Exit Tax by Country: What You Owe When You Leave

Exit taxes are the single most overlooked cost of international relocation. While the destination jurisdiction's tax rate attracts the headlines, the departure jurisdiction's exit charge determines the actual cost of the move. A poorly planned departure from Germany, Australia, Canada, or France can generate a six or seven-figure tax bill on gains you have not yet realised.

What Is an Exit Tax?

An exit tax is a charge levied on unrealised gains when a taxpayer ceases tax residency in a country. The underlying logic is straightforward: the country in which the gain economically accrued should tax it, even if the actual disposal occurs after departure.

Exit taxes take several forms:

• Deemed disposal -- The country treats all assets as if sold at market value on the date of departure (Australia, Canada, South Africa)
• Deferred charge on specific assets -- The country taxes unrealised gains on qualifying shareholdings upon departure (Germany, France)
• Temporary non-residence provisions -- The country taxes gains realised during a period of non-residence if the taxpayer returns within a specified period (UK)

Country-by-Country Exit Tax Guide

Germany: Wegzugsbesteuerung (Section 6 AStG)

Germany's exit tax is among the most aggressive in the world. It applies when a German tax resident who holds at least 1% of a corporation (directly or indirectly) ceases German tax residency.

Key provisions:

• The tax is levied on the unrealised gain as if the shares were sold at fair market value on the day before departure
• The standard capital gains tax rate of 26.375% (including solidarity surcharge) applies
• EU/EEA moves: Deferral without interest is available for moves to other EU/EEA states, payable over seven years in equal instalments
• Non-EU moves: The tax is immediately due. No deferral, no instalment plan
• A return to Germany within seven years can reverse the charge if the shares have not been disposed of
• The 1% threshold includes indirect holdings through partnerships and other transparent entities

Planning considerations: Pre-departure corporate restructuring to reduce the value of holdings below the 1% threshold, or to convert direct holdings into fund-type structures, requires early engagement. Moving to an EU/EEA state as an intermediate step is a legitimate strategy.

Australia: CGT Event I1

Australia deems a departing resident to have disposed of all CGT assets at market value on the date they cease being an Australian resident for tax purposes. This is CGT Event I1 under the Income Tax Assessment Act 1997.

Key provisions:

• Applies to all worldwide assets, not just Australian assets
• The 50% CGT discount applies if the asset was held for at least 12 months
• An election is available to defer CGT Event I1, but this means the departing resident remains subject to Australian CGT on those assets until actual disposal
• The deferral election keeps the individual within the Australian CGT net indefinitely on deferred assets
• Non-residents who do not make the election are only subject to Australian CGT on taxable Australian property (primarily Australian real estate) after departure

Planning: Many departing residents choose not to elect deferral, accepting the deemed disposal charge in exchange for clean separation from the Australian tax system. The decision depends on whether unrealised gains are large and whether the assets will appreciate further.

Canada: Departure Tax (Section 128.1 ITA)

Canada imposes a deemed disposition at fair market value on virtually all property when a taxpayer emigrates. This is one of the broadest departure taxes globally.

Key provisions:

• Applies to all types of property including shares, partnership interests, trust interests, and stock options
• Exceptions: Canadian real property (remains subject to Canadian tax on actual disposition), pension rights, and personal-use property valued under CAD 10,000
• Payment can be deferred by providing adequate security to the CRA
• A returning resident can elect to unwind the deemed disposition
• No distinction between EU and non-EU destinations

The Canadian departure tax catches entrepreneurs by surprise because of its breadth. Every portfolio investment, every private company share, every partnership interest is deemed sold.

France: Exit Tax (Article 167 bis CGI)

France's exit tax applies to residents who hold securities with unrealised gains exceeding EUR 800,000, or who hold at least 50% of the voting rights or financial rights in a company.

Key provisions:

• Tax at standard rates (30% flat tax or progressive rates up to 45% plus social contributions)
• EU/EEA moves: Automatic deferral without security
• Non-EU moves with DTA: Deferral available subject to filing obligations
• The deferred tax is written off entirely after 5 years if the securities are not disposed of
• The 5-year period was extended from 2 years in 2014
• Partial disposals within the 5-year period trigger proportional payment

The French system is notably more forgiving than Germany's for non-EU moves, provided you wait five years before disposing.

United Kingdom: Temporary Non-Residence Rules

The UK does not have a formal exit tax. Instead, it applies temporary non-residence rules under Section 10A TCGA 1992. If you leave the UK and return within five complete tax years, any capital gains realised during the period of non-residence are charged to UK CGT on return.

Key provisions:

• Applies only if you were UK resident for at least 4 of the 7 tax years preceding departure
• The charge covers gains on assets held before departure that are disposed of during non-residence
• Gains on assets acquired during non-residence are not caught
• The five-year clock runs from the end of the last UK tax year of residence
• No charge if you remain non-resident for five full tax years

The UK's system is gentler than deemed disposal regimes because it only triggers if you return. For those making a permanent departure, there is no exit charge on non-UK assets.

South Africa: Deemed Disposal on Ceasing Residency

South Africa deems all worldwide assets disposed of at market value when a taxpayer ceases South African tax residency. The process requires formal financial emigration through the South African Reserve Bank (SARB).

Key provisions:

• CGT at an effective maximum rate of 18% for individuals (inclusion rate of 40% multiplied by the 45% marginal rate)
• The annual CGT exclusion of ZAR 40,000 and lifetime exclusion of ZAR 1,800,000 may apply
• Exchange control regulations require all foreign assets to be declared
• SARB approval is required for the transfer of assets and funds exceeding allowances

Norway

Norway imposes an exit tax on unrealised gains on shares and financial instruments when a taxpayer leaves Norwegian tax residency. The 2024 reforms tightened the rules significantly, removing the previous five-year waiting period for write-off.

United States: Covered Expatriate Rules

The US applies a mark-to-market exit tax on covered expatriates who renounce US citizenship or abandon long-term permanent residence. A covered expatriate is an individual who meets any one of three tests: net worth exceeding USD 2 million, average annual net income tax liability exceeding approximately USD 190,000 (2024, inflation-adjusted), or failure to certify five years of tax compliance.

Key provisions:

• All worldwide property is deemed sold at FMV the day before expatriation
• An exclusion of approximately USD 866,000 (2024, inflation-adjusted) applies to the first tranche of gain
• Deferred compensation items and specified tax-deferred accounts are subject to a 30% withholding tax
• No deferral mechanism is available

Planning Strategies

Pre-Departure Valuation Management

Where exit taxes are based on fair market value at departure, reducing the value of holdings before departure is the primary planning tool. This may involve:

• Distributing retained earnings before departure
• Crystallising losses to offset against deemed gains
• Restructuring debt to reduce net equity values

Intermediate Jurisdictions

Germany's more favourable treatment of EU/EEA moves creates opportunity. A German resident planning to relocate to the UAE might first move to Portugal or Malta, benefiting from the EU deferral provisions, before subsequently moving to the UAE.

Timing Disposals

For jurisdictions with time-based write-offs (France's 5-year rule, UK's 5-year temporary non-residence provisions), timing the actual disposal to fall outside the charge window is critical.

Key Takeaways

• Exit taxes are imposed by Germany, Australia, Canada, France, South Africa, Norway, and the US, among others, on departing residents.
• Germany's Wegzugsbesteuerung is the most aggressive for shareholders, imposing immediate charges on non-EU departures.
• Australia and Canada apply broad deemed disposal rules to virtually all assets.
• France's exit tax is written off after 5 years if shares are not sold.
• The UK's temporary non-residence rules only bite if you return within 5 years.
• Pre-departure planning -- including valuation management, intermediate jurisdiction moves, and disposal timing -- can materially reduce or eliminate exit tax exposure.