Anyone considering leaving Germany will often hear about two routes: moving to a country that offers newcomers a so-called non-dom status or another special regime, or moving to a country outside the EU that does not levy income tax on individuals. Both routes are frequently presented as equivalent variants of tax planning. From a German perspective, however, they differ considerably, above all with regard to extended limited tax liability under Section 2 of the German Foreign Tax Act (Außensteuergesetz, AStG) and the protection offered by double taxation treaties.
This article describes how German tax law treats both scenarios. It does not recommend any particular destination country and does not deal with the tax law of other states; its content must always be clarified with an adviser in the destination country. The basics of German exit taxation are explained in our article Avoiding exit taxation (in German).
What Is Meant by “Non-Dom Status”
The term comes from British law, which distinguished between tax residence and domicile. Individuals who were resident but not domiciled could, under the so-called remittance basis, pay tax on foreign income only to the extent that it was brought into the United Kingdom. With effect from 6 April 2025, the United Kingdom replaced this system with a new regime based on residence. Details of current UK law should be clarified with an adviser in the United Kingdom.
In everyday usage, “non-dom” now refers to various special regimes that some countries grant to newcomers: taxation of remitted foreign income only, lump-sum taxes or temporary exemptions. For the German assessment, the label is irrelevant. What matters is whether such a regime can substantially reduce the newcomer’s tax burden compared with general taxation.
The second scenario is a move to a country with which Germany has no double taxation treaty. The relationship with the United Arab Emirates serves as an example of the treaty position: no treaty has been in force with them since 1 January 2022. How the destination country itself taxes must be clarified with a local adviser.
Common Starting Point: The End of Unlimited Tax Liability
Initially, the same German requirements apply to both routes. Unlimited tax liability only ends if both the residence (Wohnsitz, Section 8 of the German Fiscal Code, AO) and the habitual abode (gewöhnlicher Aufenthalt, Section 9 AO) in Germany are given up. The decisive question is whether a dwelling in Germany is still kept available under the person’s actual control, for example with access at any time. A continuous stay of more than six months is always treated as a habitual abode, with short interruptions disregarded; purely visiting, recreational or similar private stays of up to one year are excluded. How these criteria are applied is described in our article on habitual abode in German tax law.
Anyone who was subject to unlimited tax liability for at least seven years within the last twelve years and held at least one per cent in a corporation within the last five years (Section 17 of the German Income Tax Act, EStG) is subject to exit taxation under Section 6 AStG on leaving: the shares are deemed to have been sold at fair market value (gemeiner Wert). For emigrations from 2022 onwards, the former interest-free, unlimited deferral on a move to an EU or EEA state no longer applies. On application, the tax can be paid in seven annual instalments, generally against the provision of security (Section 6 (4) AStG). If the taxpayer returns within seven years after an only temporary absence, the tax claim can lapse; on application, this period can be extended by up to five years (Section 6 (3) AStG). These legal consequences do not depend on the tax system of the destination country. Details are set out in our article on exit tax for GmbH shareholdings.
Extended Limited Tax Liability under Section 2 AStG
The most important difference between the two scenarios arises under Section 2 AStG. The provision covers individuals who, as German nationals, were subject to unlimited tax liability for a total of at least five years in the last ten years before the end of their unlimited tax liability, who are resident in a low-tax territory or in no territory at all, and who have substantial economic interests in Germany (Section 2 (1) to (3) AStG). Extended limited tax liability applies until the end of ten years after the end of the year of emigration and only in years in which the income concerned exceeds 16,500 euros.
Under Section 2 (2) AStG, taxation is low in two cases:
- No. 1, tariff comparison: The income tax in the new country of residence for an unmarried person resident there with a taxable income of 77,000 euros is more than one third lower than the German income tax.
- No. 2, preferential taxation: The person’s burden of taxes on income in the new country of residence can be substantially reduced by preferential taxation compared with general taxation.
In both cases, the taxpayer can prove that the taxes they actually have to pay amount to at least two thirds of the income tax they would have to pay if they were subject to unlimited tax liability in Germany. In that case, there is no low taxation.
The Federal Fiscal Court Decision of 14 January 2025 (IX R 37/21)
For special regimes, the second alternative is decisive. In its judgment of 14 January 2025 (IX R 37/21), the Federal Fiscal Court (Bundesfinanzhof, BFH) held that British taxation on the remittance basis can constitute preferential taxation within the meaning of Section 2 (2) no. 2 AStG. In the case in dispute, a German national had moved to Great Britain and continued to receive rental income from Germany as well as interest and dividends from a German bank; she did not remit the investment income to the United Kingdom.
According to the wording of the law (“can be reduced”), it is sufficient that the foreign state grants such preferential taxation and that the taxpayer meets its personal requirements. At the same time, the BFH considered Section 2 AStG to be constitutional and compatible with EU law.
The decision concerned the British regime, which has since been replaced. Its reasoning, however, is based on the wording of Section 2 (2) no. 2 AStG. Other regimes that allow only newcomers a substantial reduction of their tax burden compared with general taxation are therefore likely to be examined by the same standards, even though there has been no further supreme court decision on this so far. Anyone moving to a country with such a regime therefore cannot rely on a moderate general tax level protecting them from Section 2 AStG. What matters is whether preferential taxation is available to them and whether the two-thirds proof succeeds.
Unclear legal position: obtain a binding ruling. Where the tax assessment in Germany is not certain or is foreseeably subject to change, an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89 (2) AO) belongs before implementation. It binds the tax office to the assessment given for a precisely defined set of facts that has not yet been realised, 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, and that costs time and money.
Double Taxation Treaties: Protection and Limits
Countries with a Treaty
If there is a double taxation treaty with the destination country, it limits German taxing rights also within the scope of Section 2 AStG, and in the case of dual residence, the tie-breaker rule allocates the person to one state. The tie-breaker does not, however, replace the examination under Sections 8 and 9 AO: anyone who keeps their German home remains subject to unlimited tax liability. If they are allocated to the other state under the treaty and Germany thereby loses the right to tax shares, this alone can trigger exit taxation (Section 6 (1) sentence 1 no. 3 AStG). The basics are explained in our article on double taxation agreements for emigrants.
For special regimes that tax only remitted income, some German treaties contain so-called remittance clauses (remittance base clauses), for example Article 24 of the treaty with the United Kingdom. Under such a clause, Germany grants treaty benefits, such as a reduction of German withholding tax, only for the part of the income that is actually taxed in the other state. According to an information leaflet of the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt), it may be necessary to prove that the income was remitted to the other state or is subject to tax there; the leaflet applies this procedure correspondingly to applicants from Ireland. Anyone living under a special regime must therefore expect that German withholding taxes on income that has not been remitted will not be reduced. How tax deduction on investment income works after emigration is described in our article on German withholding tax after emigration.
Countries without a Treaty: The Case of the United Arab Emirates
The double taxation treaty with the United Arab Emirates expired at the end of 31 December 2021, after Germany had announced in June 2021 that it would not extend it. The Federal Ministry of Finance’s overview as at 1 January 2026 lists no negotiations on a new treaty; there is only a treaty on shipping and air transport.
For a move to a country without a treaty, this means:
- There is no tie-breaker rule. If a residence in Germany is kept, unlimited tax liability on worldwide income continues.
- German withholding taxes are not limited by a treaty.
- Double taxation is not avoided by a methods article; only the unilateral German rules apply.
- If the destination country does not levy income tax on individuals, low taxation under Section 2 (2) no. 1 AStG is likely, and the two-thirds proof will as a rule hardly succeed. Extended limited tax liability is then not limited by a treaty either.
Mistakes in giving up residence therefore weigh more heavily in this scenario than in a move to a treaty country.
The Two Scenarios Compared
← Tabelle nach links wischen, um weitere Spalten zu sehen
| German legal question | Destination country with special regime and treaty | Country without income tax and without treaty |
|---|---|---|
| Giving up residence and habitual abode | Required under Sections 8 and 9 AO; the tie-breaker only governs allocation under the treaty | Required under Sections 8 and 9 AO; no tie-breaker |
| Exit taxation, Section 6 AStG | Applies to shareholdings within the meaning of Section 17 EStG | Applies to shareholdings within the meaning of Section 17 EStG |
| Low taxation, Section 2 AStG | Possible via preferential taxation (no. 2), two-thirds proof in the individual case | As a rule via tariff comparison (no. 1), proof as a rule difficult |
| Limitation by treaty | Yes, in accordance with the treaty | No |
| German withholding taxes | Reduction under the treaty, with remittance clauses only for taxed income | No reduction under a treaty |
| Social security | Within the EU, coordination under Regulation (EC) 883/2004 | No social security agreement with the UAE |
Social Security
German compulsory insurance and the right to insurance are generally linked to employment or self-employment in Germany or to a residence or habitual abode in Germany (Section 3 of Book IV of the German Social Code, SGB IV). Whether statutory health insurance ends after emigration or can be continued depends on the insurance status; compulsory membership of employees, for example, ends when the employment ends (Section 190 (2) SGB V). The details must be clarified with the health insurance fund before emigrating; guidance is given in our article on cancelling German statutory health insurance on emigration.
For a move within the EU and the EEA, Regulation (EC) No 883/2004 determines which social security law applies and allows insurance periods to be aggregated. In relation to the United Kingdom, the Protocol on Social Security Coordination in the Trade and Cooperation Agreement applies. There is no social security agreement with the United Arab Emirates. Privately insured persons can continue their contract as a dormant policy (Anwartschaftsversicherung) under Section 204 (5) of the German Insurance Contract Act (VVG) to allow a later return without a new health assessment.
Shareholders with Foreign Companies
Anyone who, after emigrating, holds a foreign company whose passive income is subject to a burden of less than 15 per cent (Section 8 (5) AStG) should be aware of Section 5 AStG: if the shareholder is a person within the meaning of Section 2 AStG (at least five years of unlimited tax liability as a German national and low taxation in the new country of residence), the company’s intermediate income is attributed to them unless it is foreign income within the meaning of Section 34d EStG. CFC taxation (Hinzurechnungsbesteuerung) under Section 7 AStG, by contrast, requires shareholders subject to unlimited tax liability and, as a rule, no longer applies after a complete emigration. If a German GmbH continues to exist and only its management is moved abroad, separate questions arise as to the residence of the company.
Checklist from a German Perspective
← Tabelle nach links wischen, um weitere Spalten zu sehen
| Step | Content |
|---|---|
| 1. Giving up residence | Plan and document giving up residence and habitual abode under Sections 8 and 9 AO |
| 2. Section 6 AStG | Record shareholdings within the meaning of Section 17 EStG, examine payment in instalments or the return rule |
| 3. Section 2 AStG | Tariff comparison, preferential taxation under BFH IX R 37/21, two-thirds proof, interests in Germany |
| 4. Treaty position | Is there a treaty, does it contain a remittance clause, is there a tie-breaker |
| 5. Withholding taxes | Examine German investment income and refund options |
| 6. Social security | Clarify health and pension insurance with the institutions |
| 7. Notifications | Deregistration under Section 17 (2) of the Federal Registration Act (BMG); with payment in instalments or the return rule, the notification obligations under Section 6 (5) AStG |
| 8. Foreign law | Clarify the tax treatment in the destination country with a local adviser |
Example
Example: Clara, a German national, was subject to unlimited tax liability in Germany for 20 years and moves to another EU member state. Assume that the destination country grants newcomers, on application, lump-sum taxation of their foreign income. Clara keeps a let house in Leipzig with rental income of 40,000 euros a year. Assume that the general tax level in the destination country is moderate, so that the tariff comparison under Section 2 (2) no. 1 AStG does not apply. Because preferential taxation is available to her, however, it must be examined in line with the BFH case law whether there is low taxation under Section 2 (2) no. 2 AStG and whether she succeeds with the two-thirds proof. If she also has substantial interests in Germany, extended limited tax liability can apply for up to ten years, to the extent that the treaty permits Germany to tax. Germany may tax the rental income from Leipzig under the usual treaty rules in any case. The figures are fictitious.
Conclusion
From a German perspective, non-dom status and a move to a country without income tax are not interchangeable variants. In both cases, the same requirements apply to giving up residence and habitual abode, and the same exit taxation under Section 6 AStG applies. The differences arise under Section 2 AStG and in treaty protection: with special regimes, following the BFH judgment of 14 January 2025 (IX R 37/21), the mere possibility of preferential taxation can lead to low taxation, while a treaty limits German taxing rights and remittance clauses can restrict relief. In a move to a country without a treaty, low taxation is usually obvious and there is no treaty protection whatsoever. The consequences in the individual case depend on the structure of assets, interests in Germany and the treaty position.
FAQ
What does non-dom status mean for German tax?
German law does not know the term. What matters is whether a foreign special regime constitutes preferential taxation within the meaning of Section 2 (2) no. 2 AStG. If so, extended limited tax liability can apply.
What did the BFH decide in case IX R 37/21?
That the British remittance basis can constitute preferential taxation within the meaning of Section 2 (2) no. 2 AStG. According to the wording of the law, it is sufficient that the state grants it and that the taxpayer meets the personal requirements.
Does a double taxation treaty protect against exit taxation?
No. Section 6 AStG is linked to the end of unlimited tax liability. Allocation to the other state under the treaty can even trigger exit taxation itself.
Is there a double taxation treaty with the United Arab Emirates?
No. The former treaty expired at the end of 31 December 2021. According to the Federal Ministry of Finance’s overview as at 1 January 2026, no negotiations on a new treaty are under way.
Can I rebut the presumption of low taxation?
Yes, if you prove that the taxes you actually have to pay reach at least two thirds of the German income tax payable under unlimited tax liability. In a country without income tax, this succeeds only exceptionally.
Attorney Dr. Johannes Fiala and the Munich-based firm, which focuses on international tax and corporate law, advise clients on the German tax assessment of an emigration, from exit taxation and the examination of Section 2 AStG to coordination with advisers in the destination country. Dr. Fiala has published extensively on questions of tax and property law. Please get in touch with the firm without obligation to discuss your plans in an initial consultation.
