The exit tax is the one German rule every founder should know before moving their residence to Bulgaria. It sits in section 6 of the Foreign Tax Act (Außensteuergesetz, AStG) and does something that looks unfair at first sight: it taxes a gain you never realised. If you hold shares in a company and leave Germany, you are treated as if you had sold those shares at market value on the day you left. Tax on the fictional gain falls due although no money changed hands.
This article describes the rule as it has applied since 1 January 2022, plus the extension to fund units since 2025. It is not a substitute for advice from a German tax adviser. Its job is to tell you whether you are affected at all, and which questions have to be settled before you move.
Who the exit tax catches
Three conditions have to coincide:
- You are a natural person who was subject to unlimited German tax liability for at least seven of the last twelve years. The years need not be consecutive.
- You hold, or held at any point in the last five years, at least 1% of the shares in a corporation, whether a GmbH, UG, AG or a foreign company. That is the threshold of section 17 of the Income Tax Act.
- Your unlimited tax liability ends because you give up your home and habitual abode in Germany. The same effect follows if you become resident in Bulgaria under the double taxation treaty while keeping a flat in Germany, or if you give the shares to someone living abroad.
Since 1 January 2025 the rule also covers units in investment funds and ETFs, if in the last five years you held at least 1% of a fund’s units or invested more than 500,000 euro in a single fund. For an ordinary portfolio of broadly diversified ETFs the threshold is far away; for a large portfolio concentrated in a few positions it is not.
Interests in partnerships, sole proprietorships and German real estate are not covered. Other rules apply there, and German property remains taxable in Germany in any case.
Who is not affected
For most readers of this site this is the most important news: anyone who holds no shareholding of 1% or more in a corporation pays no exit tax. An employee, a freelancer, a sole trader or a founder whose first company will be a Bulgarian EOOD formed after the move is not caught. The exit tax is a problem of existing wealth, not of future business.
How much it is
The taxable amount is the difference between the fair market value of the shares on the day of departure and your acquisition cost. For a GmbH with no market price the value is estimated, usually under the simplified earnings method of the Valuation Act: the average annual profit of the last three years multiplied by a factor of 13.75. A company earning 100,000 euro a year is worth roughly 1.4 million euro by that arithmetic, whether or not anyone would ever pay that price.
The fictional gain is taxed under the partial-income method: 60% of it at your personal income tax rate. At the top rate that is about 27% of the gain plus the solidarity surcharge, so roughly 28.5%. On an increase in value of one million euro that is around 285,000 euro of tax without having sold anything.
Instalments, not deferral
Until 2021 a move within the EU could have the tax deferred interest-free and indefinitely. That is over. Since 2022 the same procedure applies to every destination, and Bulgaria as an EU member is treated no better than Dubai:
- On application you pay the tax in seven equal annual instalments, interest-free. The tax office normally demands security, such as a bank guarantee or a pledge of the shares.
- The outstanding instalments become due immediately if you sell, give away or contribute the shares, if the company is liquidated, if you fall behind on an instalment, and if the company distributes to you profits totalling more than 25% of the value of the shares since you left. The last rule surprises many people: distributing the accumulated profits of your GmbH after the move, in order to tax them in Bulgaria, triggers the remainder of the exit tax.
The return rule
If you become subject to unlimited German tax liability again within seven years and have neither sold the shares nor made substantial distributions in the meantime, the tax lapses retroactively. Instalments already paid are refunded. On application the period can be extended by up to five years if the intention to return persists. Anyone going abroad for a few years only should document that from the start, because the instalment plan then becomes an interest-free bridge.
The Bulgarian trap: acquisition cost after the move
The double taxation treaty between Germany and Bulgaria assigns the gain on a sale of company shares to the state in which the seller is resident. After the move that is Bulgaria, and Bulgaria taxes an individual’s gain at 10%. So far the good news.
The bad news: Bulgaria computes the gain as the sale price less the documented acquisition cost, meaning what you originally paid for the shares. The value the German tax office set and taxed at departure plays no part. Germany taxes the growth up to the move; Bulgaria taxes the entire growth since acquisition. The same euro of appreciation can be taxed twice. Whether and how that can be avoided in your case is one of the questions that must be answered before the move, not after it.
What this means for your move
- Check first whether you are affected at all. No shareholding of 1% or more in a corporation, no fund position above the thresholds: no exit tax. The rest of this article then does not concern you.
- Have your company valued realistically before you fix a moving date. The tax is measured by the value on the day of departure, and that can be influenced by timing.
- Decide what happens to the German company. Selling before the move, converting it, contributing it to a holding, or keeping it with an instalment plan are different routes with different costs. That is your German adviser’s job.
- Plan the Bulgarian side at the same time. Residence, the certificate of residence, acquisition cost and the later taxation of dividends and capital gains in Bulgaria belong in the same plan. That is our job.
How you become tax resident in Bulgaria at all, and what the 183-day rule really means, is explained in The 183-Day Rule, Tax Residence and the Double Taxation Treaty. The formation itself is covered in our Guide to Registering a Bulgarian EOOD.
Consultax advises on the Bulgarian side of the move in German and English and works alongside your German tax adviser. Talk to us before you deregister your residence.