Exit taxation on shares in investment funds introduced

Who will be affected?

Those affected by the new exit tax on shares in investment funds are those with tax residency in Germany who have been subject to resident taxation in Germany for at least seven of the last 12 years. They must hold shares either in private assets or indirectly via an asset management partnership. Investment shares held as part of business assets are not included. To these, the current rules on exit taxation already apply.  

What kinds of investments are included?

The new rules basically only include investments that are subject to the Investment Tax Act (Investmentsteuergesetz – InvStG) on which there is a profit (calculated according to the Investment Tax Act) and if the following conditions are met: 

• the investor holds a total of ≥ 1 percent of the subscribed/issued investment shares/units (within the last five years) or
• investments with a cost of EUR 500,000 (each investment fund is considered separately) as well as
• shares in special investment funds. 

Both shares in German and foreign investment funds and special investment funds are included. 

It doesn’t matter whether the shares are kept in a German or foreign securities account. Funds in the form of a partnership don’t fall under the Investment Tax Act.

When is exit tax due? 

The new exit taxation is based on the current exit taxation of shares in corporations of ≥ 1 percent (within the last five years). 

Exit taxation will apply in the following cases: 

1. when the investor’s resident taxation ends as a result of ending their residence or habitual abode in Germany,
2. when the shares are transferred at no cost to a person who is not tax resident and  
3. when German tax law is otherwise excluded or restricted in respect of the profit from the sale of the investments. 

When is the exit tax to be paid? 

Leaving Germany is to be declared in the income tax return. Taxpayers who receive tax advice are generally to pay exit tax approx. 18 months from the end of the year in which they left the country. 

Is capital gains tax withheld?

The institution where the securities are held does not withhold capital gains tax.  

Can exit tax be suspended? 

On request, the exit tax can be paid in seven annual instalments. These are due on 31 July of each year. 

If there is the intention to return to Germany, the tax can be suspended for up to seven (or 12 years) on application. But if the person doesn’t return, it must be paid, including interest. 

The tax authorities usually only grant payment in instalments/suspending payment in return for security. There are also rules for the periods in question and duties to provide information to be complied with.  

Can exit taxation be avoided? 

Owing to this tightening of the tax rules, planning to move away should be carefully considered and arranged in advance.  

Questions about exit taxation?
We’re looking forward to hearing from you! We’ll give you advice about this tax and on leaving the country generally.