International Tax Law: Moving Abroad, Moving to Germany & Foreign Income

1. Unlimited and limited tax liability: the basis

German income tax law has two starting points. Anyone who has a residence (Wohnsitz) or their habitual abode (gewöhnlicher Aufenthalt) in Germany is subject to unlimited tax liability (unbeschränkte Steuerpflicht). This means that Germany in principle taxes your entire worldwide income, regardless of whether it comes from Düsseldorf, Dubai or the USA.

Anyone who has neither a residence nor their habitual abode in Germany may nevertheless be subject to limited tax liability (beschränkte Steuerpflicht), namely on certain German-source income. This includes, for example, rental income from a German property, income from a German permanent establishment or certain remuneration with a domestic connection.

In practice, the most important question is almost always the same: which status applies to you, and from when? Because this determines not only the tax rates but also filing obligations, deduction options and the application of double taxation agreements.

2. Tax residence: residence, habitual abode, centre of vital interests

Your residence for tax purposes is not the same as your registered address. For tax purposes, you have a residence if you have a dwelling under circumstances indicating that you will retain and use it. A key to your old flat, a room in your parents’ home that is permanently available to you, or a city flat that you continue to rent can be sufficient.

A habitual abode arises when someone stays in Germany not merely temporarily. As a rule of thumb, a continuous stay of more than six months applies, and short interruptions are counted.

Why this is so prone to disputes

Many people moving abroad deregister but keep a flat, their family initially stays in Germany, or their stays add up. The tax office examines such cases closely, often years later. If you are serious about moving abroad, you should end your German tax residence in a verifiable way: give up the flat or let it to third parties, actually relocate your centre of vital interests and document your stays.

3. Double taxation agreements in practice

Germany has concluded double taxation agreements (DTAs) with most countries. They govern which country may tax which income if both countries could claim it. Without a DTA, genuine double taxation is a risk; with a DTA, it is avoided by one of two methods.

Exemption and tax credit

Under the exemption method, Germany excludes the foreign income from taxation but often takes it into account when determining the tax rate on the rest of your income, known as the progression clause (Progressionsvorbehalt). Under the credit method, Germany also taxes the income but credits the tax paid abroad. Which method applies depends on the agreement and the type of income.

Dual residence: the tie-breaker rule

If you are resident under the laws of both countries, the agreement decides in a fixed order: permanent home, centre of vital interests, habitual abode, nationality. The centre of vital interests in particular, i.e. the closer personal and economic relations, is often the decisive point in practice and at the same time the most difficult to prove.

4. Moving abroad: what really happens for tax purposes

For tax purposes, moving abroad is not a single event but a chain of questions. Does unlimited tax liability end, and when exactly? Which income remains taxable in Germany? Does the exit tax apply? And which tax returns have to be filed for the year of departure and the following years?

What is often overlooked

• In the year of departure, there is usually one tax return that combines the periods of unlimited and limited tax liability
• German rental income, permanent establishments or certain remuneration remain taxable here even after you move abroad
• Ongoing contracts such as life insurance, Riester pensions or occupational pension schemes can have tax consequences
• The timing of sales shortly before or after moving abroad can determine the tax burden; this applies in particular to shareholdings and crypto assets

That is why the rule is: calculate first, then move. A move abroad can be planned as long as it has not yet taken place.

5. Exit tax under Section 6 AStG: the deemed disposal

For many entrepreneurs, the exit tax (Wegzugsbesteuerung, Section 6 of the German Foreign Tax Act, AStG) is the largest item in their relocation scenario. Anyone who holds at least 1% in a corporation, such as their own GmbH, and ends their unlimited tax liability is treated as if they had sold the shares at market value. The increase in value is taxed even though not a single euro has changed hands.

Since 2025, larger holdings in investment funds and ETFs may also be covered under certain conditions. The details are complex, but the direction is clear: the legislator is extending exit taxation rather than restricting it.

Room for planning

• On application, the tax can be spread over seven annual instalments, usually against provision of security
• In the case of a merely temporary absence with the intention to return, the tax can lapse under certain conditions
• Shareholding structures can be adjusted before moving abroad, for example through conversions or transfers, but this requires lead time

Important: the valuation of the shares and the calculation should be completed before you relocate your residence. If the tax office only reminds you of the exit tax after your move, you have usually already lost the good options.

6. Exit taxation of business assets: hidden reserves

The exit tax concerns privately held shares in corporations. For business assets there is a separate counterpart: exit taxation of business assets (Entstrickungsbesteuerung). It applies whenever Germany loses its right to tax individual assets, for example because a sole proprietor or a partnership relocates its activities abroad or assets are allocated to a foreign permanent establishment.

For tax purposes, this is treated like a withdrawal or sale at fair market value (gemeiner Wert): the hidden reserves are disclosed and taxed even though no sale has taken place and no money has changed hands. This becomes particularly expensive for self-created intangible assets that do not appear on any balance sheet, such as a customer base, a brand, software or a well-established business model. In the case of a transfer of functions abroad, an entire “transfer package” (Transferpaket) may even have to be valued.

What can be planned

• For relocations within the EU, the tax can be spread over five annual instalments under certain conditions
• Whether an asset is actually subject to exit taxation depends on its allocation to the permanent establishment and can often be managed
• Conversions or an adjustment of the structure before moving abroad can avoid or defer the disclosure of hidden reserves

If you are an entrepreneur planning to move abroad, you should therefore look not only at the exit tax but go through all of your business assets: what stays in Germany, what moves with you, and what triggers tax in the process?

7. Dubai and similar destinations: special features when moving to low-tax countries

Countries with no or very low income tax, above all the United Arab Emirates, are popular destinations. From a tax perspective, however, stricter rules apply here, with which the German tax authorities aim not to lose their grip.

The most important special case is extended limited tax liability: after moving to a low-tax country, it can continue to apply for up to ten years. What lies behind it and whom it affects is explained in the next section.

What this means in practice

• A move to Dubai needs more thorough preparation than a move to a DTA country with a normal tax level
• Remaining shareholdings, commercial businesses or substantial domestic assets can trigger the ten-year period
• Substance in the destination country, i.e. a real home, a real centre of vital interests and documented stays, is decisive

8. Extended limited tax liability (Sections 2 and 5 AStG)

Extended limited tax liability (erweiterte beschränkte Steuerpflicht) under Section 2 AStG is the legislator’s response to moves to low-tax countries. It affects German nationals who were subject to unlimited tax liability for at least five years during the last ten years before moving abroad, who move to a low-tax country and who continue to have substantial economic interests in Germany.

Substantial economic interests

These include, for example, a commercial business or a position as a co-entrepreneur (Mitunternehmer) in Germany, a shareholding of at least 1% in a German corporation, but also substantial domestic assets or high domestic income. Many people moving abroad meet at least one of these criteria without knowing it.

The consequences

• For up to ten years after moving abroad, Germany taxes not only the classic domestic income but all income that is not foreign income
• The income is subject to the progression clause, i.e. the tax rate is derived from your worldwide income
• Annual filing obligations in Germany remain, with a corresponding burden of proof

In addition, Section 5 AStG prevents the rule from being circumvented through interposed foreign companies: income of such a company can be attributed directly to the person who has moved abroad. Whether extended limited tax liability applies and how it can be limited, for example by reducing substantial interests before moving abroad, belongs in any serious relocation planning for Dubai and similar destinations.

9. Employees: 183-day rule, secondment and working from home abroad

Under most agreements, employment income is in principle taxed where the work is performed. The well-known 183-day rule is an exception to this: the country of residence retains the right to tax only if three conditions are met together. The employee spends no more than 183 days in the country of activity, the employer is not resident there, and the salary is not borne by a permanent establishment there.

Anyone who only counts the days and ignores the other two points regularly arrives at the wrong result. In addition, the way the days are counted differs from agreement to agreement.

Working from home abroad

Remote work from abroad is not a foregone conclusion from a tax perspective. Depending on its scope and duration, part of the salary can become taxable in the country of activity, and registration, wage tax and even permanent establishment obligations can arise for the employer. Social security also follows its own rules, which do not coincide with tax law. Before longer periods abroad, this should be clarified between employee and employer.

10. Investments: foreign securities accounts, dividends and withholding tax

If you are subject to unlimited tax liability in Germany, you must also declare investment income from foreign securities accounts. Foreign banks do not withhold German flat-rate withholding tax (Abgeltungsteuer), so the income is reported in Anlage KAP and taxed here subsequently.

Withholding tax on dividends

Many countries withhold tax on dividends. Under most agreements, the source country may withhold a maximum of 15%, and this portion is credited in Germany. If the source country withholds more, as Switzerland or France do under their national law, the excess must be reclaimed in the source country. This is worthwhile for larger positions but is often left untouched for years.

After moving abroad, the picture is reversed: the question then is what Germany may still withhold on German dividends and interest and how the destination country treats the income.

11. Crypto abroad: moving abroad, holding periods and reporting

Crypto assets play a leading role in many relocation cases, and the rules differ significantly from those for GmbH shares. Privately held coins have so far not been subject to the exit tax. Instead, what matters is where you are resident at the time of disposal: if you only sell after a properly completed move abroad, the gain is in principle taxed in your new country of residence.

This is exactly where the typical mistakes arise. If you sell while your German tax residence has not yet ended, you pay tax in Germany. If you move to a low-tax country and retain substantial interests in Germany, you can end up back in the German tax net via extended limited tax liability, in particular with commercial crypto activities such as trading on a significant scale, mining or a German structure.

What matters

• Within Germany: after a holding period of one year, private capital gains are tax-free; staking and lending have their own rules
• The timing of sales before or after moving abroad should be calculated, not decided by gut feeling
• The acquisition history must be documented without gaps; it will also be needed in the destination country
• Under DAC8, crypto service providers will in future automatically report transaction data to the tax authorities, similar to banks under the CRS. Untaxed prior years will therefore be detected considerably more often

The combination of relocation planning and crypto expertise is rare; for us it is part of everyday work. Find out more on our page on crypto tax advice.

12. Real estate abroad: letting, sale, progression clause

For real estate, almost the same basic principle applies worldwide: the right to tax lies with the country in which the property is located. A holiday flat in Spain is therefore taxed first in Spain, and an apartment building in Austria first in Austria.

For your German tax return, however, this does not mean that the property can be ignored. Depending on the agreement, the income is exempt or the foreign tax is credited, sometimes with and sometimes without the progression clause. Separate rules apply again to real estate in EU member states. Capital gains on a sale can also be relevant in both countries, with different holding periods and tax bases.

If you buy a property abroad, you should therefore keep both legal systems in view and collect the supporting documents from the outset so that they can be used in both countries.

13. Foreign tax arrangements: CFC taxation & notification obligations

A company abroad that accumulates profits at a low tax rate while you yourself live in Germany: this idea is frequently sold on the internet and almost never works for tax purposes. The German legislator has built several defence mechanisms against it.

CFC taxation (Hinzurechnungsbesteuerung, Sections 7 et seq. AStG)

If persons resident in Germany control a foreign company that mainly generates passive income, for example from interest, licences or certain services, and the tax burden there is below 15%, the profits are attributed directly to the German shareholders and taxed here as if they had been distributed. The tax advantage of the foreign company is thus lost; what remains is administrative effort and filing obligations.

Do not underestimate notification obligations

• Certain cross-border tax arrangements must be reported to the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) within 30 days under the DAC6 rules, usually by the advisor, and by the taxpayer themselves in self-managed cases
• The formation and acquisition of shareholdings in foreign companies must be notified under Section 138 of the German Fiscal Code (AO)
• Breaches can trigger fines and cast a poor light on the entire structure in later audits

This does not mean that foreign structures are generally pointless. With genuine substance, i.e. staff, premises and actual business activity abroad, and active operations, they can work. However, the line between legitimate planning and a costly mistake runs exactly where the substance ends. We review structures before they are set up and clean up existing ones before the tax office does.

14. Reporting and filing obligations: CRS makes foreign accounts visible

The days when foreign accounts went unnoticed are over. Via the Common Reporting Standard, more than 100 countries automatically exchange account data every year: balances, interest, dividends, sale proceeds. These reports are received by the Federal Central Tax Office and matched against tax returns.

The most important obligations at a glance

• Foreign income belongs in your German tax return, usually via the forms Anlage AUS, KAP or V
• The formation and acquisition of shareholdings in foreign companies must be notified to the tax office under Section 138 AO
• After moving abroad, a filing obligation for German-source income may remain

If you have not declared foreign matters in previous years, you should not play for time. An orderly corrected return is almost always the better option than a letter from the tax office after the next CRS evaluation. We handle such cases regularly and discreetly.

15. Moving to Germany: the often underestimated case

The opposite direction also has explosive tax potential. When you establish a residence in Germany, unlimited tax liability begins, and it covers your worldwide income. Foreign securities accounts, companies, trusts or life insurance policies that were unremarkable in your country of origin can suddenly become reportable here or be taxed unfavourably.

Clarify before moving to Germany

• Which foreign structures should be adjusted or dissolved before moving to Germany
• How existing assets are valued so that later capital gains are calculated correctly
• Which ongoing income from abroad continues and how the relevant DTA treats it

As with moving abroad, the planning options exist before the move. A consultation before taking up residence costs little compared with what an overlooked structure can cost later.

16. Checklist: documents you can prepare

Basics

• Timeline: planned or completed moving date, previous and future residences
• Days spent in each country, where documented, for example via calendars or travel documents
• Family situation and where your partner and children live

Assets and shareholdings

• Shareholdings in corporations with percentage held and approximate value
• Securities accounts, bank accounts and larger fund holdings in Germany and abroad
• Real estate with location, use and financing
• Crypto holdings and their acquisition history

Income

• Employment contracts, secondment agreements or arrangements for working from home abroad
• Overview of ongoing income per country
• Most recent tax returns and tax assessments, including those from abroad