[gndk]

> Huh? Can you speak more about that?

If you give up residency in Germany and own company shares over 1%, you are taxed as if you sold them at the current value.

For private companies, this value is calculated by the tax authority with a procedure called "Vereinfachtes Ertragswertfahren" ("simplified income approach"), where they basically take the average post-tax profit of the last three years and multiply it by 13,75.

The tax you pay on that varies based on your personal circumstances (personal tax rate, church tax etc) but is around 30%.

So, the tax authority values your small company with 100k€ average yearly profit at 1,37m€ and wants you to pay roughly 400k€ exit tax for the privilege of moving out of Germany.

You already paid around 50k€ corporate tax per year to get to that 100k€ post-tax profit. And to pay out the 100k€ as dividends from the company to yourself, you pay another 25% capital gains tax on it, being left with 75k€. So to afford the exit tax, you'd have to save 100% of your profits for roughly 5 years, or less if you are able to save something from your regular salary.

This is very hard to afford under most circumstances, even with installments, and means that Germany quickly becomes a prison for even mildly successful entrepreneurs.

https://en.wikipedia.org/wiki/Expatriation_tax#Germany https://de.wikipedia.org/wiki/Vereinfachtes_Ertragswertverfa...

[tharkun__]

Thanks for the clarifications, since I don't think this is widely known (outside of entrepreneurial circles). That makes a lot of sense then.

So, as a "regular bloke" you can leave Germany for better pastures, no problem. But if you are "independently wealthy-ish", they really want to keep you there, to pay more taxes / employ people that pay taxes. Or take the money anyway, make sure they get their "capital gains taxes" so to speak?

25% capital gains tax is actually not that bad other than that Germany has no equivalent of an RRSP and TFSA. Capital gains are taxed as regular income in Canada for example. Your marginal tax rate is quite probably gonna be greater than 25%. To be fair, you only get taxed on half of the gains in many cases. Quoting https://www.wealthsimple.com/en-ca/learn/capital-gains-tax-c...:

    As of June 25, 2024, however, you will be taxed on 50% of your annual capital gains up to $250,000. For any capital gains over $250,000, that ratio increases to two-thirds, or approximately 66.67%. Here’s how that would look in real life: Suppose one year you sell stocks for $300,000 more than you paid for them. 50% of the first $250,000 of those gains ($125,000) would be taxed as income. 66.67% of the remaining $50,000 ($33,335) would be taxed as well. So on the $300,000 gain, only $158,335 counts toward your taxable income.

    For corporations and trusts, there’s no such threshold: regardless of the total capital gains, 66.67% are taxable

Like, if I was to sell my investments and move to Germany from Canada :) and let's say I had your 5 year example worth of 100k profit i.e. capital gains, to dispose of, even if you made zero other money that year for example would mean you pay $113,685 of taxes that year (in Ontario, just to make an example). That's an average tax rate of ~22.75%, marginal rate of ~53.5%.

Like it does sound like Canadian departure tax basically. And it's not just about companies as the example above shows. That was just me owning stocks. Any Canadian leaving has to pay departure tax. Basically, when you leave Canada you have to pay tax on any of your investments. A "deemed disposition". Pay taxes as if you had sold, even if you keep ownership. Which if you think about it, makes some sense. For all the country knows, you've accumulated wealth without ever paying capital gains tax, because you never sold and now you leave the country (potentially never to come back but who knows?!), and sell shortly after leaving. Leaving to a country with no capital gains taxes. A year later you come back and retire in Canada like you always planned. Deemed disposition prevents that. Makes sense actually. If you do stay in the other country afterwards, that's none of Canada's business any longer.

The good thing here is that we do have the RRSP and TFSA. So hopefully before leaving Canada I would've paid myself dividends over the years, in a tax efficient way and put those into a TFSA to grow tax free and I won't have to pay departure tax on that (or anything in an RRSP). And an RRSP would AFAIK even be tax sheltered as a "retirement account" under Canada - Germany tax treaties.

(fun thought experiment to move from each of these countries to the other :) )

[gndk]

> Pay taxes as if you had sold, even if you keep ownership. Which if you think about it, makes some sense.

It does make some sense, yea. The draconic thing is taxing you on a fictitious sale. I wouldn't have a problem with it if it was delayed until you actually sell the shares. There are actually ways to delay it, but they require a collateral.

For example if you can reasonably prove that it is a temporary absence up to 7 years when moving outside the EU, you don't have to pay the exit tax, but need to have collateral.

If you move inside the EU, the exit tax actually clashes with the EU's free movement directive and I think there are pending court cases for this up to high levels.

So if you move within the EU, you can delay indefinitely without interest, but they will still require a collateral. And if you want to leave Germany, you'll usually also want to leave the EU for the same reasons...

Switzerland is an option because due to various bilateral agreements, it is treated similarly as other EU countries.

Its funny that you mention this Canadian departure tax on stock holdings. Because just a few weeks ago the German government actually enhanced the exit tax and it now also applies if you own more than 1% OR 500k€ in a _single_ investment fund.

Supposedly this is to close loopholes around creating family-owned investment funds to get around the exit tax.

But as we all know, once a new tax is there, it will never go away. Easy enough to lower the limit or apply it to all holdings in the future.