Anyone who leaves Germany and moves to a low-tax state does not automatically disappear from the German tax office’s view. The extended limited tax liability (erweiterte beschränkte Steuerpflicht) under Section 2 of the Foreign Tax Act (Außensteuergesetz, AStG) can keep German nationals liable to tax in Germany for up to ten years after their departure, on considerably more income than ordinary limited tax liability provides for. Those mainly affected are emigrants who keep shareholdings, bank balances, securities or real estate in Germany. This article explains the requirements and legal consequences on the basis of the statutory wording, the connection with Sections 4 and 5 AStG and typical mistakes. The legal position is as at October 2026.
Starting Point: The End of Unlimited Tax Liability
Section 2 AStG requires that unlimited tax liability under Section 1 (1) sentence 1 of the Income Tax Act (Einkommensteuergesetz, EStG) has ended, i.e. that residence (Wohnsitz) and habitual abode (gewöhnlicher Aufenthalt) in Germany have been given up. Anyone who keeps a home in Germany that is available for use at any time generally remains subject to unlimited tax liability. When a residence or habitual abode exists is explained in the article on habitual abode in German tax law.
After that, ordinary limited tax liability (beschränkte Steuerpflicht) under Section 1 (4) EStG applies at first. It covers only the domestic income listed in Section 49 EStG, such as rent from German real estate or income from a domestic permanent establishment. Interest on ordinary balances held with German banks is, in principle, not included. This is where Section 2 AStG comes in.
This must be distinguished from exit taxation (Wegzugsbesteuerung) under Section 6 AStG for shares in corporations, which is covered in the article on German exit tax on GmbH shares.
The Requirements of Section 2 (1) AStG at a Glance
Section 2 (1) sentence 1 AStG requires three conditions, all of which must be met together:
← Tabelle nach links wischen, um weitere Spalten zu sehen
| Requirement | Statutory standard | Time of assessment |
|---|---|---|
| Previous tax liability as a German | Subject to unlimited income tax liability as a German for a total of at least five years in the last ten years before the end of unlimited tax liability | Looking back from the departure |
| Low taxation abroad | Resident in a low-taxing foreign territory or in no foreign territory at all (Section 2 (1) sentence 1 no. 1, (2) AStG) | For each assessment period |
| Substantial economic interests in Germany | One of the three criteria of Section 2 (3) AStG | For each assessment period |
In addition, there is an exemption limit: the provision only applies for assessment periods in which the income subject to limited tax liability under it amounts to more than EUR 16,500 in total (Section 2 (1) sentence 3 AStG).
Five Years of Unlimited Tax Liability as a German
The five years within the last ten years before the departure do not have to be consecutive. Only periods in which the person was both a German national and subject to unlimited tax liability are counted; foreign nationals do not fall under Section 2 AStG. The wording does not require that the nationality existed throughout the entire ten-year period. According to the wording, a later renunciation of German nationality does not eliminate the periods already completed, because the statute looks back. Whether and how German nationality is retained on emigration is a separate question of nationality law.
Low Taxation in the Destination Country
The second requirement is met if the person is resident in a foreign territory in which their income is subject only to low taxation, or if they are resident in no foreign territory at all. What counts as low is determined by Section 2 (2) AStG in two variants.
Tariff comparison (no. 1): The burden on an unmarried person resident in the foreign territory with a taxable income of EUR 77,000 is compared with the burden of German income tax under otherwise identical conditions, in each case according to the tariff including tariff allowances. If the foreign burden is lower by more than one third, there is low taxation. This is an abstract comparison of tariffs, not of the personal tax burden.
Preferential taxation (no. 2): Taxation is also low if the person’s burden may be substantially reduced as a result of preferential taxation granted in comparison with general taxation. This concerns special regimes that are open, for example, only to new arrivals. In its judgment of 14 January 2025 (IX R 37/21), the Federal Fiscal Court (Bundesfinanzhof) held that the former British remittance basis can constitute such preferential taxation, and considered Section 2 AStG to be constitutional and compatible with EU law. The application to other special regimes is discussed in the article Non-dom status or moving to a third country. The structure of a foreign regime should be clarified with an adviser in the destination country.
Counter-evidence: In both variants, low taxation does not apply if the person proves that the taxes payable on their income in total amount to at least two thirds of the German income tax under unlimited tax liability. This requires a comparative calculation with foreign tax assessments and proof of payment.
No residence: The provision also covers anyone who is not resident in any foreign territory, for example because they constantly change their place of stay. For digital nomads, this is a frequently overlooked point, because the lack of a fixed residence abroad is precisely what does not provide relief here.
Substantial Economic Interests in Germany
The third requirement is exhaustively defined in Section 2 (3) AStG. It is sufficient if one of the following criteria is met:
← Tabelle nach links wischen, um weitere Spalten zu sehen
| No. | Criterion | Time |
|---|---|---|
| 1 | Entrepreneur or co-entrepreneur (Mitunternehmer) of a domestic commercial business; as a limited partner (Kommanditist) only if more than 25 per cent of the income from the partnership under Section 15 (1) sentence 1 no. 2 EStG is attributable to the person; or a shareholding within the meaning of Section 17 (1) EStG in a domestic corporation | Beginning of the assessment period |
| 2 | Non-foreign income within the meaning of Section 34d EStG amounts to more than 30 per cent of total income or exceeds EUR 62,000 | During the assessment period |
| 3 | Assets whose income would not be foreign income amount to more than 30 per cent of total assets or exceed EUR 154,000 | Beginning of the assessment period |
A shareholding within the meaning of Section 17 (1) EStG already exists at a stake of at least one per cent at any time within the last five years. For a limited partner, what counts is not the capital contribution but the share of the income.
The asset threshold of EUR 154,000 is quickly reached: securities accounts holding paper of German issuers, balances with German banks or a let apartment in Germany all count towards it. Under Section 2 (4) AStG, businesses, shareholdings, income and assets of an interposed foreign company within the meaning of Section 5 AStG must also be taken into account proportionately.
What “Non-Foreign Income” Means
Section 2 AStG covers all income that, under unlimited tax liability, would not be foreign income within the meaning of Section 34d EStG. Whatever Section 34d EStG does not list as foreign is therefore included. Examples:
← Tabelle nach links wischen, um weitere Spalten zu sehen
| Type of income | Foreign under Section 34d EStG if | Consequence for Section 2 AStG |
|---|---|---|
| Capital assets | the debtor has its residence, place of management or registered office abroad (no. 6) | Interest from a German bank and dividends from a German stock corporation (AG) are not foreign and are covered |
| Letting and leasing | the property is located abroad (no. 7) | Rent from German real estate is covered (usually already under Section 49 EStG) |
| Employment | the work is performed or exploited abroad (no. 5) | Salary for work carried out in Germany is covered |
| Other income under Section 22 EStG | the obligor has its residence, place of management or registered office abroad (no. 8) | Recurring payments from German obligors are covered |
In addition, Section 2 (1) sentence 2 AStG contains a legal fiction: for income that is earned neither through a foreign permanent establishment nor through a permanent representative active abroad, a domestic permanent establishment at the place of management is assumed. Anyone who works, for example, as a consultant without a foreign permanent establishment must therefore expect this income to be treated as non-foreign.
Legal Consequences: Scope, Duration and Tax Rate
Duration of Up to Ten Years
The extended limited tax liability applies until the end of ten years after the end of the year in which unlimited tax liability ended. In the case of a departure in March 2026, the period runs until 31 December 2036. Because low taxation and economic interests must be examined for each assessment period, the provision may apply in some years and not in others. If someone first moves to a normally taxing state and later moves on to a low-tax territory, Section 2 AStG may apply for the remaining years. The tax authorities deal with this constellation in their principles on the application of the Foreign Tax Act (Application Decree on the Foreign Tax Act (Anwendungserlass zum Außensteuergesetz), letter of the Federal Ministry of Finance (BMF) of 22 December 2023, ref. IV B 5 – S 1340/23/10001 :001).
Exemption Limit of EUR 16,500
The EUR 16,500 is an exemption limit (Freigrenze), not a tax-free allowance (Freibetrag). Up to this amount, ordinary limited tax liability continues to apply. If the limit is exceeded even slightly, all of the covered income is taxable, not merely the excess.
Tax Rate and Progression Proviso
Under Section 2 (5) AStG, the tax rate is the one that results for all income, including foreign income. Capital income subject to the special tax rate under Section 32d (1) EStG is disregarded when determining the tax rate; according to the wording, Section 43 (5) EStG on the final withholding effect of the tax deduction remains unaffected. For income subject to tax deduction under Section 50a EStG, by contrast, such as certain payments for licences or supervisory board activities, the final withholding effect of Section 50 (2) EStG does not apply; this income must be included in the assessment.
Upper Limit: No More Than Under Unlimited Tax Liability
If the person proves that the additional tax is higher in total than it would be under unlimited tax liability with a residence exclusively in Germany, the excess amount is not levied (Section 2 (6) AStG). Here too, the burden of proof lies with the taxpayer.
Comparison of the Types of Tax Liability
← Tabelle nach links wischen, um weitere Spalten zu sehen
| Unlimited | Limited | Extended limited | |
|---|---|---|---|
| Legal basis | Section 1 (1) EStG | Section 1 (4), Section 49 EStG | Section 2 AStG |
| Income covered | Worldwide income | Domestic income under Section 49 EStG | All non-foreign income under Section 34d EStG |
| Interest from German banks | covered | in principle not covered | covered |
| Tax rate | based on worldwide income | based on domestic income | based on all income (Section 2 (5) AStG) |
| Duration | as long as there is a residence or habitual abode | unlimited in time | up to ten years after the end of the year of departure |
Double Taxation Agreements as a Limit
If there is a double taxation agreement (Doppelbesteuerungsabkommen, DBA) with the destination country, it determines which state may tax which income. If, for example, it allocates interest to the state of residence, Germany can generally not tax it through Section 2 AStG either. The provision is therefore of practical importance mainly for states without an agreement and for income for which Germany retains the right to tax under the agreement. The fundamentals of these agreements are explained in the article on double taxation agreements for emigrants.
Some agreements contain their own rules for persons moving away. For instance, Art. 4 (4) of the agreement with Switzerland allows Germany, under certain conditions, to continue taxing income from German sources in the year of departure and in the following five years (overriding taxation, überdachende Besteuerung); this does not apply to Swiss nationals. In its judgment of 19 November 2015 (C-241/14, Bukovansky), the Court of Justice of the European Union (CJEU) found no infringement of the Agreement on the Free Movement of Persons. The specific text of the agreement is decisive in each case.
Extended Limited Inheritance Tax Liability (Section 4 AStG)
If Section 2 (1) sentence 1 AStG applied to the deceased or donor at the time the tax liability arose, Section 4 (1) AStG extends limited inheritance tax liability beyond domestic assets to all parts of the acquisition whose income would not be foreign income, such as balances with German banks. The extension does not apply if a corresponding tax of at least 30 per cent of the German tax is payable abroad on these parts (Section 4 (2) AStG). Since Germans remain subject to unlimited inheritance tax liability in any event for the first five years after their departure under Section 2 (1) no. 1 (b) of the Inheritance and Gift Tax Act (Erbschaftsteuergesetz, ErbStG), Section 4 AStG becomes relevant mainly in the sixth to tenth year. How agreements on inheritance tax work is described in the article on German inheritance tax and double taxation agreements.
Foreign Companies: Section 5 AStG
If a person within the meaning of Section 2 AStG holds an interest in a foreign company, alone or together with persons subject to unlimited tax liability, income is attributed to them on which they would be taxable under Sections 7 to 13 AStG if they were subject to unlimited tax liability and which is not foreign income (Section 5 (1) sentence 1 AStG). The provision refers only to the five years as a German and to low taxation, not to substantial economic interests. In the event of inheritance, corresponding assets of the company are attributed proportionately to the acquisition under Section 4 AStG (Section 5 (1) sentence 2 AStG), and the underlying assets are liable for the taxes (Section 5 (2) AStG). Anyone planning a foreign holding company before emigrating should therefore take this attribution into account from the outset.
Example
Example: Felix, a German national, had lived in Germany for more than twenty years until June 2026 and then moves to a state without income tax with which there is no double taxation agreement. In Germany, he keeps a securities account with bonds and shares of German issuers worth EUR 400,000 and a let apartment. In 2027, he earns rental income of EUR 12,000 and interest and dividends from the securities account of EUR 9,000.
- Five years of unlimited tax liability as a German: met.
- Low taxation: for a state without income tax, the tariff comparison under Section 2 (2) no. 1 AStG suggests itself; the two-thirds proof is unlikely to succeed.
- Substantial economic interests: the domestic assets exceed EUR 154,000 at the beginning of the year (Section 2 (3) no. 3 AStG).
- Exemption limit: EUR 12,000 plus EUR 9,000 makes EUR 21,000, which is above EUR 16,500.
Result: the rent and the dividends from the German stock corporations would already be covered under ordinary limited tax liability under Section 49 EStG, the dividends with final withholding tax. Through Section 2 AStG, the interest from the bonds in particular is added, until the end of 2036 at the latest. If Felix had only rental income of EUR 12,000 and capital income of EUR 4,000, he would be below the exemption limit at EUR 16,000; Section 2 AStG would not apply for that year. The figures are fictitious.
Typical Mistakes in Practice
- Thinking only of Section 6 AStG. Section 2 AStG covers current income for ten years.
- Underestimating bank balances. German accounts and securities accounts can trigger the asset threshold, and their income is itself covered. How banks handle tax deduction after emigration is described in the article on withholding tax on capital income after emigration.
- Treating the exemption limit like a tax-free allowance. Just one euro above EUR 16,500 makes all of the covered income taxable.
- Preparing the two-thirds proof too late. In cases with a foreign element, there is an increased duty to cooperate under Section 90 (2) of the Fiscal Code (Abgabenordnung, AO).
- Overlooking later moves. Moving on to a low-tax territory within the ten years can trigger the provision.
- Overlooking filing obligations. Without a domestic residence, the competent office is generally the tax office in whose district the assets are located (Section 19 (2) AO). In addition, the tax office may require under Section 123 AO that an authorised recipient (Empfangsbevollmächtigter) in Germany be named.
Planning Only on a Secure Basis
Starting points before the move include, for example, the structure of the assets remaining in Germany, the treaty situation and the documentation of the foreign tax burden. Arrangements without an economic reason may be measured against Section 42 AO. Further starting points can be found in the article Wegzugsbesteuerung vermeiden (avoiding exit taxation, in German).
As individual questions, such as the classification of a special regime or the allocation of income to a permanent establishment, have not been conclusively settled, it is advisable to obtain a binding ruling (verbindliche Auskunft) from the tax office under Section 89 (2) AO before implementation and, where there is a foreign element, additionally a ruling in the destination country through a local adviser.
Conclusion
The extended limited tax liability covers Germans who were subject to unlimited tax liability for long enough before their departure, are taxed at a low level or are resident nowhere, and keep substantial interests in Germany. It extends German taxation for up to ten years to all non-foreign income, applies only above EUR 16,500 and is limited by double taxation agreements. Through Sections 4 and 5 AStG, it extends into inheritance tax and foreign companies. Anyone who keeps assets in Germany should have the requirements examined for each year before their departure.
Frequently Asked Questions
Who is affected by extended limited tax liability?
German nationals who, in the last ten years before the end of their unlimited tax liability, were subject to unlimited tax liability as Germans for at least five years, are resident in a low-taxing territory or in no territory at all, and have substantial economic interests in Germany (Section 2 (1) to (3) AStG).
How long does extended limited tax liability apply?
Until the end of ten years after the end of the year in which unlimited tax liability ended. Within this period, it is examined separately for each assessment period whether the requirements are met.
Is interest on German bank accounts taxable after emigration?
Under ordinary limited tax liability, in principle not. Under Section 2 AStG, however, it counts as non-foreign income and can be covered, unless a double taxation agreement excludes Germany’s right to tax.
What happens if income is just above EUR 16,500?
The EUR 16,500 is an exemption limit. If it is exceeded, all of the income for the year subject to extended limited tax liability is taxable, not just the excess amount.
Can I rebut the assumption of low taxation?
Yes. Under Section 2 (2) AStG, there is no low taxation if you prove that the taxes payable on your income in total amount to at least two thirds of the German income tax under unlimited tax liability. This requires foreign tax assessments and a comparative calculation.
Attorney Dr. Johannes Fiala and the Munich-based firm, which focuses on international succession law, tax law and asset protection, advise emigrants with assets in Germany on extended limited tax liability under the Foreign Tax Act, from examining the requirements of Section 2 AStG and coordinating with the double taxation agreement to the consequences for inheritance tax and foreign companies. Dr. Fiala has published extensively on questions of emigration and asset protection. Please get in touch with the firm without obligation to discuss your individual situation in an initial consultation.
