Shareholder Loans When Leaving Germany: Tax on Interest, Default and Waiver

Published on 12.11.2026

Shareholder Loans When Leaving Germany

Many shareholders of a German GmbH also finance their company through loans. When a move abroad is planned, attention usually focuses only on the exit tax (Wegzugsteuer) on the shares. Anyone who wants to understand the tax consequences of a shareholder loan (Gesellschafterdarlehen) on emigration has to keep three levels apart: the ongoing interest after the move, the allocation of the receivable to private or business assets, and the question of what happens for tax purposes if the loan defaults or the shareholder waives it. This article sets out the German rules (legal position as at October 2026) for shareholders of a German GmbH who move their residence abroad.

Starting Point: Shares and Loan Are Two Separate Assets for Tax Purposes

The GmbH share and the loan receivable against the GmbH are treated separately for tax purposes. For the share, Section 17 of the Income Tax Act (Einkommensteuergesetz, EStG) applies where the shareholding amounted to at least 1 percent at any time within the last five years, and on emigration Section 6 of the Foreign Tax Act (Außensteuergesetz, AStG) can trigger a deemed sale. The requirements, the valuation and payment in instalments for the exit tax are explained in detail in the article Exit tax on GmbH shareholdings; here, we deal only with the points where it meets the loan.

The loan receivable itself is not covered by Section 6 AStG. The provision covers shares in corporations, not monetary claims. A loan receivable held as private assets is therefore, as a rule, not deemed “sold” on emigration. The position may be different if the receivable belongs to business assets (see below).

Indirectly, however, the loan does affect the exit tax: in valuing the shares, it is a liability at the level of the GmbH, and loan losses or contributions caused by the shareholder relationship before the move can increase the acquisition costs and reduce the deemed capital gain.

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Interest Before the Move: No Flat-Rate Withholding Tax for Shareholders With 10 Percent or More

As long as the shareholder has unlimited tax liability in Germany, interest from a shareholder loan is income from capital assets under Section 20 (1) no. 7 EStG. The special tax rate of 25 percent (flat-rate withholding tax, Abgeltungsteuer) does not apply, however, where the interest is paid by a corporation to a shareholder holding at least 10 percent and the interest is deducted as a business expense by the company (Section 32d (2) no. 1 letter b EStG). The shareholder’s personal income tax rate then applies.

Interest received before the end of unlimited tax liability is still taxed in Germany in the year of the move. When the move is complete for tax purposes depends on residence and habitual abode; details are given in the article on habitual abode in tax law.

Interest After the Move: Section 49 (1) No. 5 EStG

After the move, the shareholder has only limited tax liability in Germany, and only for the domestic income listed in Section 49 EStG. For interest, Section 49 (1) no. 5 letter c EStG is decisive: income from other capital receivables (Section 20 (1) no. 7 EStG) is domestic income only if the capital is secured directly or indirectly by German real estate, by German rights that are subject to the civil law provisions on land, or by certain ships. In addition, there are special cases such as over-the-counter transactions via German credit institutions.

In practice, this means:

• Unsecured shareholder loan: Interest that a German GmbH pays on an ordinary loan, not secured by a land charge, to a private shareholder resident abroad is, as a rule, not covered by Section 49 EStG. Germany has no taxing right in this respect, subject to extended limited tax liability under Section 2 AStG and a deviating DTA. Extended limited tax liability applies for ten years after the move if the destination state has low taxation or the taxpayer is resident in no other state and substantial economic interests remain in Germany (typically the case with a shareholding under Section 17 EStG, Section 2 (3) no. 1 AStG); it can capture interest from a German debtor, because such interest is not foreign income within the meaning of Section 34d EStG. This is not a free pass, however: the new state of residence will usually tax the interest under its own law.
• Loan secured by a land charge (Grundschuld) on a German property: Here, there is domestic income. Whether Germany may actually tax this interest is then decided by the applicable double taxation agreement.
• Profit-participating loan or silent partnership: Profit-dependent remuneration falls under Section 20 (1) no. 4 EStG and thus under Section 49 (1) no. 5 letter a EStG if the debtor has its registered office or place of management in Germany. Anyone who structures a loan with a profit share leaves the area of “simple” interest.

How German withholding tax (Kapitalertragsteuer) on dividends, bank interest and funds works after the move, and how a refund from the Federal Central Tax Office (Bundeszentralamt für Steuern) is obtained, is covered in the article Withholding tax on investment income after emigration.

The Interest Article in the Double Taxation Agreement

Insofar as Germany would have a taxing right under Section 49 EStG, this right is restricted by the interest article of the applicable double taxation agreement (Doppelbesteuerungsabkommen, DTA). Article 11 of the OECD Model Tax Convention allocates interest primarily to the creditor’s state of residence and allows the source state at most a limited withholding tax. Many German agreements follow this, but they differ in the details. The structure of the agreements and the role of residence are explained in the article on the basics of double taxation agreements when emigrating.

One point is often overlooked: Article 11 (6) of the OECD Model Tax Convention contains a special rule for interest between persons with a special relationship. If, because of this relationship, the interest exceeds the amount that unrelated third parties would have agreed, the interest article applies only to the arm’s length portion. The excess amount may be taxed under the law of both states. With the shareholder loan of a controlling shareholder in particular, this is the standard case to start from. Whether the specific agreement contains a corresponding clause must be checked in each individual case.

Hidden Profit Distribution: When Interest Becomes a Dividend

After the move, unsecured interest is usually not taxable for the shareholder in Germany, but it does reduce the profit of the GmbH. Tax auditors therefore look closely.

If the interest rate is higher than is customary between unrelated third parties, the excessive portion is a hidden profit distribution (verdeckte Gewinnausschüttung, vGA). Under Section 8 (3) sentence 2 of the Corporate Income Tax Act (Körperschaftsteuergesetz, KStG), hidden profit distributions do not reduce the income of the GmbH. For the shareholder, the excessive portion becomes income under Section 20 (1) no. 1 EStG, i.e. it is treated like a dividend. Under Section 49 (1) no. 5 letter a EStG, this remains subject to limited tax liability even after the move, because the GmbH has its registered office in Germany. The GmbH must in principle withhold withholding tax on the hidden profit distribution, part of which may be refunded on application depending on the DTA.

Typical triggers of a hidden profit distribution in the case of a shareholder loan are:

• an interest rate above the rate at which the GmbH could obtain financing from a bank or another unrelated third party,
• missing, unclear or subsequently (retroactively) concluded agreements with a controlling shareholder,
• interest payments although the company does not economically need the capital,
• agreements that are not actually performed, for example missed repayments without any reaction from the creditor.

Conversely, an interest-free loan from the GmbH to the emigrated shareholder, or one whose repayment is not seriously intended, can also trigger a hidden profit distribution.

Arm’s Length Principle and Section 1 AStG

Alongside the hidden profit distribution, German law has a second adjustment rule for cross-border relationships. Under Section 1 (1) AStG, a taxpayer’s income is adjusted if it is reduced in a business relationship with a related person abroad because conditions were agreed that independent third parties would not have agreed. A person is related, among other things, if they hold at least 25 percent (Section 1 (2) AStG). The adjustment applies “without prejudice to other provisions”; in shareholder cases, the hidden profit distribution must therefore usually be examined first.

After the move, a loan relationship between the German GmbH and its shareholder, now resident abroad, can become a business relationship with a foreign country. Since the Growth Opportunities Act (Wachstumschancengesetz), Section 1 (3d) AStG has also contained special requirements for cross-border financing relationships: among other things, it must be credibly shown that the debtor could have serviced the debt for the entire term from the outset and that the financing is economically needed and used for the business purpose. By its wording, the provision presupposes a financing relationship within a multinational group of companies (applicable from assessment period 2024). The term multinational group of companies is not defined; whether the loan of an emigrated private shareholder to “his or her” single GmbH falls under it has not been conclusively resolved and, if anything, suggests that it does not. Anyone wishing to rely on it not applying should apply for a binding ruling (verbindliche Auskunft) under Section 89 (2) of the Fiscal Code (Abgabenordnung, AO) before implementation.

In practical terms: before the move, a written agreement should govern the interest rate, term, repayment, termination and security, and the interest rate should be supported by comparable offers.

Loan Held as Business Assets: Exit Taxation of Business Assets Instead of Exit Tax on Shares

If the loan receivable belongs not to private assets but to business assets, different rules apply. Typical constellations are:

• Business split (Betriebsaufspaltung): The GmbH shares and a loan receivable granted to the GmbH can belong to the business assets of the operating property company (Besitzunternehmen). A move abroad can affect the business split and thus the allocation of the assets. The consequences are dealt with in the article on the business split on emigration.
• Partnership (co-entrepreneurship, Mitunternehmerschaft): If a limited partner grants a loan to their commercially active KG, the receivable belongs to their special business assets (Sonderbetriebsvermögen), and the interest constitutes special remuneration under Section 15 (1) sentence 1 no. 2 EStG. After the move, Germany can continue to tax this remuneration via the KG’s German permanent establishment. Section 50d (10) EStG allocates it to business profits for the purposes of a DTA that contains no express rule.

If Germany’s taxing right to an asset of the business assets is excluded or restricted, a withdrawal at fair market value can be deemed to take place (Section 4 (1) sentence 3 EStG). For a monetary claim at nominal value, the hidden reserves are usually small; this is different, for example, for a receivable that was previously written down. The system of exit taxation of business assets, the compensating item under Section 4g EStG and the allocation to permanent establishments are explained in the article on exit taxation of business assets.

Default and Waiver: Section 17 (2a) EStG

Particularly prone to disputes is the case where the loan is not repaid, whether because of the insolvency of the GmbH or because the shareholder waives the receivable. Since the new rules introduced by the Act of 12 December 2019, Section 17 (2a) EStG determines what counts as subsequent acquisition costs of the shareholding. The rule applies to sales and liquidations after 31 July 2019, and on application also to earlier cases (Section 52 (25a) EStG).

Under Section 17 (2a) sentence 3 EStG, subsequent acquisition costs include in particular:

1. open or hidden contributions,
2. loan losses, insofar as the granting of the loan or leaving the loan in place during the company’s crisis was caused by the shareholder relationship,
3. defaults on recourse claims from guarantees and comparable claims, insofar as the security was caused by the shareholder relationship.

Under Section 17 (2a) sentence 4 EStG, the loan is generally caused by the shareholder relationship if an unrelated third party, under otherwise identical circumstances, would have called in the loan or would not have granted it. The background is that the Federal Fiscal Court (Bundesfinanzhof, BFH), in its judgment of 11 July 2017 (IX R 36/15), abandoned its earlier case law based on the law on equity-replacing loans; the legislator then largely enshrined the previous principles in statute.

Waiver: Recoverable and Non-Recoverable Portion

In the case of a waiver, what matters is the value of the receivable at the time of the waiver:

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The timing of the effect is important: subsequent acquisition costs do not lead to an immediate loss deduction. They increase the acquisition costs of the shareholding and only take effect when the shares are sold or the company is liquidated (Section 17 (1) and (4) EStG). A loss under Section 17 EStG is then, under the partial income method (Teileinkünfteverfahren), generally deductible at 60 percent. Insofar as a loan was not caused by the shareholder relationship, a loss under income from capital assets may be considered. The former limit on offsetting losses from defaulted receivables of EUR 20,000 per year (Section 20 (6) sentence 6 EStG old version) was abolished by the Annual Tax Act 2024 (Jahressteuergesetz 2024); the prohibition on offsetting against other types of income under Section 20 (6) sentence 1 EStG remains.

Subordination and Debtor Warrant

A subordination agreement (Rangrücktritt, Section 39 (2) of the Insolvency Code, InsO) is not a waiver: the receivable continues to exist and merely ranks lower. A waiver with a debtor warrant (Besserungsschein), by contrast, is a genuine release in which the receivable revives under a condition; the consequences if that condition occurs should be clarified in advance.

Default or Waiver After the Move: The Real Trap

For emigrants, the problem lies in the sequence. After the move, the gain or loss from the sale or liquidation of the GmbH shares is in principle still covered by Section 49 (1) no. 2 letter e EStG, because the GmbH has its registered office in Germany. However, many DTAs allocate the taxing right for gains from the sale of shares to the state of residence. Where Germany may not tax a gain, it usually cannot take a corresponding loss into account either. A loan loss realised after the move then risks being lost in Germany; whether the new country of residence recognises it depends on its law and should be clarified with an adviser there.

In addition, there is the interaction with the exit tax: if a deemed capital gain was taxed under Section 6 AStG on emigration and the shareholding subsequently loses value because the loan defaults, the question arises whether this later loss in value still reduces the exit tax.

Practical note: Without an actual sale of the shares, the assessed exit tax stands. A mere default of the loan or a waiver of the loan after the move that reduces the value of the shareholding does not change the exit tax. For moves up to the end of 2021, Section 6 (6) AStG old version provided, for deferred tax, for an adjustment only if the shares were later actually sold at a lower price. The version of Section 6 AStG in force since 2022 no longer contains any such adjustment for a loss in value. Anyone who wants to use a waiver or a foreseeable loan default for tax purposes must therefore implement it before the move.

It should also be noted that German loss carryforwards are subject to their own rules on emigration, which are presented in the article on the loss carryforward on emigration.

Example (fictitious): Petra holds 100 percent of a GmbH and has lent it EUR 150,000. The GmbH gets into a crisis, and Petra leaves the loan in place. She plans to move abroad next year. If she waives the loan before the move, the recoverable portion as a hidden contribution and the non-recoverable portion left in place during the crisis as a loan loss increase her acquisition costs. This reduces the deemed capital gain under Section 6 AStG or may even produce a loss. If she waives the loan only after the move, the assessed exit tax remains unchanged, and under the applicable DTA the loss may possibly no longer be taken into account in Germany. Only a calculation of both scenarios shows which route is right.

Common Mistakes and Checklist Before the Move

• Agreement: loan agreed only orally or not performed as agreed; for a controlling shareholder, this gap can hardly be closed after the move.
• Interest rate: not supported by comparable figures, or increased shortly after the move, which suggests a hidden profit distribution.
• Recoverability and crisis: valuation of the receivable at the time of the waiver and the onset of the crisis not documented with annual financial statements, plans and bank correspondence.
• Subordination confused with waiver.
• Land charge overlooked: security by German real estate turns the interest into domestic income.
• Allocation of assets: not clarified whether the receivable belongs to business assets.
• Residence: every DTA relief requires proof of residence in the new country, usually a tax residence certificate.
• Ruling: where questions remain open, no binding ruling under Section 89 (2) AO and, where appropriate, no ruling in the new country of residence obtained.

If the shareholder is also managing director, liability issues arise as well, for example in the case of payments to themselves during the crisis; these should be examined separately.

Conclusion

The shareholder loan is not a side issue when leaving Germany. Held as private assets, the receivable itself is not subject to exit tax, and unsecured interest is, as a rule, no longer taxable in Germany after the move. It is precisely this that creates the risk: excessive interest becomes a hidden profit distribution and thus a dividend taxable in Germany, and a loan loss that occurs only after the move can be lost for German tax purposes. Anyone who puts the agreement, interest rate, recoverability and the sequence of steps in order before the move, and clarifies open questions through a binding ruling, avoids most of these problems.

Frequently Asked Questions

Do I have to pay tax in Germany on interest from my shareholder loan after the move?

As a rule, no, if the loan is not secured by German real estate and does not provide for a profit share, subject to extended limited tax liability under Section 2 AStG and a deviating DTA. Section 49 (1) no. 5 letter c EStG covers interest from other capital receivables only where there is such security. Your new state of residence will, however, usually tax the interest.

Does the loan receivable itself trigger exit tax on emigration?

Not if held as private assets, because Section 6 AStG covers only shares in corporations. If the receivable belongs to business assets, however, exit taxation under Section 4 (1) sentence 3 EStG may come into consideration.

What happens if the interest rate is too high?

The excessive portion is treated as a hidden profit distribution. It does not reduce the profit of the GmbH and is treated for the shareholder like a dividend, which remains subject to limited tax liability and, in principle, to withholding tax even after the move.

Should I waive a loan in crisis before the move?

This can be advantageous, because contributions and loan losses caused by the shareholder relationship increase the acquisition costs and can reduce the exit tax. A waiver after the move, by contrast, does not change the assessed exit tax. Only a calculation of both variants with a view to the DTA provides clarity.

Does the EUR 20,000 limit still apply when a shareholder loan defaults?

No. The limit on offsetting losses from defaulted receivables in Section 20 (6) EStG was abolished by the Annual Tax Act 2024. For loans caused by the shareholder relationship, how the loss is taken into account is in any case governed by Section 17 (2a) EStG.

Lawyer Dr. Johannes Fiala and his Munich law firm, which focuses on international inheritance law, tax law and asset protection, advise GmbH shareholders on the tax treatment of their shareholder loans in connection with a move abroad, from arm’s length contract drafting and the taxation of interest under the double taxation agreement through to waiver and loan default before or after the move. Dr. Fiala has published extensively on emigration and asset protection. Contact the firm without obligation to discuss your individual situation in an initial consultation.