The exit taxation of § 6 AStG concerns shares in corporations. But anyone holding a sole proprietorship or a share in a partnership and moving to Cyprus faces different rules. Here it is not about shares but about business assets – and the question of whether Germany loses its taxing right over them.
The difference from § 6 AStG
§ 6 AStG captures the hidden reserves resting in corporate shares. The business assets of a sole proprietorship or a co-entrepreneurship follow different rules. What matters is not the personal move as such but whether the German taxing right over the business's assets is preserved or lost.
The permanent establishment as an anchor
If the business continues as a German permanent establishment, the assets tied to it remain taxable in Germany – regardless of the entrepreneur's residence. The treaty allocates the taxing right to the permanent-establishment state. A business whose substance and activity remain in Germany does not automatically trigger a final taxation through the mere move of the person.
The exit charge
It becomes critical when assets or the business are relocated such that Germany loses the taxing right. Then the exit charge applies: the affected assets are deemed withdrawn or disposed of at fair market value, the hidden reserves are disclosed and taxed. This can be the case, for example, when assets are transferred to a foreign permanent establishment.
Keep function relocation in view
If not just a single asset but a function together with its opportunities and risks is relocated abroad, the function relocation with the valuation of a transfer package can additionally apply. Business relocation and function relocation must therefore be thought of together.
Structuring and timing
Whether and to what extent a final taxation is triggered depends on the specific structure: whether a German permanent establishment remains, whether assets are relocated, whether there is a conversion. Forward planning can avoid or time an unwanted disclosure of hidden reserves.
The role of CMC: Non-Dom Status
The CMC team designs the Cyprus side and the future structure and coordinates the assessment of the exit charge and function relocation closely with your German advisor, who conducts the German business and final taxation. Reserved legal acts run through the partner law firm A. Panayiotou LLC.
The permanent establishment as an anchor with an example
A sole proprietor runs a workshop in Germany and moves privately to Cyprus. If the workshop continues as a German permanent establishment and work continues there, the assets tied to it remain taxable in Germany – the treaty allocates the taxing right to the permanent-establishment state. The mere private move triggers no final taxation here. It becomes critical only when assets or the business are relocated such that Germany loses the taxing right.
When the exit charge applies
The exit charge applies when the German taxing right over individual assets or the business is lost – for example by transfer to a foreign permanent establishment. Then the affected assets are deemed disposed of at fair market value, and the hidden reserves are disclosed and taxed. Whether and to what extent this happens depends on the specific arrangement.
Partnership and co-entrepreneur share
For a share in a partnership these principles apply accordingly: decisive is whether the German taxing right over the proportionate business assets is preserved. Unlike corporate shares, which are captured by the exit taxation of Section 6 AStG, here the exit charge on business assets is in the foreground. Both levels must be carefully kept apart.
Common Questions about Relocation with a Sole Proprietorship and Partnership
Does § 6 AStG also apply to my sole proprietorship? No. § 6 AStG concerns corporate shares. Different rules apply to the business assets of a sole proprietorship or partnership.
Does the move automatically trigger tax? Not necessarily. If the business continues as a German permanent establishment, the assets remain taxable there without the move triggering a final taxation.
When does the exit charge apply? When assets or the business are relocated such that Germany loses the taxing right – then the hidden reserves are disclosed.
What does this have to do with function relocation? If a whole function with opportunities and risks is relocated, the function relocation with a transfer package can additionally apply.
Relocation of a Sole Proprietorship or Partnership and the Exit: The Personal Move Read for Its Own Exit Rules
The relocation of a sole proprietorship or partnership has its own exit rules—distinct from a company's—read before the move, because the personal or transparent structure exits differently than a corporation — the system briefing first: The personal structure exits differently (the sole proprietorship or partnership of the personal sort — the corporate exit of the different kinds: the personal structure as the different-exit vehicle; the relocation as the own-exit-rules matter, per the exit and relocation chapters' law), the transparency shapes the exit (the transparent partnership of the transparency sort — the partner-level taxation of the transparent kinds: the transparency of the shaping sort; the exit of the transparency kind), the exit is read before the move (the exit rules read of the before sort — the before-not-after of the read kinds: the reading of the before sort; the exit of the timed kind), and the honesty formula opens: The sole proprietorship or partnership relocation is read for its own exit rules—the personal or transparent structure's exit, distinct from a company's—before the move — the structure's exit understood, the transparency placed, the move planned: the relocation as the own-exit-rules matter; whoever relocates a personal structure assuming a company's exit rules assumes the wrong rules, and the personal structure exits by its own rules, read before the move. The rules note of the standing echo: The exit is structure-specific (the sole proprietorship or partnership exit of the specific sort — the corporate-exit assumption of the wrong kind: the personal structure's exit read by its own rules, per the exit chapter).
The cross-reference note: The exit, relocation and corporate chapters carry the neighbours — this chapter carries the sole-proprietorship and partnership relocation; the library reads its personal-structure exit by its own rules.
The Relocation in Detail: Structure, Exit, Transparency
The relocation briefing of the personal-structure world: The sole proprietorship is the individual (the sole proprietor of the individual sort — the personal business of the individual kinds, per the corporate chapter: the sole proprietor of the individual sort; the relocation of the individual kind), the partnership is transparent (the partnership of the transparent sort — the partner-level taxation of the transparent kinds: the partnership of the transparent sort; the relocation of the transparency kind), the individual exit rules read (the individual exit taxation of the personal sort — the personal move exit of the personal kinds, per the exit chapter: the individual exit of the read sort; the relocation of the individual-exit kind), the German exit interacts (the German §6 AStG of the German sort — the personal exit charge of the interacting kinds, per the exit chapter: the German exit of the interacting sort; the relocation of the German kind), the business assets read (the business assets of the asset sort — the transferred or ceased business of the asset kinds: the business assets of the read sort; the relocation of the asset kind), the incorporation option reads (the incorporate-before-move of the option sort — the personal-to-corporate of the option kinds, per the formation chapter: the incorporation option of the read sort; the relocation of the incorporation kind), the German-questions-external reads (the German exit questions of the referred sort — the external German advisors of the referred kinds: the German questions of the external sort; the relocation of the referral kind), the professional coordination reads (the personal-structure relocation of the coordinated sort — the CMC and George Zourides of the mandate kinds: the coordination of the professional sort; the relocation of the coordinated kind), and the relocation formula closes: read the structure's exit, place the transparency, plan before the move, refer the German out. The relocation formula: Personal structure plus own exit rules plus planned move equals the structured relocation — the own-rules sentence of the personal-structure relocation.
The referral note of the standing sort: The German exit is external (the German exit questions of the referred sort — the CMC Cyprus scope of the implementing kind: the German exit taxation referred to external advisors, the Cyprus work with CMC).
Practice Lines: Relocating the Personal Structure Right
The practice briefing of the proprietor world: The structure's exit is read (the sole proprietorship or partnership exit of the specific sort — the exit rules of the read kind), the transparency is placed (the partnership transparency of the transparent sort — the partner-level of the placed kind), the individual exit is understood (the individual exit taxation of the personal sort — the personal move of the understood kind), the incorporation option is considered (the incorporate-before-move of the option sort — the personal-to-corporate of the considered kind), the German is referred out (the German exit questions of the referred sort — the external advisors of the referred kind), the planning is before (the pre-move planning of the timed sort — the before-not-after of the planned kind), and the practice formula closes: read the structure's exit, place the transparency, plan before the move, refer the German out. The chapter's memory line: The sole proprietorship or partnership relocation is read for its own exit rules—the personal or transparent structure's exit, distinct from a company's—before the move; those who read the structure's own rules plan the move, while assumers of a company's exit assume the wrong rules.
The closing classification: The relocation of a sole proprietorship or partnership and the exit reads the personal or transparent structure's own exit rules—distinct from a company's—before the move, with the incorporation option, the transparency, and the German exit interaction considered. German exit questions go to external German advisors; the Cyprus work is with CMC — the personal structure exits by its own rules, read before the move, not by a company's assumed rules.
Case Study: The Personal Structure Read for Its Own Exit
The own-rules story: a sole proprietor read the personal structure's own exit rules before relocating rather than assuming a company's exit rules applied — the chronicle: The structure's exit was read (the sole proprietorship or partnership exit of the specific sort — "I ran my business as a sole proprietorship and planned to relocate to Cyprus; I'd read about company exit taxation and assumed the same rules applied to me; my advisor corrected this: a sole proprietorship or partnership exits by its own rules, distinct from a company's, so I needed to read the personal structure's exit, not a corporation's", per the exit chapter), the transparency was placed (the partnership transparency of the transparent sort — "a partnership is transparent—taxed at the partner level, not as a separate entity—so its exit works differently from a company's; the transparency shaped the exit rules that applied"), the individual exit was understood (the individual exit taxation of the personal sort — "as a sole proprietor, my exit was the individual's exit—the personal move's exit taxation, including the German §6 AStG dimension for the individual", per the exit chapter), the incorporation option was considered (the incorporate-before-move of the option sort — "one option was to incorporate before moving—converting the personal structure to a company first, which would change the exit analysis; we considered it", per the formation chapter), the German was referred out (the German exit questions of the referred sort — "the German exit taxation went to German advisors, while the Cyprus work was with CMC"), the planning was before (the pre-move planning of the timed sort — "and I planned before the move—reading the structure's exit rules while I could still act on them"), and the balance closed read: read, placed, understood — the personal structure read for its own exit. The proprietor's verdict: "I read my personal structure's own exit rules before the move—rather than assuming a company's; the ones who assume a company's exit for a sole proprietorship or partnership assume the wrong rules, and the personal structure exits by its own rules, read before the move."
The lesson of the own-rules story: The personal structure is read for its own exit — the structure's exit read, the transparency placed and the move planned; and reading the structure's own rules versus assuming a company's is the whole discipline.
Quick FAQ on Relocating a Sole Proprietorship or Partnership
Does a sole proprietorship exit like a company? No — it exits by its own rules, distinct from a company's; a sole proprietor's exit is the individual's exit. How does a partnership differ? It's transparent — taxed at the partner level, not as a separate entity; its exit works differently from a company's. What's the German dimension? The individual exit — the German §6 AStG can apply to the individual; those questions go to German advisors. Is incorporation an option? Yes — incorporating before moving converts the personal structure to a company, changing the exit analysis; consider it. When should this be read? Before the move — read the structure's exit rules while you can still act on them.
Three Takeaways on Relocating a Sole Proprietorship or Partnership
First: The personal structure exits by its own rules — not a company's. Second: A partnership is transparent — taxed at the partner level. Third: Consider incorporation and read the exit before the move — refer the German out. Three lines for the personal-structure file.
Glossary of the Personal-Structure Relocation Chapter
Sole proprietorship — the individual's unincorporated business. Partnership transparency — the partner-level taxation. Individual exit taxation — the personal move's exit charge. §6 AStG — the German individual exit taxation. Incorporation option — the personal-to-corporate conversion before moving. Five terms for the personal-structure file.
Self-Check: Five Questions on Your Personal-Structure Relocation
The relocation review: Is the structure's own exit read? Is the partnership transparency placed? Is the individual exit understood? Is the incorporation option considered? And is the German referred out, the planning done before the move? Five yeses: the personal structure is read for its own exit. Every no risks assuming a company's rules.
Common Misconceptions About Relocating a Sole Proprietorship or Partnership
Three corrections: "It exits like a company" — the personal or transparent structure exits by its own rules. "A partnership is a separate taxpayer" — it's transparent; taxed at the partner level. "Incorporation makes no difference" — incorporating before moving changes the exit analysis. Three lines for the clear personal-structure view.
The One Sentence on Relocating a Sole Proprietorship or Partnership
For the index card: The relocation of a sole proprietorship or partnership reads the personal or transparent structure's own exit rules—distinct from a company's—before the move, with the incorporation option and German exit considered. One sentence for the personal-structure file.
Further Reading in the Personal-Structure Cluster
The personal-structure relocation chapter branches into the exit library: the exit chapters for the exit taxation, the relocation chapters for the move, the formation chapters for the incorporation option, the corporate chapters for the structure. The cluster message: The personal-structure relocation chapter is the sole-proprietor-and-partnership desk of the exit library — the own exit rules read; the library reads its personal-structure exit by its own rules, not a company's.
Afterword: The Personal Structure Exits by Its Own Rules, Read Before the Move
The closing thought: The proprietor's principle — the personal structure exits by its own rules, read before the move — corrects a rules-transfer assumption that the prominence of company exit taxation invites, and the correction matters because exit taxation is often discussed in corporate terms. Exit taxation is frequently discussed in the context of companies—the corporate exit charge, the company leaving a jurisdiction, the ATAD exit taxation of corporate assets—so the exit-tax discussion the relocating business owner encounters is often about companies, which can lead a sole proprietor or partner to assume that these company exit rules apply to them, transferring the corporate exit analysis to their quite different personal structure. But a sole proprietorship and a partnership exit by their own rules, distinct from a company's: a sole proprietorship is the individual (so its exit is the individual's personal exit, engaging individual exit taxation like the German §6 AStG on the person), and a partnership is transparent (taxed at the partner level, not as a separate entity, so its exit flows through to the partners)—so the exit analysis for these structures follows the rules for individuals and transparent entities, not the corporate exit rules that the company-focused discussion describes. The read-the-structure's-own-rules discipline applies the right rules: the sole proprietorship's exit read as the individual's exit, the partnership's as the transparent structure's, the German individual exit dimension (§6 AStG) referred to German advisors, the incorporation option considered (converting to a company before moving, which would change the analysis)—the personal structure's exit read by its own rules rather than assumed to follow a company's. And reading before the move is essential because the structure's form can be changed before departure: the incorporation option (converting the sole proprietorship or partnership to a company before moving) is available only before the move, and it materially changes the exit analysis—so reading the structure's exit rules before the move preserves the ability to choose the structure (personal or incorporated) with the better exit treatment, a choice foreclosed once the move happens under the existing form. This is the library's fit-the-rules-to-the-structure and before-not-after principles applied to personal-structure relocation: the same discipline that reads the exit taxation before the move and fits the vehicle to its type, here reading the personal structure's own exit rules before relocating. So read the personal structure's own exit rules before the move—the sole proprietorship's or partnership's, distinct from a company's—rather than assuming the corporate exit rules apply. Exit taxation is often discussed in corporate terms, which invites transferring those rules to a personal structure—but a sole proprietorship and partnership exit by their own rules, and the personal structure exits by its own rules, read before the move, so the owner who reads the right rules (and considers incorporating before moving) plans the exit correctly, while the one who assumes a company's rules applies an analysis built for a different structure than the personal or transparent one they actually have.
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This article is for general guidance and does not replace individual advice. Every case has its specifics – the type of income, personal circumstances, tax history and long-term objectives all significantly influence the optimal structure.
The CMC team plans the business relocation and coordinates exit charge and function relocation with your advisor. Book a free initial consultation: Book appointment · kontakt@steuerberater-zypern.info · WhatsApp +357 95 140797
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