The Great Exit: How to Properly End Your German Tax Liability in 183 Days

Let me start right off with an uncomfortable truth:

Most tax advisors will never honestly tell you how to cleanly leave Germany from a tax perspective.

Why? Because they would lose a client.

I see it differently. As someone who has taken this path and advises entrepreneurs every day, I know: Leaving Germany’s tax system is possible, legal, and often the logical next step for internationally-minded business owners.

But – and that’s a big but – it must be strategically planned and flawlessly executed.

In this article I’ll show you the complete roadmap. No sugarcoating, no tax office traps, but all the practical details you truly need.

Are you ready for the most honest tax exit guide you’ll ever read?

Why the 183-Day Rule Isnt Enough

Here comes the first shock for many of my clients:

The famous 183-day rule is only one piece of the puzzle – and often not even the most important.

The tax office looks at much more than just your physical presence. Focusing solely on this rule regularly leads to costly traps.

The Most Common Misunderstandings About Exit Taxation

Misunderstanding #1: Less than 183 days in Germany = no German tax liability

That’s not true. The 183-day rule only applies to limited tax liability – that is, if you’ve already moved your residence abroad. As long as Germany is still your tax residence, you pay German tax on your worldwide income.

Misunderstanding #2: Just deregister and leave

Dangerous. The tax office distinguishes between your habitual abode and your residence. Even after deregistration, you can remain liable if your center of life is still in Germany.

Misunderstanding #3: Registering abroad is enough

Unfortunately not. Without real substance (economic presence) in the destination country, the tax office will consider your move a sham.

What the Tax Office Really Checks

From my experience, the tax office looks at these factors:

• Family Ties: Where do spouse and children live?
• Economic Interests: Where is your main income?
• Social Relations: Where are your friends and social life?
• Assets: Where are your main assets (real estate, accounts, investments)?
• Professional Activities: Where do you conduct your main professional work?

That means: a “clean” exit strategy must address all these areas.

Correctly Assessing Tax and Habitual Residences

This gets technical, but stay with me – it’s crucial:

Your tax residence (§ 8 AO – German Fiscal Code) is wherever you hold an apartment under circumstances suggesting you will keep and use it.

Your habitual abode (§ 9 AO) is wherever you stay under circumstances suggesting you stay for more than a temporary period.

In practice, even if you give up your German apartment, you can still have a habitual abode if you regularly return and maintain essential life ties.

The magic threshold is about 6 months per year – but again, it depends on all the circumstances.

Preparation: Taking Stock Before a Tax Exit

Before you take a single step towards an exit, you need an honest assessment.

I often meet entrepreneurs who say: Richard, I just want out. I get that. But emotions are a poor advisor for tax planning.

That’s why we first look at what you truly have and what’s at stake.

Conducting an Asset Analysis and Valuation

Prepare a complete statement of assets. It may sound dull, but it’s vital for your financial survival:

Especially critical: Holdings exceeding 1% in German corporations. Here, the exit tax according to § 6 AStG applies – more on that later.

For example: a client of mine had a 15% share in his former GmbH. Market value: 2 million euros; purchase cost: 100,000 euros. Exit tax: over 700,000 euros!

That would have blown up his entire exit project.

Strategically Assessing Company Shares and Holdings

If you hold shares in German companies, things get complicated:

Option 1: Sell Before Exit
Sell your shares before moving. The gain is still taxed in Germany, but you avoid the exit tax.

Option 2: Transfer to a Holding
Set up a holding company in the destination country and transfer shares there. Caution: there are tax pitfalls in valuation.

Option 3: Deferring the Exit Tax
You can defer the exit tax under certain conditions. However, you’ll remain connected to the German tax office.

In my experience: Option 1 is usually the cleanest solution, even if it looks more expensive initially.

Timing and Tax Traps to Consider

Your timing makes or breaks your exit:

Avoid Year-End: Leaving on December 31 automatically raises questions with the tax office. It’s better to move mid-year.

Watch Out for Lock-Up Periods: After certain transactions (restructuring, share sales) there are holding periods for tax-advantaged exits.

Allow Lead Time: At least 6-12 months. Solid planning takes time.

Example: If you want to leave in 2025, begin planning by mid-2024 at the latest.

Step-by-Step Guide: Ending German Tax Liability

Now for the practical part: Here’s the exact roadmap I use with my clients:

The good news: it’s a proven process. Not so good: it requires discipline and precision.

Let’s walk through it step by step.

Phase 1: Legal Preparation (Months 1-2)

Month 1: Define Target Country and Structure

• Choose destination country based on your business model
• Check double tax treaty (DTA) between Germany and destination country
• Plan tax structure in the target country
• Clarify residence permit/visa requirements
• Engage an international tax advisor in the destination country

Month 2: Prepare German Structures

• Have company shares valued (by an independent appraiser)
• Calculate tax burden on exit
• Plan liquidity for exit tax
• Pre-approval with German tax office (if beneficial)
• Review contracts and obligations in Germany

From experience: an independent expert’s valuation is worth its weight in gold. It costs 5,000-15,000 euros but gives you legal certainty versus the tax office.

Phase 2: Asset Transfers & Structuring (Months 3-4)

Month 3: Companies and Holdings

• Set up foreign holding company
• Open bank account in destination country
• Transfer or sell shares
• Transfer intellectual property (trademarks, patents)
• Gradually transfer business activities

Month 4: Transfer Assets

• Transfer capital investments to foreign banks
• German real estate: sell or organize rental
• Review and adjust insurance policies
• Gradually move private banking activities

Important: Never transfer everything at once. The tax office treats panicked transfers with suspicion. Do it gradually over several months.

Phase 3: Relocation & Deregistration (Months 5-6)

Month 5: Prepare Physical Move

• Rent or buy home in destination country
• Hire a moving company
• Transfer household and personal belongings
• Build social contacts in target country
• Fully transfer business operations abroad

Month 6: Official Deregistration

1. Register in destination country: Register first, then deregister in Germany
2. Deregister with German registration office: With proof of new address abroad
3. Deregister with tax office: Form for “notification of departure”
4. Final return: Last tax return for the year of exit
5. Certificate of tax exemption: For foreign banks

Critical: The order matters. Register in the new country before deregistering in Germany. Otherwise you may have no legal residence – and that leads to problems.

The Critical Pitfalls When Leaving Germany

Now for the parts your current tax advisor probably never told you.

These pitfalls cost hundreds of entrepreneurs millions every year – sometimes their financial existence.

Be warned.

Understanding Exit Taxation under § 6 AStG

Exit taxation is Germanys sharpest weapon against tax emigrants.

It applies automatically if you:

• Hold more than 1% in a German corporation AND
• Were taxable in Germany for >5 out of the last 10 years AND
• Leave Germany

All latent capital gains in your holdings are deemed realized – you pay tax as if you had sold, even if you still own them.

Example Calculation:
Holding today: €2,000,000
Purchase cost: €200,000
Hidden reserves: €1.8M
Tax (about 28%): €504,000

That’s over €500,000 tax for a sale that never happened!

Lifeline: Deferral

You can defer the exit tax if relocating to an EU country. But beware: The tax debt remains, and you must file annual reports.

In my view: Deferral is just a postponement, not a solution. Usually, a pre-exit sale is best.

Managing Permanent Establishments and Nonresident Income Properly

This is especially tricky for entrepreneurs:

Even after moving, you can have German tax liability if you maintain a permanent establishment in Germany.

A permanent establishment includes:

• Fixed business premises in Germany
• Permanently authorized representatives
• Warehouses or distribution facilities
• Construction sites over 12 months

This means: Your German GmbH can cause tax issues after your move if you still run the business from Germany.

Practical tip: Appoint a local executive director with real decision-making authority. A strawman isn’t enough – tax authorities check who’s really in charge.

Strategic Use of Double Tax Treaties

Double tax treaties (DTAs) are your insurance against double taxation, but complicated and full of traps:

Tie-breaker rules:
What if both Germany and your new country claim you as a tax resident? Then the DTA’s tie-breaker rules apply:

1. Where is your permanent home?
2. Where is your centre of vital interests?
3. Where do you usually reside?
4. What is your citizenship?

Usually, point 2 – centre of vital interests – decides. So it’s crucial you really relocate your economic, family, and social ties.

Trap: Withholding tax
Even after exiting, German income can be subject to withholding tax:

Always apply for DTA relief – otherwise you leave money on the table.

Destination Countries for Tax Exit: Where You Truly Save

Now for the exciting part: Where should you go?

I’m often asked: Richard, what’s the best country for a tax exit?

My answer: There’s no best country. There’s only the one that fits you best.

Let’s look at the main options.

Dubai & UAE: The 9% Solution

Tax Facts:

• Corporate tax: 9% from profits above 375,000 AED (approx. €95,000)
• Personal income tax: 0%
• Capital gains tax: 0%
• Inheritance tax: 0%

Requirements for Tax Residency:

• At least 90 days physical presence per year
• Valid Emirates ID
• Property or long-term rental contract
• Bank account in UAE

Best for:
Dubai is great for business owners with digital models, who travel a lot and serve international clients. The infrastructure is excellent, and you can reach most of Europe within 4–6 hours.

Cons:
– High living costs (rents from €2,000–3,000/month)
– Cultural adjustment
– Substance requirements are getting stricter

One of my clients saves over €300,000 in taxes annually in Dubai – enjoying a very comfortable lifestyle.

Cyprus: EU Benefits with Tax Savings

Tax Facts:

• Income tax: Progressive up to 35%
• Corporate tax: 12.5%
• Dividends: 0% (under certain conditions)
• Capital gains: 0% (on securities)

Non-Dom Status:
As a non-domiciled person, you dont pay tax in Cyprus on foreign income that doesnt flow into Cyprus. This allows for interesting setups.

60-Day Rule:
You can become tax resident if you:

• Spend at least 60 days in Cyprus AND
• Carry out professional business in Cyprus AND
• Do not spend more than 183 days in another country AND
• Are not tax resident elsewhere

Best for:
Cyprus is ideal for business owners wishing to stay in the EU and regularly do business in Europe. Especially interesting for holding structures.

Portugal: The NHR Program

Non-Habitual Resident (NHR) Program:

• 10 years of tax advantages
• Foreign income: 0% (if taxed at source)
• Certain Portuguese income: Flat 20% tax
• Pensions from abroad: 10%

Requirements:

• At least 183 days in Portugal per year
• Tax registration in Portugal
• Not tax resident in Portugal in the last 5 years

Note: Changes from 2024:
The NHR program is being reformed. New applicants have fewer benefits. If youre considering Portugal, act quickly.

Other Options: Malta, Switzerland, Singapore

Malta:
– EU member with 35% corporate tax
– But: 6/7 refund possible (effective 5%)
– Non-dom status available
– Minimum 90 days stay required

Switzerland:
– Lump-sum taxation possible
– Very high quality of life
– But: high living costs
– Complex residence rules

Singapore:
– 17% corporate tax
– Territorial system (only local income taxed)
– Outstanding infrastructure
– But: high living costs

After the Exit: Compliance and Long-Term Security

Congratulations – you’ve left Germany for tax purposes!

But now the real work begins: securing your new tax residency in the long run.

Because a tax exit is only as strong as its sustainability.

Fulfilling Reporting Duties and Documentation

German reporting duties after exit:

• Tax return for year of exit: By 31 July of the following year
• Exit tax filings: Annually if tax is deferred
• Withholding tax requests: Apply for DTA reductions on German income
• Notifications on structural changes: Sale of shares, etc.

Documentation is vital:

Keep meticulous records of:

• Your days spent in each country
• Business activities and where carried out
• Family and social contacts
• Asset movements and their reasons
• Contracts and agreements

I recommend a digital travel log. There are apps that automatically track your stays.

Meeting Substance Requirements Long-Term

The magic word: Substance – economic presence.

Without real substance, your tax exit will eventually fail. Here are the keys:

Physical Presence:

• Meet the minimum stay requirements in your new country
• Document your presence (flight tickets, hotel bills, etc.)
• Keep a travel diary

Economic Activity:

• Conduct your main business activities from the new country
• Hold key meetings locally
• Make strategic decisions on site

Social Integration:

• Build genuine social contacts
• Get involved locally (clubs, charity, etc.)
• Use local service providers (doctors, lawyers, etc.)

Example: A client was audited after three years; though registered in Dubai, he made all major business decisions from his German home office at night. This cost him more than €800,000 in back taxes.

Avoiding the Re-entry Trap

The greatest risk lies in returning to Germany.

The 5-Year Trap:
If you return to Germany within five years, the tax office may treat your move as a sham.

This can lead to:

• Taxation of all foreign income retroactively
• 6% annual interest
• Possible tax evasion charges

Safe Return Strategies:

1. After 5 years: Only after five years is return relatively safe
2. Staggered return: First limited, then unlimited tax liability
3. Keep assets abroad: Don’t bring everything back at once
4. Get professional support: Get advice before returning

An honest assessment: Most tax emigrants underestimate how hard it is to return. Plan your exit as a permanent move.