Anyone who leaves Germany while holding shares in a corporation can trigger tax on gains they have not yet realised. For this exit tax (Wegzugsteuer), the law provides for payment in instalments over seven years: on application, the tax assessed is paid in seven equal annual instalments, without interest. That sounds like simple relief, but it is tied to conditions which, in the individual case, decide between success and early maturity. Based on Section 6 of the German Foreign Tax Act (Außensteuergesetz, AStG) in its current version, this article explains who is granted payment in instalments, what security the tax office generally requires, when the remaining tax becomes due early in whole or in part, and how the return rule interacts with it (legal position: September 2026).
Brief Overview: What Payment in Instalments Does and Does Not Do
Payment in instalments spreads a tax that has already been assessed over seven years. It reduces neither the value of the shares nor the tax, and it creates no liquidity. Anyone who has to pay the first instalment within one month of notification of the tax assessment and then six more times annually needs money from other sources to do so. Since 1 January 2022, the rule has applied uniformly to all destinations, that is, to destination countries in the EU or the EEA as well as to third countries. For emigrations up to the end of 2021, the former law, with its special treatment for EU/EEA cases, generally still applies.
When Exit Tax Arises in the First Place
Payment in instalments requires that tax has been assessed under Section 6 (1) AStG. The law treats three events as equivalent to a sale, at fair market value (gemeiner Wert), of shares within the meaning of Section 17 (1) sentence 1 EStG (German Income Tax Act):
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| Event (Section 6 (1) sentence 1 AStG) | Content |
|---|---|
| No. 1 | Unlimited tax liability ends because the residence or habitual abode is given up |
| No. 2 | The shares are transferred gratuitously to a person who is not subject to unlimited tax liability |
| No. 3 | Germany’s right to tax the capital gain is excluded or restricted in another way, for example because the shareholder retains their German residence but becomes resident abroad under a double taxation treaty |
Only individuals who were subject to unlimited tax liability for a total of at least seven years within the last twelve years before the event are covered (Section 6 (2) AStG). The relevant shares are those within the meaning of Section 17 EStG, that is, holdings of at least one per cent within the last five years. Whether and when residence and habitual abode actually end is a separate question, which we examine in our article on habitual abode in German tax law. The basics of taxing GmbH shares are explained in our article on exit tax for GmbH shareholders.
Since 1 January 2025, exit taxation under Section 19 (3) of the German Investment Tax Act (Investmentsteuergesetz) has also applied to investment fund units held as private assets. This requires a holding of at least 1 % within the last five years or acquisition costs of at least EUR 500,000. Payment in instalments under Section 6 (4) AStG applies accordingly there.
The amount of the tax follows the calculation under Section 17 EStG: the fair market value of the shares at the time unlimited tax liability ends, less the acquisition costs, gives the deemed gain, 60 % of which is subject to the personal tax rate under the partial income method (Teileinkünfteverfahren). At a top tax rate of 45 %, income tax therefore arithmetically amounts to up to 27 % of the gain, plus the solidarity surcharge and, where applicable, church tax. The valuation of the shares is regularly the biggest lever here and is not the subject of payment in instalments.
The Seven Annual Instalments under Section 6 (4) AStG
Application and Amount of the Instalments
Payment in instalments is not automatic. Under Section 6 (4) AStG, the tax assessed that is attributable to the income realised under subsection (1) may, on application, be paid in seven equal annual instalments. Only the tax attributable to the deemed capital gain is spread, not the remaining income tax for the year of emigration. The annual instalments bear no interest.
Due Dates
The first annual instalment must be paid within one month of notification of the tax assessment. The remaining instalments are each due on 31 July of the following years.
Example: Lena, a fictitious shareholder, leaves Germany in 2026. Her tax assessment is notified in March 2027, and tax of EUR 280,000 is assessed for the exit event (figures purely for illustration).
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| Instalment | Amount | Due date |
|---|---|---|
| 1 | EUR 40,000 | one month after notification, that is, in April 2027 |
| 2 | EUR 40,000 | 31 July 2028 |
| 3 to 7 | EUR 40,000 each | each 31 July 2029 to 2033 |
Lena therefore does not have to raise the EUR 280,000 all at once. She does, however, need the first instalment shortly after the assessment, and she also has to finance her living costs, the move and her own business.
Provision of Security
According to the wording of the law, the application is as a rule to be granted only against the provision of security. Security is therefore the normal case, and a waiver is the exception, which should not be relied on in planning. Which forms of security the tax office accepts is governed by the general provisions of the German Fiscal Code (Abgabenordnung, AO) on the provision of security. The law (Section 241 AO) lists, among others:
- the deposit of money,
- the pledging of certain securities, for example bonds of public issuers or covered bonds (Pfandbriefe),
- first-ranking land charges on German real estate,
- a guarantee from a suitable tax guarantor, typically a bank.
Other forms of security, for example foreign real estate or unlisted shares, may be accepted by the tax office at its discretion (Section 245 AO).
What matters is not whether the taxpayer is wealthy in economic terms, but whether the security can be realised by the tax office legally and in practice. A bank guarantee ties up credit lines and incurs ongoing costs. A property may already be encumbered or located abroad. Unlisted shares are difficult to value and to realise. Anyone who organises the security only after the tax assessment has hardly any time left for the first instalment. The question of security should therefore be clarified with the house bank before emigrating.
When the Remaining Tax Becomes Due Early
The tax not yet paid becomes due within one month of certain events occurring (Section 6 (4) sentence 5 AStG):
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| Event | Effect |
|---|---|
| An annual instalment is not paid on time | Remaining amount due |
| Duties to cooperate under Section 6 (5) AStG are not fulfilled | Remaining amount due |
| The taxpayer files for insolvency | Remaining amount due |
| The shares are sold or transferred | Due to the extent that the shares are affected |
| Profit distributions or repayments of contributions exceed, in total, one quarter of the value under subsection (1) | Remaining tax becomes due proportionately, in the ratio of the harmful amount to the value under subsection (1) |
Two points are often overlooked in practice. First, the 25 % limit applies cumulatively over the entire period, and it relates to the value of the shares on which exit taxation was based, not to the amount of the tax. Example: on emigration, the fair market value of the shares was EUR 1,000,000, so the threshold is EUR 250,000. If first EUR 150,000 and later a further EUR 150,000 are distributed, a total of EUR 300,000 has been reached. The harmful amount is the EUR 50,000 above the threshold. In the view of the tax authorities, 5 % (EUR 50,000 of EUR 1,000,000) of the tax not yet paid therefore becomes due within one month, and the subsequent annual instalments are reduced accordingly. Second, it is precisely distributions that are often meant to finance the instalments. In doing so, however, they first trigger taxes of their own and also jeopardise payment in instalments itself.
A death does not lead to maturity: under the law, a gratuitous transfer upon death to an individual is disregarded for the purposes of the grounds for maturity, and the heir is then looked to instead. However, the tax debt passes to the heir or heirs by way of universal succession (Section 45 AO), who must continue to pay the instalments and fulfil the notification obligations. For later grounds for maturity, the acquirer of the shares is decisive. For inheritance tax purposes, the acquisition must be assessed separately, which is the subject of our article on German inheritance tax and double taxation treaties.
Notification Obligations: Electronic, Annual, Time-Bound
Under Section 6 (5) AStG, there are two types of notification to the tax office that had jurisdiction at the time of emigration:
- The occurrence of one of the events triggering maturity must be notified electronically within one month of the event.
- Every year by 31 July, the current address must be notified, together with confirmation that the shares continue to be attributable to the taxpayer.
Both are submitted using the official data record via the prescribed interface. To avoid undue hardship, the tax office may, on application, waive electronic transmission. In that case, the official form must be used and signed personally. The Federal Ministry of Finance (BMF) published a revised form template for this purpose in December 2025. Anyone who misses these notifications risks more than a formal error: a breach of the duties to cooperate is itself a ground for maturity. Anyone living abroad should therefore firmly enter the 31 July deadline in the calendar and appoint a contact person in Germany.
Return Rule: When the Emigration Is Only Temporary
If the end of unlimited tax liability is based on a merely temporary absence and the taxpayer becomes subject to unlimited tax liability again within seven years, the tax claim lapses to the extent that three conditions are met (Section 6 (3) AStG):
- In the meantime, the shares have been neither sold, transferred nor contributed to business assets.
- Distributions and repayments of contributions do not exceed, in total, one quarter of the value under subsection (1).
- Germany’s right to tax the capital gain is re-established at least to its former extent.
On application, the competent tax office may extend the period by a total of no more than five years if the intention to return continues unchanged. With an extension, an absence of up to twelve years with a return option is therefore conceivable.
In this case, the rules on payment in instalments apply accordingly to payment, the deferral period is based on the period granted by the tax office, and, on application, the annual instalments are not collected. This is a genuine deferral of payment, but not a risk-free one: if an event occurs after which the tax can no longer lapse under subsection (3) (for example the contribution of the shares to business assets), or if the tax office is notified that the intention to return has ceased, the tax not yet paid becomes due within one month. Anyone who had waived annual instalments and does not have the tax claim extinguished under subsection (3) must pay interest for the duration of the deferral, applying Section 234 AO accordingly.
Is an Intention to Return Required at the Time of Emigration?
For the former version of the law, the Federal Tax Court (Bundesfinanzhof) held in its judgment of 21.12.2022 (I R 55/19) that an intention to return existing at the time of emigration is not strictly necessary for a merely temporary absence; what matters is the actual return within the period. The tax authorities also apply this case law to the version in force since 2022 (BMF letter of 22 December 2023 on the application of the Foreign Tax Act). In principle, they require an intention to return, for which the taxpayer’s declaration is sufficient. If the taxpayer actually returns within seven years, however, a temporary absence is to be affirmed even without such an intention. If the period is to be extended, the intention to return must continue and must be documented no later than with the application for extension. The tax office generally decides on this application only shortly before the seven years expire.
EU/EEA, Switzerland and Third Countries: What Changes for the Destination State
Before 2022, for EU/EEA nationals moving to an EU/EEA state, the tax was deferred ex officio, interest-free and without security, until the shares were sold (Section 6 (5) AStG old version). This special rule no longer exists for new emigrations. Today, payment in instalments applies regardless of the destination country. For the taxpayer this means that a move within the EU does not provide a better payment position than a move to a third country.
Switzerland plays a special role. In the Wächtler judgment (C-581/17, 26.02.2019), the CJEU held that immediate exit taxation on a move to Switzerland is incompatible with the Agreement on the Free Movement of Persons. The Federal Tax Court implemented this in its judgment of 6 September 2023 (I R 35/20) for an older case under the former law and required a permanent, interest-free deferral until the actual sale. For emigrations before 1 January 2022, the tax authorities grant, by BMF letter of 2 June 2025, an unlimited, interest-free deferral, but only on application, as a rule against security and only subject to further conditions, for example nationality of an EU state or of Switzerland and gainful employment in Switzerland. Whether the seven-year payment in instalments under the new law satisfies the requirements of European law for moves to Switzerland from 2022 onwards is viewed critically in the legal literature. This question has not yet been resolved by the highest courts. Those affected should therefore have their tax assessments reviewed and observe the deadlines for objections.
On the tax treatment in the destination state, the crediting of taxes levied there and the relationship with the law of that state, an adviser in the country concerned should be brought in. The relationship between the states is generally determined by the treaty; an overview is provided by our article on the basics of double taxation agreements.
Unclear legal position: obtain a binding ruling. Where the German tax treatment is not settled or may foreseeably change, an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89(2) of the German Fiscal Code, AO) should come before 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. 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.
Other Instruments for Liquidity Shortfalls
Payment in instalments under Section 6 (4) AStG is not the only instrument, and depending on the event, a different one may be the right fit:
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| Instrument | Purpose | Main limitation |
|---|---|---|
| Return rule, Section 6 (3) AStG | Tax claim lapses on return within the period | Return must actually take place, shares unchanged |
| Compensating item, Section 4g EStG | Deemed disposal gain on individual assets spread over five financial years | Only qualifying EU/EEA cases, no exit tax on shares |
| Five annual instalments, Section 36 (5) EStG | Tax on a deemed discontinuation of business under Section 16 (3a) EStG | Only qualifying EU/EEA cases |
| Deferral, Section 222 AO | Considerable hardship in the individual case | Discretion, security, interest under Section 234 AO |
| Objection with suspension of enforcement, Section 361 AO | Dispute over the assessment | An objection alone does not stop payment; interest if unsuccessful |
For freelancers and sole traders who do not hold shares, the relevant rules are not those of Section 6 AStG but the taxation of deemed disposals (Entstrickung), which is the subject of our article on relocating a freelance business abroad. The alternatives that start before emigration, for example choosing other forms of shareholding or a family foundation, are a topic of their own. They are complex and prone to error and should only be pursued after reliable advance clarification. On succession, see our article on business succession when a shareholder emigrates, and on the foundation law side, our article on the family foundation.
What Many Overlook: Mistakes in Practice
- Application too late or incomplete. The application for payment in instalments belongs to the preparation of the emigration, not merely to the response to the tax assessment. Without a proposal for security, approval is uncertain.
- Security clarified only after the tax assessment. There is then hardly any time left for the first instalment. In addition, the same security cannot serve the bank and the tax office at the same time without limit.
- Forgetting the 31 July notification. The annual notification is often not recognised as a risk of maturity.
- Distributions without calculation. Anyone who wants to fund instalments from dividends must factor in the cumulative 25 % limit and the separate taxation of the distribution.
- Loss of value after emigration. If the value of the shares later falls, this does not automatically change the tax assessed; the instalments generally remain owed in full.
- Overlooking the tax step-up effect. Under the law, the shares are deemed to have been acquired at fair market value only to the extent that the tax attributable to the capital gain has been paid. Otherwise, the original acquisition costs remain decisive. On a later sale, it must therefore be documented precisely which part of the tax has been paid.
- Management from abroad. Anyone who manages the company’s business from the destination state after emigrating may create a permanent establishment there. The associated allocation of assets can trigger additional deemed disposal consequences. More on this in our article on permanent establishments and home offices abroad.
Checklist Before Emigrating
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| Step | Question |
|---|---|
| 1 | Is there an event under Section 6 (1) AStG, and what are the size of the shareholding and the seven-year period? |
| 2 | What is the fair market value, and how robust is the valuation? |
| 3 | What security can be provided by the time of the tax assessment, and what does it cost? |
| 4 | Where will the first instalment within one month and the later instalments, each by 31 July, come from? |
| 5 | Are distributions planned, and do they remain below the 25 % limit? |
| 6 | Who takes care of the electronic notifications, in particular the annual notification? |
| 7 | Is a return realistic, and how will it be documented? |
| 8 | What must be observed in the destination state, and who advises there? |
Conclusion
Payment in seven annual instalments under Section 6 (4) AStG spreads exit tax over time, but it does not eliminate it. It is available only on application and as a rule against security, and it comes with a tightly scheduled set of obligations: first instalment within one month, further instalments each on 31 July, electronic annual notification, limitation of distributions. Breaches can make the remaining debt due in whole or in part within one month. The return rule can make the tax lapse entirely, but it is not a convenient twelve-year financing arrangement. Anyone who plans the security, liquidity and notifications before emigrating can avoid the most common mistakes.
FAQ
Can everyone pay exit tax in seven instalments?
Payment in instalments requires tax assessed under Section 6 (1) AStG and an application. Under the law, the application is as a rule granted only against the provision of security.
Does payment in instalments also apply on a move within the EU?
Yes. Since 2022, Section 6 (4) AStG has applied regardless of the destination country. The former interest-free, unlimited deferral for EU/EEA cases no longer exists for new emigrations.
Is interest charged?
The seven annual instalments themselves bear no interest. With other instruments, for example a deferral under Section 222 AO, interest may, by contrast, arise. In the case of a return, interest under Section 234 AO may be charged if annual instalments were waived and the tax does not lapse.
When does the remaining tax become due early?
In the case of a late instalment, unfulfilled duties to cooperate, filing for insolvency, sale or transfer of the shares, and if the 25 % limit for distributions and repayments of contributions is exceeded. The outstanding tax then becomes due in whole or proportionately within one month.
What happens if I return to Germany?
If unlimited tax liability is re-established within seven years and the requirements of Section 6 (3) AStG are met, the tax claim lapses. On application, the period can be extended by no more than five years.
Does an objection stop the obligation to pay?
No. An objection does not, in principle, suspend enforcement. For the disputed amount, suspension of enforcement (Aussetzung der Vollziehung) must also be applied for.
Attorney Dr. Johannes Fiala has published extensively on international tax law and supports clients in classifying exit taxation in good time, preparing payment in instalments including security and notification obligations, and limiting possible risks of early maturity. Please get in touch with the firm without obligation to discuss your individual situation in an initial consultation, whether you are planning to emigrate with shareholdings or have already received a tax assessment.
