Anyone who has split their business into an operating GmbH and privately held real estate and wishes to move abroad faces a question that goes far beyond the usual exit taxation: what happens to a business split (Betriebsaufspaltung) on emigration, and which taxes arise? The short answer is: emigration does not in itself end the business split, but it fundamentally changes its tax treatment. The business income from letting the property becomes income subject to limited tax liability, the GmbH shares come into the focus of the taxation of deemed disposals (Entstrickung), and a wrong step can reveal all hidden reserves at once. This article sets out the legal position (as of September 2026), typical mistakes and the deadlines you should keep in mind before moving.
What Characterises a Business Split
The business split is not expressly regulated by statute. It is based on decades of case law of the Federal Fiscal Court (Bundesfinanzhof, BFH), which the Federal Constitutional Court has found to be constitutionally unobjectionable. It exists where a property-holding enterprise (Besitzunternehmen, for example a sole proprietor, a civil-law partnership or another partnership) makes an essential business asset available to an operating company, usually a GmbH, and both enterprises are controlled by the same persons. Two features must be present together:
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| Feature | Content | Typical examples |
|---|---|---|
| Material interlinking (sachliche Verflechtung) | The property-holding enterprise makes at least one essential business asset available to the operating company, even free of charge | Business premises, factory building, key machinery, patent, trademark |
| Personal interlinking (personelle Verflechtung) | The same person or group of persons can impose their will in both enterprises (identity of control) | Sole shareholder, majority shareholder, closed group of shareholders with aligned interests |
The consequence: the property-holding enterprise earns business income instead of income from letting and leasing, and the assets made available are business assets for tax purposes. Where a sole proprietor is the property-holding enterprise, the shares in the operating GmbH also form part of these business assets; in the case of a partnership, they form part of the partners’ special business assets (Sonderbetriebsvermögen). This attachment is the core of the emigration problem: everything that constitutes business assets is treated under different rules from privately held shares, which fall under the classic exit tax. More on the distinction can be found in our article on exit tax for GmbH shareholders.
Miscalculations are particularly common when it comes to control. Spouses are not treated as one person merely because they are married; the Federal Constitutional Court clarified this in 1985. Aligned interests must result from further circumstances, such as voting agreements or joint management. Anyone who looks only at the size of their own stake overlooks possible attributions.
Does Emigration End the Business Split?
No, at least not for that reason alone. In its judgment of 17 November 2020 (I R 72/16), the BFH held that the principles of the business split also apply across borders: in the case decided, a German property-holding enterprise made real estate located abroad available to a foreign operating corporation. The interlinking is based on material and personal features, not on the place of residence of those involved. If you move abroad and keep your business premises in Germany, the business split therefore, according to the prevailing view, generally continues as long as both interlinking features remain fulfilled. However, the taxation regime changes.
After emigrating, you are no longer subject to unlimited income tax liability in Germany. Whether and how giving up a German residence has an effect for tax purposes depends on the actual circumstances, not on deregistration at the residents’ registration office. The basics can be found in our article on habitual abode in German tax law.
Limited Tax Liability After Emigrating
After emigrating, only your German-source income remains subject to German taxation (limited tax liability, Section 1 (4) EStG, German Income Tax Act, in conjunction with Section 49 EStG). For the typical constellation, the picture is as follows:
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| Source of income | Treatment after emigrating (general rule) | Note |
|---|---|---|
| Rent or lease payments for the German business premises | Business income subject to limited tax liability, Section 49 (1) no. 2 (f) EStG | A sale of the property also remains taxable in Germany, irrespective of the ten-year period for private disposal transactions |
| Treaty classification of the rent | As a rule, the state where the property is located, Article 6 OECD Model Convention | Under treaty law, the rent is regarded as income from immovable property, not as business profits |
| Profit distributions by the GmbH | Limited tax liability with withholding tax on capital income, withholding tax limited under the treaty | The level of the limitation depends on the respective treaty, see German withholding tax after emigration |
| Sale of the GmbH shares | Under many treaties, the right to tax lies with the new state of residence | Clarify the deemed disposal question in advance, see below |
The classification as rental income under treaty law comes as a surprise to many entrepreneurs, because in Germany it is taxed as business income. How double taxation treaties allocate taxing rights in principle is explained in our article on double taxation agreements for German emigrants.
Trade Tax After Emigrating
Trade tax (Gewerbesteuer) requires a business operated in Germany, that is, a German permanent establishment. According to BFH case law, the mere letting of real estate does not in itself create a permanent establishment of the property-holding enterprise, and the permanent establishment of the operating company is not automatically attributed to the property-holding enterprise. Whether trade tax is still incurred after emigrating therefore depends on whether the property-holding enterprise continues to maintain a permanent establishment in Germany within the meaning of Section 12 AO (German Fiscal Code) (Section 2 (1) sentence 3 GewStG, German Trade Tax Act); a permanent representative alone is not sufficient for trade tax purposes. This should be examined before emigrating.
The Real Risk: Deemed Disposal and Discontinuation of the Business
Two events can make hidden reserves taxable in one go on emigration.
Deemed disposal. If Germany’s right to tax the gain from the sale or use of an asset is excluded or restricted, the asset is deemed to have been withdrawn (Section 4 (1) sentence 3 EStG). If, with the emigration, the place of management of your property-holding enterprise moves abroad, movable and intangible assets such as a patent or the GmbH shares may, from the tax authorities’ point of view, be allocated to a foreign permanent establishment. The real estate, by contrast, remains subject to German tax because Germany may continue to tax it as the state where it is located. A patent that you license to your GmbH therefore carries more risk than German business premises. If an asset is allocated to a permanent establishment in an EU or EEA state, a compensating item may, on application, be formed under Section 4g EStG, which is released with a profit-increasing effect by one fifth each in the year of formation and in the four following years. Whether and how this spreading applies to your emigration must be examined in the individual case.
Discontinuation of the business. If one of the two interlinking features ceases to exist, the business split ends and the property-holding enterprise is, as a rule, deemed to have been discontinued (Betriebsaufgabe, Section 16 (3) EStG). In that case, all hidden reserves of the assets made available are generally revealed, and the GmbH shares pass into private assets, where they will in future be treated under Section 17 EStG, unless, for example, a deemed commercial character (gewerbliche Prägung) or the lessor’s option (Verpächterwahlrecht) applies. The trigger need not be a sale of the property: a sale of shares in the course of emigration, a gift of shares to children or the liquidation of the GmbH can also end the personal interlinking.
And the Classic Exit Tax under Section 6 AStG?
Exit taxation under Section 6 AStG (German Foreign Tax Act) concerns shares in corporations with a shareholding of at least one per cent within the last five years, where you were subject to unlimited tax liability for at least seven years in the twelve years before emigrating. It treats the shares as if they had been sold at their fair market value (gemeiner Wert). In a genuine business split, however, the shares are held as business assets, so that the deemed disposal rules of the Income Tax Act are regularly at the forefront. The interaction is important: anyone who moves shares from business assets into private assets in order to avoid the deemed disposal problem may fall within the scope of Section 6 AStG. Both sets of rules must therefore be considered together.
The key points of Section 6 AStG in the version following the ATAD Implementation Act (ATAD-Umsetzungsgesetz) (emigrations from 1 January 2022):
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| Point | Rule |
|---|---|
| Personal requirement | At least seven years of unlimited tax liability in the last twelve years (Section 6 (2) AStG) |
| Shareholding | At least 1 % within the last five years |
| Basis of assessment | Fair market value less acquisition costs, taxation under the partial income method (Teileinkünfteverfahren) |
| Payment | On application in seven equal annual instalments, as a rule only against the provision of security (Section 6 (4) AStG) |
| Return | In the case of a merely temporary absence, the tax lapses if you become subject to unlimited tax liability again within seven years, the shares have in the meantime been neither sold, transferred nor contributed to business assets, and no distributions or repayments of contributions exceeding one quarter of the value have been made; extension by a maximum of five years if the intention to return continues (Section 6 (3) AStG) |
In addition, in its judgment of 6 September 2023 (I R 35/20) concerning an emigration to Switzerland in 2011, the BFH held that the exit tax must be assessed but, because of the Agreement on the Free Movement of Persons with Switzerland, must be deferred interest-free until the actual sale. The specialist literature infers from this that the instalment payment in force since 2022 could also be open to challenge under EU law. How this affects emigrations from 2022 onwards is an open question. Anyone who receives an assessment should therefore have it professionally reviewed before paying.
Example: When the Sale of the GmbH After Emigrating Reveals the Reserves
Example (entirely fictitious, for illustration only): Thomas holds all the shares in his metal construction GmbH and owns the business premises, which he lets to the GmbH. The property is recorded in the books at EUR 250,000; its market value is EUR 1,000,000. Thomas moves abroad, the property remains in Germany, and the business split continues. Two years later, he sells the GmbH shares to an investor. With the sale of the shares, the personal interlinking ceases. The property-holding enterprise is, as a rule, deemed to have been discontinued, and the hidden reserves in the property of EUR 750,000 are taxable in Germany, even though the property was not sold and Thomas receives no cash from it. As a person subject to limited tax liability, he cannot claim the allowance under Section 16 (4) EStG (Section 50 (1) sentence 4 EStG). Whether a tax rate reduction under Section 34 EStG comes into consideration depends on the further requirements; the reduced tax rate under Section 34 (3) EStG requires, for example, that the taxpayer has reached the age of 55 or is permanently unable to work. Where the amount ends up for tax purposes is therefore decided not by the emigration alone, but by the order of the steps.
Planning Options Before Emigrating
All structures require an examination in the individual case. This is about legitimate tax planning, not concealment. Frequently discussed approaches:
- Contribution of the property-holding enterprise to a corporation. If an entire business, a part of a business or a partnership interest is contributed, continuation at book value may be possible under the conditions of Section 20 UmwStG (German Reorganisation Tax Act). The hidden reserves are not realised but shifted. The contribution of individual assets at book value, by contrast, is generally not possible.
- Deemed commercial character of the property-holding partnership. A partnership in which only corporations are involved as general partners and only these are authorised to manage the business is deemed by law to be commercial (Section 15 (3) no. 2 EStG). If the interlinking ends, there is then no immediate discontinuation of the business. However, the structure must be maintained permanently.
- Deliberate unwinding in the right order. Transferring shares to third parties or family members can remove the personal interlinking, but in the event of a discontinuation of the business it triggers the revelation of reserves. Without a prior review, this can lead to an unintended revelation of hidden reserves.
- Unclear legal position: obtain a binding ruling. Because the highest court has not decided whether the business split survives the mere emigration of the owner of the property-holding enterprise, an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89(2) of the German Fiscal Code, AO) should come before any implementation. For a precisely defined transaction that has not yet been carried out, the ruling binds the tax office to the assessment given, and it is subject to a fee; it does not replace the planning of the facts. In our view, a tax adviser who does not recommend this in such a situation is acting irresponsibly: the client risks having to litigate over the outcome years later, which costs time and money.
- Succession instead of discontinuation. If the split is continued until the succession, it can continue with the heirs. This is a succession question; on this, see business succession and the shareholder’s emigration.
The structure of reducing the shareholding below the control threshold is particularly error-prone, because voting agreements and pooling agreements can attribute third-party votes. Merely distributing the shares among family members does not necessarily change anything either.
Further Points That Are Often Forgotten
Apart from taxes, questions arise that in practice often remain unresolved up to the date of emigration:
- Management. Anyone who moves abroad as managing director of the GmbH can raise questions of permanent establishment and liability, see the managing director’s liability when relocating abroad. If the place of management of the GmbH is moved, the rules on moving a company’s registered office abroad also apply.
- Lease agreement and appropriateness. The rent must be at arm’s length. Excessive rent can be treated as a constructive dividend (verdeckte Gewinnausschüttung), while rent that is too low shifts the result into the GmbH.
- Certificate of residence. To obtain treaty benefits, you usually need a certificate from your new state of residence, see certificate of tax residence.
- Loss carryforwards. Losses of the property-holding enterprise may be forfeited on emigration or be usable only to a limited extent; on this, see loss carryforwards when emigrating.
- Later sale of the property. If the business premises are sold after emigrating, Germany retains the right to tax. The special features of selling real estate can be found in our article on selling German property before emigrating.
- Foreign tax. How the new state of residence treats the income is governed by that country’s law and must be clarified with a local adviser.
Typical Mistakes in Practice
- Emigrating without taking stock. Many entrepreneurs do not know that they have a business split, because the rent has been declared for years as rental income. Before emigrating, a list of the assets made available belongs on the table.
- Sale of shares and emigration in the wrong order. Selling the GmbH only after emigrating does not automatically produce a better result. The order determines the timing, residence and the right to tax.
- Treaty thinking instead of examining the statute. A treaty only allocates the right to tax. Whether Germany first applies a deemed disposal is governed by domestic law.
- Looking only at the property. Patents, trademarks and machinery are often overlooked, even though they carry the greater deemed disposal risk on emigration.
- Voluntary changes during the return period. Anyone who expects to return must not change the shareholding structure, otherwise the return rule under Section 6 (3) AStG may cease to apply.
Checklist Before Emigrating
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| Step | Question |
|---|---|
| 1 | Is there material and personal interlinking, including via spouses, children, pooling agreements or holding structures? |
| 2 | Which assets are made available, and what are their book value and market value? |
| 3 | Are the GmbH shares business assets, and what is their value? |
| 4 | Does a German permanent establishment or a representative remain? |
| 5 | Does Section 6 AStG apply (seven out of twelve years, one per cent within five years)? |
| 6 | Which further steps are planned (sale, gift, restructuring)? |
| 7 | How is liquidity ensured if tax arises without sale proceeds? |
| 8 | Is a binding ruling advisable? |
| 9 | Which period applies for a return, and which actions must be avoided in the meantime? |
Conclusion
Emigration does not in itself end a business split, but it changes the taxation of the rent and brings shares and movable assets within the scope of the deemed disposal rules. It is particularly consequential if one of the two interlinkings ceases to exist and, as a rule, all hidden reserves thereby become taxable at once. Anyone planning such a move should record the structure before deregistering, determine the order of the steps and know the deadlines of Section 6 AStG.
FAQ
Does emigrating abroad end the business split?
Not automatically. According to the BFH judgment of 17 November 2020 (I R 72/16), a business split is also possible across borders. It generally continues as long as material and personal interlinking exist. The taxation regime changes, however, because after emigrating you are only subject to limited tax liability.
Is the business property subject to a taxable deemed disposal on emigration?
Real estate located in Germany remains subject to German tax, so that a deemed disposal is generally not the main issue here. Movable and intangible assets and the GmbH shares carry more risk. The individual case must be examined.
Does exit tax under Section 6 AStG also apply to a business split?
At its core, the provision covers shares held as private assets. If the shares are business assets of the property-holding enterprise, the deemed disposal rules take precedence initially. The two sets of rules interact, for example where shares are transferred into private assets.
Can I pay the tax in instalments?
For exit tax under Section 6 AStG, subsection (4) provides for seven equal annual instalments on application. For deemed disposals of business assets, the compensating item under Section 4g EStG, which is released over five years, comes into consideration for transfers to a permanent establishment in the EU or EEA. Whether the requirements are met depends on the individual case.
What applies if I return to Germany later?
For exit tax under Section 6 AStG, the tax can lapse if the absence was only temporary, you become subject to unlimited tax liability again within seven years, the shares have in the meantime been neither sold, transferred nor contributed to business assets, and no distributions exceeding one quarter of the value have been made. If the intention to return continues, the period can be extended on application by a maximum of five years.
Is a sale of shares after emigrating a safe way out?
No. The sale ends the personal interlinking and can trigger the discontinuation of the property-holding enterprise. Whether, and in which state, the gain is taxed depends on German law and on the treaty.
Attorney Dr. Johannes Fiala has published extensively on international tax and company law and supports entrepreneurs in carefully planning emigration from a tax perspective where a business split exists, from taking stock of the interlinking and the deemed disposal questions through to the order of the steps. Please get in touch with the firm without obligation to discuss your plans in an initial consultation.
