Business Succession upon a Shareholder’s Relocation Abroad: Aligning Exit Tax and Inheritance Tax Correctly

Published on 10.09.2026

Exit Tax & Business Succession

Business owners who wish to relocate abroad while also arranging the succession of their company face two questions that appear separate at first glance but are, in reality, closely interconnected. The first concerns the exit tax under § 6 of the German Foreign Tax Act (Außensteuergesetz, AStG), levied on the hidden reserves in the owner’s own shares – a separate article addresses the fundamentals of this provision in detail. The second concerns how and when the shares should pass to the next generation, and which inheritance tax relief rules apply in doing so. This article deliberately focuses on the intersection of both topics: how does a planned relocation abroad affect succession planning, and, conversely, how does an anticipated succession affect exit taxation? Not addressed here are a managing director’s personal duties of office when residing abroad – a separate article covers managing director liability upon relocation abroad.

Relocation Abroad Alone Triggers the Exit Tax – Regardless of Succession Planning

The first and most important point that many business owners overlook in succession planning: § 6 Abs. 1 Satz 1 Nr. 1 AStG attaches exclusively to the “termination of unlimited tax liability as a result of giving up one’s residence or habitual abode,” referring to the person who holds the shares at the time of relocation. Whether that person already plans to hand the company over to children or other successors one day is irrelevant to whether the tax is triggered. Anyone who emigrates while keeping their shareholding unchanged must pay fictitious tax on the hidden reserves existing at the time of relocation – regardless of whether a succession is planned in five, ten, or twenty years, or not planned at all. The valuation of the shares, deferral options, and the returning-taxpayer rule under § 6 Abs. 3 AStG are set out in detail in the article on exit tax on GmbH shareholdings and continue to apply here unchanged.

For succession planning, this means: relocation abroad is, in itself, an independent tax-triggering event that occurs irrespective of any intention to transfer the shares. Anyone who wants to keep the shares and transfer them only later pays (or defers) the exit tax on the basis of their own relocation – the later succession changes nothing about that. The real planning question is therefore: should the transfer to the next generation take place before or only after this event?

Anticipated Succession Before Relocation: Gifts Between German Tax Residents

If a shareholder transfers their shares by way of anticipated succession while both they and the recipient are subject to unlimited tax liability in Germany, § 6 AStG does not yet apply at that point: the donor does not give up their residence (no. 1), nor does the transfer pass to a person who is not subject to unlimited tax liability (no. 2). The gift is then, initially, “merely” an inheritance or gift tax event, for which the relief rules under §§ 13a, 13b of the German Inheritance and Gift Tax Act (Erbschaft- und Schenkungsteuergesetz, ErbStG) may be available – more on this in the next section.

That does not mean, however, that the recipient starts “from zero” for their own future. Under § 6 Abs. 2 AStG, individuals subject to unlimited tax liability must have been subject to unlimited tax liability for at least seven years in total within the twelve years preceding the relevant event for § 6 AStG to apply at all. For gratuitous acquisitions, the statute expressly provides: “In the case of a gratuitous acquisition of shares, the predecessor’s period of unlimited tax liability […] shall also be taken into account when calculating the period of tax liability decisive under sentence 1.” The recipient therefore inherits the donor’s periods of tax liability. A successor who has only just received the shares by way of gift is thus by no means automatically protected from the exit tax should they themselves later wish to emigrate – quite the opposite: where the donor has been resident in Germany for many years, the seven-out-of-twelve-year threshold for the successor will, as a rule, already be met on the very day of the gift.

Gifts to a Successor Already Living Abroad

The situation is different where the intended successor is already living abroad at the time of the transfer and is not subject to unlimited tax liability there. § 6 Abs. 1 Satz 1 Nr. 2 AStG expressly equates the “gratuitous transfer to a person not subject to unlimited tax liability” with the termination of unlimited tax liability. What matters here is solely the tax status of the recipient – not whether the donor themselves gives up their residence. A shareholder resident in Germany who transfers shares by way of anticipated succession to a child who has already emigrated thereby triggers, for themselves, the same fictitious disposal taxation as upon their own relocation abroad – even though they themselves remain resident in Germany.

For succession planning, this gives rise to a practically significant distinction that depends less on the chronological sequence of “before or after one’s own relocation” than on the tax residence of the parties involved at the time of transfer:

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The practical consequence: anyone planning a succession to a family member living abroad should not consider the timing of the transfer in isolation from their own relocation, but should specifically examine the tax residence of both parties at the planned time of transfer. A “quick” gift beforehand avoids the exit tax only if the successor is, at that point, actually still subject to unlimited tax liability in Germany.

Inheritance Tax Relief under §§ 13a, 13b ErbStG: Its Own Time Limits, Its Own Logic

Where the matter remains an inheritance or gift tax event, relief under §§ 13a, 13b ErbStG may be available for shares in corporations. Under § 13b Abs. 1 Nr. 3 ErbStG, shares qualify for relief if the company “has its registered office or place of management in Germany, in a member state of the European Union, or in a state of the European Economic Area at the time the tax arises (§ 9),” and the donor or decedent held a direct interest of more than 25 percent in the registered capital. If the shareholder’s own interest falls below this threshold, the minimum participation quota can be reached by way of a pooling agreement: several shareholders can aggregate their shares “if the decedent or donor and the other shareholders are mutually obligated to dispose of the shares only jointly, or to transfer them exclusively to other shareholders subject to the same obligation, and to exercise voting rights uniformly vis-à-vis shareholders not bound by the agreement.”

Where the requirements are met, § 13a ErbStG grants two variants of relief:

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Both variants further require that the relief-eligible acquisition does not exceed the threshold of EUR 26 million within ten years. Above this threshold, the acquirer may choose between two mutually exclusive models: the tapering model under § 13c ErbStG, under which the relief deduction is reduced by one percentage point for each full EUR 750,000 above the EUR 26 million threshold and, under the statutory default rule (§ 13a Abs. 1 ErbStG), lapses entirely at around EUR 90 million; or the waiver model under § 28a ErbStG (a needs-based assessment of relief eligibility, Verschonungsbedarfsprüfung), under which the tax is waived in whole or in part to the extent the acquirer can demonstrably not pay it out of existing assets or assets transferred along with the acquisition. The two elections are mutually exclusive for the same acquisition; the statute expressly provides that only the election under § 13c Abs. 2 ErbStG for the tapering model is irrevocable, whereas the election under § 28a ErbStG is instead subject to its own revocation regime, involving conditions subsequent triggered by a shortfall in the wage bill, a breach of the retention period, or a substantial acquisition of assets within ten years. Neither model is explored further here. During the respective retention period, the relief deduction lapses retroactively on a pro-rata basis under § 13a Abs. 6 ErbStG if the acquirer undertakes certain “harmful dispositions” conclusively listed in the statute – in particular, the disposal of the business or of shares in a corporation, the discontinuation of the business, excess withdrawals exceeding EUR 150,000, or the removal of agreed disposal restrictions.

Retention Period and Foreign Connections: What Actually Affects the New Owner

At this point, a precise distinction is worthwhile, because two different things are frequently conflated in practice. The EU/EEA connection in § 13b Abs. 1 Nr. 3 ErbStG relates to the company’s registered office or place of management, tested at a single reference date – the date the tax arises, i.e. the date of the gift or the inheritance. It is therefore an entry requirement for the relief, not an ongoing condition throughout the retention period.

The personal residence of the new shareholder, in turn, does not appear as a separate ground in the catalogue of harmful dispositions under § 13a Abs. 6 ErbStG. Anyone who receives the shares with relief and subsequently relocates abroad themselves does not automatically lose the relief on that basis alone – provided they continue to hold the shares, undertake none of the dispositions listed in the statute, and comply with the wage bill and withdrawal limits. This is practically significant, as it runs counter to a widespread but inaccurate assumption that the relocation abroad of the heir or recipient themselves jeopardizes the inheritance tax relief.

That, however, does not settle the matter. If the new owner later actually relocates together with the business – for example, because they simultaneously become managing director and, in practice, exercise actual management from abroad – the place of management of the company within the meaning of § 10 of the German Fiscal Code (Abgabenordnung, AO) may shift; the risks associated with this are addressed in the separate article on managing director liability upon relocation abroad. Above all, however, as shown above, the new owner carries the predecessor’s periods of tax liability into their own seven-out-of-twelve-year calculation under § 6 Abs. 2 AStG: if they themselves later emigrate, the exit tax may apply to them even though they personally acquired the shares only shortly before.

Keeping Two Independent Time-Limit Regimes in View

The inheritance tax retention period and the exit tax’s seven-out-of-twelve-year rule are two legally entirely separate time-limit regimes with different connecting factors and legal consequences: one protects the relief for as long as the business substance is preserved; the other determines whether a future relocation abroad by the new owner will itself become subject to exit tax. Both run independently of one another and are not reset by the gift. Anyone planning a succession with a foreign connection should therefore think through both time limits together from the outset, rather than addressing them one after the other.

Family Pool and Foundation as a Structural Alternative

Where several family members are involved, or where there is a risk of shares becoming scattered among various successors, some of whom live abroad, bundling the shares together can be worthwhile. The pooling agreement under § 13b Abs. 1 Nr. 3 ErbStG, already mentioned above, is an inheritance-tax tool for this purpose, allowing several shareholders to aggregate their shares for the 25 percent threshold if they commit to jointly disposing of the shares and exercising voting rights uniformly. Beyond this, structural alternatives include a family pool company that centrally holds the operating shares and leaves individual family members only indirectly interested, or a family foundation that permanently decouples the succession from the personal residence decisions of individual family members. Both structures raise their own questions of corporate, foundation, and tax law that would go beyond the scope of this article; we address the establishment of a family foundation as a succession instrument in detail in a separate article.

Reviewing the Articles of Association Before Relocation Abroad

Anyone planning relocation abroad and succession together should have the articles of association (Gesellschaftsvertrag) reviewed in good time – not only once the move is already concretely imminent. This applies in particular to three points: transfer-restriction and succession clauses (Vinkulierungs- und Nachfolgeklauseln) governing whether and to whom shares may be transferred; existing or planned pooling agreements for the minimum participation quota under § 13b Abs. 1 Nr. 3 ErbStG; and the requirements for the advance deduction for family businesses under § 13a Abs. 9 ErbStG. This grants an additional deduction of up to 30 percent if the articles of association cumulatively provide for a restriction of withdrawals or distributions to no more than 37.5 percent of the reduced taxable profit, a restriction on transfer to fellow shareholders, relatives within the meaning of § 15 AO, or a family foundation, and a restriction limiting any settlement payment on withdrawal (Abfindung) to below fair market value (gemeiner Wert) – provided these provisions were already anchored at least two years before the transfer and are then complied with for twenty years thereafter. Anyone who fails to plan for this lead time can no longer make use of the advance deduction for an upcoming succession. Where the successor also remains managing director, this should also include clear rules on representation and availability, as described in the article on managing director liability upon relocation abroad.

Practical Example: Gift, Relocation Abroad, and Relief in Interaction

The following example is entirely fictional and serves illustrative purposes only; it does not describe any real case or any real person. A businesswoman holds 60 percent of a thriving GmbH (a German limited liability company, Gesellschaft mit beschränkter Haftung) domiciled in Germany. She plans to move permanently to a country outside the EU in two years and wishes to transfer 30 percent of the shares beforehand by way of anticipated succession to her son, who has already been living in the same destination country for some time and is not subject to unlimited tax liability there. In this example, the gift to the son alone would already trigger the requirements of § 6 Abs. 1 Nr. 2 AStG for the mother, even though she herself still lives in Germany at that point – because what matters is the recipient’s status, not her own residence. The remaining 30 percent would initially remain unaffected but would become subject to exit tax at the latest upon the mother’s own relocation abroad two years later. For the gift itself, it would additionally need to be examined whether, and to what extent, relief under §§ 13a, 13b ErbStG is available – the son’s residence abroad alone would not, as shown, generally stand in the way of this, so long as the company itself retains its registered office in Germany and the son undertakes no harmful disposition. Such a scenario illustrates why the timing of the gift, the successor’s residence status, and the mother’s own relocation date should be planned together, rather than one after another.

Why Early Planning Is Decisive

Forward-looking succession planning in connection with a planned relocation abroad should, in particular, include:

• clarifying whether and when an anticipated succession before one’s own relocation abroad makes sense, while donor and successor are both still subject to unlimited tax liability in Germany,
• examining the intended successor’s tax residence status at the planned time of transfer, in order to identify any unintended triggering of § 6 Abs. 1 Nr. 2 AStG,
• aligning the articles of association at an early stage with succession clauses, pooling agreements, and the requirements for the advance deduction under § 13a Abs. 9 ErbStG, given its two-year lead time,
• examining whether a family pool solution or a foundation should structurally decouple the succession from the future residence decisions of individual family members,
• monitoring the inheritance tax retention period and the successor’s exit tax seven-out-of-twelve-year period separately, but with both kept in mind together.

Conclusion

Relocation abroad and business succession cannot be viewed separately for tax purposes. A shareholder’s relocation abroad triggers taxation of hidden reserves under § 6 AStG regardless of whether a succession is planned. An anticipated succession avoids this tax so long as it is carried out while both donor and successor are subject to unlimited tax liability in Germany – if, however, it passes to a successor already resident abroad, § 6 Abs. 1 Nr. 2 AStG applies irrespective of the donor’s own residence. Inheritance tax relief under §§ 13a, 13b ErbStG follows its own rules, which attach to the company and the continuation of its business substance, not to the new owner’s residence – though, through the crediting of the predecessor’s periods of tax liability, the new owner does take on their own future exit tax risk. Anyone who thinks through these interconnections and time limits early, and aligns the articles of association with them in good time, can make relocation abroad and succession considerably more predictable from a tax perspective.

The Fiala law firm has published extensively on international tax and corporate law and assists clients in aligning relocation abroad and business succession so that exit tax, inheritance tax relief, and the provisions of the articles of association work together consistently. Please get in touch with the firm on a non-binding basis to discuss your personal succession situation in an initial consultation.