BDO: Tax Deferral for Emigration to Switzerland Requires Application from 2022

BDO AG, a business auditing and advisory firm, has issued guidance on the application of Section 6 of the German Foreign Tax Act (AStG) for individuals emigrating to Switzerland.

Section 6 of the AStG addresses the taxation of unrealized capital gains on shares held in corporations when a taxpayer changes their tax residency by emigrating from Germany. This provision, known as 'exit taxation' (Wegzugsbesteuerung), aims to tax latent reserves before actual realization, thereby ensuring German tax authorities can still collect taxes on wealth accumulated while the individual was a German resident.

Due to EU freedom of movement principles, this exit taxation requires certain limitations, especially in relation to countries with which Germany has specific agreements. The Federal Fiscal Court of Germany (BFH), in a decision on September 6, 2023, clarified that while exit tax can be assessed for individuals moving to Switzerland, the payment of this tax must be permanently and interest-free deferred. This ruling followed earlier decisions related to the EU's freedom of establishment and services.

Building on this judicial precedent, the German Federal Ministry of Finance (BMF) has issued a directive on June 2, 2025. This directive confirms that emigration to Switzerland, under certain conditions, warrants the deferral of exit taxes. Taxpayers must apply for this deferral, and security arrangements may typically be required. The directive also allows for the refund and interest-free deferral of already paid exit taxes, provided the conditions are met. However, it is critical to note that the BMF's current guidance applies only to emigration cases occurring up to December 31, 2021. As of January 1, 2022, the law was amended, and the previously available automatic deferral is no longer provided in the same manner.

BDO AG advises affected individuals to review their tax situation promptly, especially if they have already paid exit taxes and emigrated before the end of 2021, to determine if they can benefit from the clarified deferral rules or are eligible for a refund with interest.