On 18 October 2024, the Bundestag launched the draft Annual Tax Act 2024 (JStG 2024). On the basis of a recommendation by the Finance Committee, a tightening of German exit taxation, which is very important in practice, has recently been included in the draft bill and relates to investment fund units held by the transferor.
Background: Current exit taxation of shares in corporations (Section 6 AStG)
According to the current legal situation, only shares held as private assets in corporations (GmbH, AG) in which the departing taxpayer has held an interest of at least 1% within the last five years are covered by the so-called exit taxation pursuant to Section 6 AStG in the event of a cessation of unlimited tax liability in Germany (cessation of residence, no so-called habitual residence in Germany). In this case, the hidden reserves (unrealised increases in value) in the shares are taxed in Germany with the mere departure, i.e. without any inflow in the form of a sale price (known as "unrealised gains"). dry income tax). Although the tax burden can be paid in seven annual instalments upon application, in practice this exit tax often represents a considerable obstacle to the international mobility of (family) shareholders who, for example, wish to study abroad or relocate the centre of their life for professional or private reasons.
Hidden reserves in other assets held as private assets (e.g. shares, fixed-interest securities, derivatives or investment funds) are not subject to exit taxation under the current legal situation.
Planned tightening through the JStG 2024
The legislator now wants to change this by bringing units in certain investment funds within the scope of exit taxation. Units in so-called special investment funds and units in (public) investment funds (which also include ETFs, for example) in which the transferor holds at least 1% or whose acquisition costs amount to at least EUR 500 thousand are included. The EUR 500 thousand limit applies per investment fund, i.e. if the investor has units in five investment funds with acquisition costs of EUR 400 thousand each, the future exit tax will not apply.
According to the explanatory memorandum to the law, this is intended to close tax loopholes that the legislator has learnt about through notifications of cross-border tax arrangements in accordance with section 138d et seq. of the German Fiscal Code (AO). This relates in particular to the establishment of so-called special investment funds, which are only held by family members, for example, and into which company investments are made at an early stage (i.e. before large hidden reserves have formed).
The tightening is to apply to all departures (cessation of unlimited tax liability) that take place after 31 December 2024.
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