Moving one's residence away from Germany – for example to Cyprus – does not automatically produce a tax-free fresh start. German tax law secures its access to the unrealised gains accrued up to the point of departure before those gains leave the German taxing jurisdiction. Exit and entry taxation are therefore central themes of any cross-border change of residence. This article sets out the key mechanisms – from the allocation of taxing rights through the exit tax under Sec. 6 of the Foreign Tax Act (AStG) to the specifics of inbound moves. It deals with German tax law and is intended as general orientation; the concrete assessment belongs in the hands of the German and Cypriot advisers involved.
Allocation of taxing rights and deemed realisation
A single underlying idea sits behind the various individual provisions: if Germany loses or restricts its right to tax a future capital gain, the value increase accrued up to that point should be subjected to German taxation one last time. This principle is known as deemed realisation (Entstrickung). It applies both to private assets (such as shareholdings in corporations) and to business assets (assets of a business or permanent establishment), but through separate rules.
Every exit consequence presupposes that the tax connection to Germany ends or is restricted. Domestically, unlimited tax liability is linked to residence (Sec. 8 of the Fiscal Code) and habitual abode (Sec. 9). If residences exist in both states after the move, treaty residence under Art. 4 of the OECD Model Convention decides the matter where a double taxation treaty applies. Its tie-breaker rules look, in turn, at the permanent home, the centre of vital interests, the habitual abode and finally nationality. Anyone keeping a home in Germany should therefore document treaty residence carefully – it determines which state holds the taxing right.
Exit of a corporate shareholder: Sec. 6 AStG
The most important case in practice concerns shareholders of corporations. When the unlimited tax liability of an individual holding a shareholding within the meaning of Sec. 17 of the Income Tax Act (EStG) – at least 1% of the capital – ends, Sec. 6 AStG deems a disposal of those shares at fair market value at the time of departure. The entire value increase accrued up to that point is taxed, under the partial-income method (60% taxable), even though the shareholder has actually received nothing. This taxation without any inflow of liquidity is the real hardship of the provision.
In personal terms, Sec. 6 AStG requires that the person was subject to unlimited tax liability for at least seven of the twelve years before departure. This "seven-of-twelve-years" threshold was standardised by the ATAD Implementation Act. In substantive terms, shares in domestic and foreign corporations are covered, provided the 1% threshold is met. Subsequent reductions in value may, under certain conditions, still be taken into account – an important point if the value of the shares falls after departure.
What the exit tax really means – a worked example
A simple example shows how hard Sec. 6 AStG can hit. An entrepreneur holds shares in her GmbH with acquisition costs of EUR 25,000; at the time of departure the fair market value of the shares is EUR 2,000,000. Sec. 6 AStG deems a disposal – taxable is a value increase of EUR 1,975,000, under the partial-income method at 60%, i.e. EUR 1,185,000. Depending on the personal tax rate, this quickly becomes several hundred thousand euros of income tax – due even though not a single share was sold and not one euro was received. It is precisely this taxation of "dry" income that surprises many emigrants and can jeopardise the entire exit plan if it is not prepared in good time.
Deferral and the return rule
The ATAD Implementation Act fundamentally changed deferral. The interest-free and open-ended deferral previously granted for EU and EEA cases has been abolished. In its place comes a deferral by instalments: on application, the assessed tax may be paid in seven equal annual instalments, generally against the provision of security. This eases the liquidity burden but does not eliminate it entirely.
The return rule of Sec. 6(3) AStG provides considerable relief. If the departure is only temporary, the exit tax ceases retroactively where the person becomes subject to unlimited tax liability again within seven years; on application, an extension to up to twelve years is possible. Conditions include that the shares are held in the interim and that an intention to return can be credibly shown. For clients planning a fixed-term stay in Cyprus, this rule is a key structuring element.
Exit of sole traders and partners
A move can uncover unrealised gains outside the corporate shareholding too. In business assets, the withdrawal/deemed-realisation rule of Sec. 4(1) sentence 3 EStG applies where Germany's right to tax an asset is excluded or restricted; where an entire business is moved abroad, Sec. 16(3a) EStG is relevant. Sec. 50i EStG plays a special role, securing German taxing rights over assets and shares previously held tax-neutrally in partnerships. If a permanent establishment remains in Germany to which the assets are functionally attributable, German taxing rights – and thus deemed realisation – can be avoided in whole or in part.
Further deemed-realisation events
The deemed-realisation idea runs through the whole of international tax law. It captures, among other things, the relocation of a corporation's seat to another state, the transfer of individual assets to a foreign permanent establishment, and the relocation of functions abroad. As varied as these situations are, they follow the same pattern: if the German taxing right is lost or restricted, the law attaches a realisation of unrealised gains to it. Anyone planning a cross-border structure should consider these events early in order to avoid unexpected tax consequences.
Exit and Entry Taxation Together
German § 6 AStG exit taxation on qualifying shareholdings, in seven annual instalments since 2022, must be planned alongside the Cyprus side, where 15% corporate tax and the Non-Dom status apply. Both ends are planned as one.
Careful sequencing and documentation secure the position. The German side stays with the client's adviser; the CMC team handles the Cypriot side.
Relevance for relocating to Cyprus
As an EU member with a double taxation treaty with Germany and an attractive tax regime – Non-Dom status, 15% corporate tax, IP Box – Cyprus is a popular destination. The Cypriot advantage, however, only unfolds once the German exit side has been handled cleanly. Typical questions are the timing of departure, the treatment of GmbH shares under Sec. 6 AStG, a possible restructuring before departure, the use of the return rule for fixed-term stays, clarifying treaty residence, and avoiding the extended limited tax liability. CMC handles the Cypriot side – residence, Non-Dom, corporate and holding structure – and coordinates with the German advisers on the exit side.
What CMC handles for you
The good news: with the right preparation, the exit tax can in many cases be substantially reduced, spread over time or – for a merely temporary move – avoided altogether. So that your move to Cyprus does not become an expensive surprise, we coordinate the process from the outset:
Early review: Together with your German advisers, we clarify whether and to what extent Sec. 6 AStG applies, and time the departure so that you do not walk into an avoidable tax trap.
Cypriot structure from a single source: We set up residence, Non-Dom status and – where useful – a holding structure so that the Cypriot advantage (15% corporate tax, 0% on qualifying dividends) actually takes effect.
Deferral, return and compliance: We keep deferral instalments, the return rule and reporting obligations in view, so that deadlines are met and no back payments or penalty surcharges arise.
Your outcome: certainty instead of uncertainty, a predictable tax burden – and, in the end, more net income from what you have built.
Individual advice
This article addresses German tax law in general terms and does not replace individual advice. Exit and entry taxation is complex, case-specific and subject to ongoing legislative change; German legal questions must be coordinated with the responsible German advisers. CMC Certus Management Consultants has advised German-speaking entrepreneurs and private individuals on relocating their residence and business to Cyprus since 2010, coordinating the Cypriot side with the German side.
Arrange a free initial consultation: Book an appointment · kontakt@steuerberater-zypern.info · WhatsApp +357 95 140797
Reform 2026: the new key figures for movers
For departures and arrivals, updated key figures apply since 2026: on the Cyprus side 15 percent corporate tax, unchanged tax-free non-dom dividends and interest, the eased 60-day rule, the income tax allowance of EUR 22,000 and the abolished stamp duty. On the German side, the tightened exit taxation under § 6 AStG remains the central planning point before the move.
None of this changes the basic mechanics – it only makes them more attractive: a clean cut in Germany, robust residence and substance in Cyprus, consistent documentation on both sides. Those who insert the new figures into the established departure logic get the same result in 2026 as before – only with an even clearer lead over the closed or narrowed alternative regimes of other EU states.
Exit and Entry Taxation: The Two Sides Read Together, Not One Without the Other
The exit taxation of the origin country and the entry (arrival) taxation of the destination are read together as two sides of a cross-border move—not one side considered while the other is assumed away. A move has an exit dimension (the origin country's charge on leaving—a deemed disposal, an exit tax on unrealised gains, the ending of tax liability) and an entry dimension (the destination's treatment on arrival—the step-up or carry-over of asset values, the commencement of tax residence, the treatment of pre-arrival gains), and the two interact: the value at which the destination takes up an asset can depend on the exit treatment, and double taxation or double non-taxation can arise where the two sides don't align. The honesty formula: the move is read on both sides—the origin exit and the destination entry—not one without the other; whoever plans the exit without the entry (or the entry without the exit) reads half the move, and the two sides are read together, not one without the other.
The cross-reference note: The exit and relocation chapters carry the neighbours—this chapter carries the exit-and-entry pairing; German exit questions go to external German advisors, while the Cyprus entry work is with CMC.
The Two Sides in Detail: Exit, Entry, Interaction
The two sides, read together: The exit side is the origin country's charge on departure—the deemed disposal (like the German §6 AStG on substantial shareholdings), the exit tax on unrealised gains, the ending of unlimited tax liability, the origin's final reach on leaving. The entry side is the destination's treatment on arrival—whether asset values are stepped up to market at arrival (so only post-arrival gains are taxed there) or carried over at historic cost, the commencement of tax residence, the treatment of income and gains arising after arrival. The interaction is where reading both matters—if the origin taxes the gain to departure (exit) and the destination steps up to arrival value (entry), the gain is split cleanly between them; but misalignment can cause double taxation (both taxing the same gain) or double non-taxation (neither taxing it), so the two sides must be read together to see the whole. The Cyprus entry is placed—the individual arriving in Cyprus has their Cyprus treatment read (the step-up or basis on arrival, the residence commencement, the non-dom placement), distinct from but paired with the origin exit. The German-questions-external note holds—the German exit (§6 and related) is referred to German advisors, while the Cyprus entry is with CMC and George Zourides. The pairing formula: origin exit plus destination entry plus their interaction equals the whole move—the both-sides sentence of exit-and-entry taxation.
The both-sides note: The move is two-sided (the exit-and-entry of the paired sort—the one-side assumption of the wrong kind: the move read on both the exit and entry sides, not one without the other).
Practice Lines: Reading Both Sides of the Move
The practice sequence for the mover: The exit side is read (the origin country's charge on departure—the deemed disposal, exit tax, ending liability), the entry side is read (the destination's treatment on arrival—the step-up or carry-over, the residence commencement), the interaction is checked (do the two align, or is there double taxation or double non-taxation?), the Cyprus entry is placed (the arrival treatment with CMC), the German exit is referred out (to German advisors), and the whole move is planned on both sides. The chapter's memory line: exit and entry taxation are read together—the origin exit and the destination entry, with their interaction checked; those who read both sides see the whole move, while those who read one read half. The closing classification: exit and entry taxation are the two sides of a cross-border move—the origin country's exit charge (deemed disposal, exit tax) and the destination's entry treatment (step-up or carry-over, residence commencement), with their interaction determining whether the move is cleanly split, doubly taxed, or doubly untaxed—read together, not one without the other, with German exit questions referred to external German advisors and the Cyprus entry work with CMC. The two sides are read together, not one without the other—so the mover sees the whole move rather than half of it.