If you are a partner in a German limited partnership (Kommanditgesellschaft, KG), a general partnership (offene Handelsgesellschaft, OHG) or a commercially active civil-law partnership (Gesellschaft bürgerlichen Rechts, GbR) and you move abroad, your interest in the partnership does not simply move with you for tax purposes. The co-entrepreneurship (Mitunternehmerschaft) stays in Germany, the partner changes country, and that is where the tax consequences of the move come from. The classic German exit tax under Section 6 of the Foreign Tax Act (Außensteuergesetz, AStG) generally does not apply. Three questions are decisive: Does the partnership’s permanent establishment remain in Germany? What happens to the special business assets (Sonderbetriebsvermögen)? And how are the managing director’s remuneration, interest or rent treated that the partner receives from the partnership? This article explains the German legal position as at October 2026.
Who Is a Co-Entrepreneur and Why It Matters When You Move
For income tax purposes, a partnership is transparent. It is not the KG or OHG that pays income tax, but its partners. Under Section 15 (1) sentence 1 no. 2 of the Income Tax Act (Einkommensteuergesetz, EStG), income from business includes the profit shares of the partners of an OHG, a KG or another partnership in which the partner is to be regarded as an entrepreneur (Mitunternehmer), as well as the remuneration that the partner receives from the partnership for his work, for granting loans or for providing assets.
For tax purposes, the interest therefore consists of several layers, which must be assessed differently on a move abroad:
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| Component | Typical examples | Risk on moving abroad |
|---|---|---|
| Share in the jointly held partnership assets | Share in the business, machinery, customer base of the KG | low, as long as the permanent establishment remains in Germany |
| Special business assets I | Property, patent or loan made available to the KG | medium to high, depending on allocation |
| Special business assets II | Shares in the general partner GmbH (Komplementär-GmbH) | high, allocation to the German permanent establishment often disputed |
| Special remuneration | Managing director’s remuneration, interest, rent, licence fees | allocation under Section 50d (10) EStG, double taxation possible |
For partners in partnerships of professionals, such as a professional partnership (Partnerschaftsgesellschaft) or a medical practice GbR, the same principles apply with some differences; see below.
No Exit Tax under Section 6 AStG on the Partnership Interest
Section 6 (1) AStG treats the end of unlimited tax liability as a sale of “shares within the meaning of Section 17 (1) sentence 1” EStG, that is, shares in corporations. A limited partner’s interest or an OHG interest is not such a share. The move of a co-entrepreneur therefore does not trigger a deemed sale under Section 6 AStG. The details of exit tax on privately held GmbH shares, including the instalment payments and the return rule that have applied since 2022, are covered in the article on exit tax on GmbH shareholdings.
A common misconception concerns the GmbH & Co. KG. If the limited partner also holds shares in the general partner GmbH, it is often assumed that exit tax under Section 6 AStG applies to those GmbH shares when he moves. This is usually not the case where the shares form part of the limited partner’s special business assets II. They are then business assets, and what applies is not Section 6 AStG but, where relevant, the exit taxation (Entstrickung) under Section 4 (1) sentence 3 EStG. The deferral rules differ. Whether the shares are special business assets depends, among other things, on the function of the general partner GmbH and must be clarified before the move.
After the Move: Limited Tax Liability through the German Permanent Establishment
When residence and habitual abode in Germany are given up, unlimited tax liability ends. When that is actually the case depends on the actual circumstances and not on deregistration with the residents’ registration office; details can be found in the article on habitual abode in German tax law.
The profit shares from the partnership nevertheless remain taxable in Germany. Under Section 49 (1) no. 2 (a) EStG, income from business is domestic income if a permanent establishment is maintained in Germany for the business or a permanent representative has been appointed. The partnership’s permanent establishment is attributed to the partner. For income from independent professional work, Section 49 (1) no. 3 EStG refers to the work being performed or exploited in Germany or to a fixed base or permanent establishment in Germany.
The partnership’s profit continues to be determined separately and uniformly (gesondert und einheitlich festgestellt), and the partner declares his share as a person with limited tax liability. The restrictions of Section 50 (1) EStG are noticeable:
- No basic tax-free allowance. Under Section 50 (1) sentence 2 EStG, taxable income is increased by the basic tax-free allowance (Grundfreibetrag). In effect, the profit share is taxed from the first euro.
- No allowance on a later sale. Section 50 (1) sentence 4 EStG excludes, among other provisions, Section 16 (4) EStG. Anyone who sells his partnership interest after the move cannot claim the allowance for persons over 55.
- Special expenses and extraordinary burdens are largely excluded.
The reduction for business income under Section 35 EStG (credit for trade tax) is not mentioned in Section 50 (1) sentence 4 EStG. Whether it applies in full in an individual case should nevertheless be checked when calculating the tax. Under the conditions of Section 1 (3) EStG, an application to be treated as having unlimited tax liability may also be an option if the income is earned predominantly in Germany.
Double Taxation Treaties: Business Profits Stay with the State of the Permanent Establishment
On moving to a state with which Germany has concluded a double taxation treaty, the partner becomes resident there. Treaties based on the OECD Model Convention generally allocate business profits to the state of residence, unless the enterprise carries on business through a permanent establishment in the other state (Art. 7 OECD Model). The permanent establishment of the German partnership is treated as the partner’s permanent establishment. Germany thus retains the right to tax the current profit shares and, as a rule, also a later gain on the sale of the interest, to the extent that the assets are attributable to the German permanent establishment.
Whether the new state of residence exempts the German income or credits the German tax should be clarified with an adviser in that country. The basic mechanics of the treaties are explained in the article on the basics of double taxation treaties when emigrating. For the exemption or credit abroad, a certificate of tax residence is often required.
The difficulty is that not every state regards the German partnership as transparent. If the new state of residence treats the KG as a separate taxable entity, it may classify the profit shares as dividends. Such qualification conflicts can only be assessed by looking at the treaty and the foreign law together.
Special Remuneration and Section 50d (10) EStG
If the partner receives a managing director’s remuneration, interest on a shareholder loan or rent for a property made available to the partnership, these are business income under German law. Many double taxation treaties, by contrast, allocate such payments to the articles on employment income, interest or royalties, which often give the right to tax to the state of residence. Without a special rule, Germany could lose access to this remuneration after the move.
From the German point of view, Section 50d (10) EStG closes this gap:
- Sentence 1: If the treaty contains no express provision for special remuneration (Sondervergütungen), it is deemed, for the purposes of the treaty, to be exclusively part of the partner’s business profits.
- Sentence 2: This also applies to income and expenses caused by the special business assets.
- Sentence 3: The remuneration is to be attributed to the permanent establishment of the partnership to which the expense for the underlying service is allocated, which in the case of a purely German KG will normally be the German permanent establishment.
- Sentences 5 and 6: If the other state taxes the income without crediting the German tax, Germany credits the foreign tax proven to have been paid on a proportionate basis, provided the treaty contains no express provision.
- Sentence 7: The rules do not apply to partnerships that are commercial only by virtue of their structure within the meaning of Section 15 (3) no. 2 EStG, but they apply accordingly to income from independent professional work under Section 18 EStG.
Example (fictitious): Limited partner Bernd, who will in future live in a treaty state, receives from the German Bernd-Huber GmbH & Co. KG an annual remuneration for his work of 120,000 euros and interest of 8,000 euros on a shareholder loan. Under Section 50d (10) EStG, Germany treats both as part of his profit share from the German permanent establishment and taxes them. If the state of residence regards the remuneration as employment income for work performed there, the same income may be taxed twice. Whether the state of residence grants a credit or Germany grants one under sentence 5 must be clarified for both states before the move.
The provision is a unilateral German rule that overrides the treaty (treaty override). Where special remuneration is substantial, the current state of case law on this point should also be checked. The Federal Fiscal Court (Bundesfinanzhof, BFH) had referred the question to the Federal Constitutional Court (Bundesverfassungsgericht) of whether Section 50d (10) EStG is compatible with the Basic Law (case no. 2 BvL 15/14). No decision on the merits was issued: the Federal Constitutional Court discontinued the proceedings in July 2025 after the referring court had withdrawn the referral. The constitutionality of the provision therefore remains unresolved, and those affected should take this into account when deciding whether to keep their tax assessments open.
Special Business Assets: This Is Where Exit Taxation Threatens
The real tax risk of moving abroad usually lies not in the partnership interest itself but in the special business assets. Under Section 4 (1) sentence 3 EStG, the exclusion or restriction of Germany’s right to tax the gain from the sale or use of an asset is treated as a withdrawal. The hidden reserves are then realised and taxed, even though nothing has been sold.
Whether the right to tax is lost depends on whether the asset is still attributable to the German permanent establishment after the move. In its circular on the application of double taxation treaties to partnerships dated 26.09.2014, the tax administration focuses on the actual functional significance of the asset for the permanent establishment. This gives roughly the following picture:
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| Asset held as special business assets | Assessment after the move |
|---|---|
| Property located in Germany and made available to the KG | Germany, as the state where the property is located, normally retains the right to tax |
| Loan receivable from the KG | A receivable at nominal value usually contains hardly any hidden reserves; Germany allocates the interest to the German permanent establishment under Section 50d (10) EStG, while the state of residence may classify it differently under the treaty |
| Shares in the general partner GmbH | Allocation to the German permanent establishment depends on its function, risk of exit taxation |
| Patent or trademark licensed to the KG | Risk of exit taxation if not functionally belonging to the German permanent establishment |
Section 4g EStG is important for liquidity. Under this provision, the taxpayer may, on application, form a compensating item (Ausgleichsposten) to the extent that the right to tax is restricted or excluded in favour of an EU or EEA state within the meaning of Section 36 (5) sentence 1 EStG. The item is released in instalments of one fifth each in the year it is formed and in the four following financial years. The application is irrevocable, and on certain events, such as a sale, the remainder must be released immediately. For a move to a third country, the law does not provide for this spreading.
If, exceptionally, the right to tax all the assets of the business is excluded, for example because the business moves abroad together with the partner, the business is deemed to have been discontinued under Section 16 (3a) EStG. For assets in an EU or EEA state, the tax attributable to this can be paid in five annual instalments on application under Section 36 (5) EStG. The technical details of exit taxation, valuation at fair market value and compensating items are covered in the article on exit taxation of business assets. Separate rules apply to partners whose property is made available to a GmbH under a business split (Betriebsaufspaltung); see the article on business splits and emigration.
Special Case: Partnership That Is Commercial Only by Its Structure
Many families hold assets in a GmbH & Co. KG that is not itself engaged in business but is deemed commercial only because of its structure under Section 15 (3) no. 2 EStG (gewerbliche Prägung). For a move abroad, this is a critical constellation. According to the case law of the BFH, which the tax administration follows in the circular mentioned above, such a partnership does not earn business profits for treaty purposes. Its income is allocated under the articles on dividends, interest, capital gains or immovable property. Under its sentence 7 no. 1, Section 50d (10) EStG does not apply to it.
On a move to a treaty state, Germany may therefore lose the right to tax substantial parts of the assets, resulting in exit taxation. The widespread recommendation to contribute GmbH shares to a commercially structured KG before the move therefore works at most for a move to a state without a treaty and subject to further conditions. In structures where shares were contributed to such a partnership in the past, the special provision of Section 50i EStG must also be examined. No step should be taken here without first obtaining a binding ruling.
Trade Tax: The Partnership Remains the Taxpayer
Trade tax (Gewerbesteuer) is linked to the business, not to the partner’s residence. Under Section 5 (1) sentence 3 of the Trade Tax Act (Gewerbesteuergesetz, GewStG), the partnership itself is the taxpayer in the case of a commercially active partnership. As long as it maintains a permanent establishment in Germany (Section 2 (1) sentence 3 GewStG), the move of a partner does not change its trade tax liability. Special remuneration and results from the special business assets continue to be included in its trade income.
Two points are overlooked in practice. First, an exit taxation gain in the special business assets may increase the partnership’s trade income, so that the trade tax economically also burdens the remaining partners if the partnership agreement contains no rule on its allocation. Second, if the partner who has moved away works for the partnership from a fixed office abroad, a foreign permanent establishment of the partnership may arise there. The part of the trade income attributable to it is deducted under Section 9 no. 3 GewStG, and at the same time the allocation of assets may shift. How quickly a workplace at home can create a permanent establishment is shown in the article on a permanent establishment in a home office abroad.
When the Partner Manages the Business from Abroad
The move of the managing partner of an OHG or of the managing director of the general partner GmbH is particularly sensitive. If the essential decisions are taken abroad in future, the partnership’s place of management may shift. It is then no longer only the special business assets of one partner that are at stake, but the allocation of the entire business and, indirectly, the tax position of all partners. The consequences of such a relocation are described in the article Moving the registered office abroad; in addition, liability issues relating to management must be clarified. If staff, premises and management demonstrably remain in Germany, this supports the continued existence of the German permanent establishment.
Partnerships of Professionals
For doctors, architects or engineers in a professional partnership or GbR, the income is income from independent work, and no trade tax arises. It must be examined whether the work is still performed or exploited in Germany or whether there is a fixed base in Germany. Under sentence 7 no. 2, Section 50d (10) EStG applies accordingly, with the article on independent personal services taking the place of the article on business profits where relevant. Professional law issues and the relocation of one’s own practice abroad must be examined separately.
Typical Mistakes in Practice
- Thinking only of Section 6 AStG and overlooking exit taxation risks in the special business assets.
- Leaving shareholder loans unchanged, even though the state of residence may classify the interest differently under the treaty than Germany does.
- Not adapting the partnership agreement: rules on who bears taxes arising from the special sphere and on withdrawals for tax payments are often missing.
- Missing applications: the compensating item under Section 4g EStG and instalments under Section 36 (5) EStG require applications.
Checklist before the Move
- Inventory of all interests: share in the jointly held assets, special business assets I and II, supplementary balance sheets.
- Examination of whether the partnership is genuinely commercial, professional or commercial only by its structure.
- Determination of the hidden reserves in assets at risk of exit taxation.
- Analysis of the treaty with the new state of residence regarding business profits, interest, dividends and capital gains, together with an adviser in that country.
- Examination of future management and of whether a permanent establishment will arise abroad.
- Adaptation of loan, lease and managing director agreements as well as the partnership agreement.
- Clarification of liquidity for possible tax payments and involvement of the other partners.
- Where the legal position is unclear: application for a binding ruling (verbindliche Auskunft) from the tax office under Section 89 (2) of the Fiscal Code (Abgabenordnung, AO) before implementation, and if necessary also a ruling in the new state of residence.
Anyone wishing to combine the move with a handover to the next generation should also take into account the inheritance and gift tax consequences of the succession. If losses exist from previous years, what happens to them after the move must also be clarified.
Conclusion
The move abroad of a partner in a partnership generally does not trigger exit tax under Section 6 AStG. Profit shares and special remuneration remain taxable in Germany through the German permanent establishment and Section 50d (10) EStG, without the basic tax-free allowance. The risk lies in the special business assets, which may be subject to exit taxation under Section 4 (1) sentence 3 EStG, in partnerships that are commercial only by their structure and in a relocation of the place of management. Anyone who sorts out these points before the move and secures open questions with a binding ruling can identify, and often limit, the risk of hidden reserves being taxed without any sale proceeds.
Frequently Asked Questions
Is exit tax payable when a limited partner moves abroad?
Not under Section 6 AStG, because that provision only covers shares in corporations within the meaning of Section 17 EStG. Tax may, however, arise through exit taxation of individual assets under Section 4 (1) sentence 3 EStG, above all in the special business assets.
Do I still have to pay German tax on my profit shares after moving?
As a rule, yes. If the partnership maintains a permanent establishment in Germany, the profit shares are domestic income under Section 49 (1) no. 2 (a) EStG, and double taxation treaties normally give Germany, as the state of the permanent establishment, the right to tax. The basic tax-free allowance does not apply.
What happens to my managing director’s remuneration from the KG?
It is special remuneration and, under Section 50d (10) EStG, is deemed for treaty purposes to be part of your business profits, which are attributed to the German permanent establishment. Whether the new state of residence also taxes it must be clarified with an adviser in that country.
Are my shares in the general partner GmbH at risk?
If they form part of your special business assets, the move may lead to exit taxation if they are no longer attributable to the German permanent establishment. For a move to an EU or EEA state, a compensating item under Section 4g EStG spread over five years may be available.
Does all this also apply to an asset-managing GmbH & Co. KG?
Only to a limited extent. According to BFH case law and the view of the tax administration, a partnership that is commercial only by its structure does not earn business profits for treaty purposes, and Section 50d (10) EStG does not apply to it. The risk of exit taxation is considerably higher here and should be clarified before the move by means of a binding ruling.
Attorney Dr. Johannes Fiala and the Munich-based firm, which focuses on international succession law, tax law and asset protection, advise partners in partnerships on the tax consequences of moving abroad, from reviewing the special business assets and the treatment of special remuneration to adapting the partnership agreement. 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.
