg. world.
While reading this as a many-times-over-founder myself, I deeply felt multiple emotions which this would bring upon me if I were in your shoes after all the work I know you’ve put in.
I hope you are able to navigate this to a happy / successful outcome for yourself and any others involved for the relevant compan(y/ies)!
I am grateful for what you have contributed over the years on the software and documentation fronts with OpenRegulatory and Formwork both.