In Short

• You set up a German family foundation and transfer your company shares into it.
• Your shares then no longer belong to you, but to the foundation. As a result, no exit tax applies to you, since a foundation has no owners or shareholders.
• The model is similar to the Liechtenstein foundation with a few important differences: It is easier to transfer company shares into the German foundation (higher gift tax allowances and need for exemption check). The costs for your German foundation are cheaper. The model is "simpler" (no trustee, etc.).
  However, the disadvantage is that the German foundation pays more taxes: 15% tax on earnings (Liechtenstein foundation: 0%) and must pay the so-called substitute inheritance tax every 30 years (Liechtenstein foundation does not pay this).

In Detail: Structuring Exit Tax with a German Foundation

• Rhineland-Palatinate seems to be the subjective "favorite." For one, the minimum initial foundation capital of €50k is specifically specified and the sum is not absurdly high. In addition, on the website of the foundation supervisory authority there are, among other things, helpful document templates for incorporation.
  I had the opportunity to speak with a person who founded their foundation in Rhineland-Palatinate.
• Hamburg and Bavaria have very little (Hamburg) or no (Bavaria) ongoing supervision for private-benefit family foundations, so they could be an interesting option.

• Berlin generally seems (as in many other aspects) to have a completely unique interpretation of any regulations. While the website states that "€100k is generally too low," the actual interpretation seems to be that a basic capital of at least €500k is required, which seems absurdly high given typical ETF returns of 8%. It therefore seems advisable to give Berlin a wide berth solely due to the lack of transparency here.

Pros and Cons of the German Family Foundation for Exit Tax

• Obvious advantage: No exit tax. All company shares held by the foundation no longer fall under the exit tax, as a foundation has no shareholders or owners.
• Contributing company shares is easier in many cases than with other structures (more on this below). Simply put, this concerns operative GmbHs that you hold personally, i.e., not via a Holding GmbH. You can usually contribute these almost tax-neutrally (!) via a need for exemption check.
• The ongoing costs of a German family foundation are lower than those of a Liechtenstein foundation and potentially even lower than those of a Holding GmbH. Theoretically, the foundation can also be suitable as a "Holding replacement," regardless of whether one wants to move away from Germany or not.
• The ongoing taxation of a foundation is somewhat cheaper than that of a Holding GmbH: 15% on earnings with an annual allowance of €5k. Additionally, however, there is the substitute inheritance tax, where essentially an inheritance or "death" of the foundation is simulated and taxed every 30 years. The taxation of a Liechtenstein foundation is cheaper, but this in turn has higher running costs.
• Setting up a foundation and contributing company shares is possible relatively unproblematically. It is not an overly exotic structure like e.g., a cooperative or a Liechtenstein foundation. One can therefore assume that this solution is principally rarely objected to by tax offices.

• You pay German taxes forever: If you put your company shares into a foundation, it will always have to pay 15% tax on earnings, regardless of your personal place of residence. Depending on where you move, this may not be advantageous - depending on the country, it could be that your future place of residence does not tax dividends at all, so you would pay 0% tax on distributions from your companies if you had not transferred the shares to the foundation (but would have had to pay exit tax, etc.).
  So you have to consider carefully whether it makes mathematical sense for you to transfer your shares to the foundation "forever" and subject them to German taxation.
• Substitute Inheritance Tax: Every 30 years, the death of the foundation is simulated and it must pay inheritance tax on its entire assets. There are allowances here and the whole thing is of course plannable (building reserves, etc.), but naturally still a tax disadvantage. I have heard of all sorts of structures from tax advisors here, e.g., founding a second German foundation that buys the entire assets of the first foundation shortly before the 30 years expire; or founding a Liechtenstein foundation and somehow transferring the company shares to it. The most uncomplicated way would probably be to simply pay the tax. But one must of course be aware of the tax.
• (Relative) loss of control: Your company shares officially no longer belong to you, but to the foundation. You may still have full control if you continue to be the managing director of your companies and are simultaneously on the board of the foundation; nevertheless, legally your shares no longer belong to you.
• Geared towards inheritance (children, etc.): The most common design of the foundation statutes implies that your descendants in a direct line (children and their children, etc.) become the beneficiaries of the foundation. This means that when you die, your children (depending on the statutes) have claims to distributions from the foundation. The question is whether this is something you had planned anyway. If so, the foundation model may be a good solution. But this does not always have to be the case - for example, if you continued to own your company privately, you could decide until the last moment what you do with it and whether you sell it to someone, for example.

• You hold 100% of an operative GmbH, which thus has few administrative assets: You can perform a need for exemption check to 85% or potentially 100% and most likely contribute the company into the foundation with little or no gift tax.
• You hold 100% of a Holding GmbH, which holds €300k in ETFs and holds 100% of an operative GmbH: Difficult. The ETFs would be administrative assets, so you cannot contribute your Holding GmbH tax-neutrally into the foundation to begin with. Perhaps there is a solution here where you sell the ETFs and pay yourself a dividend privately (but with 26% capital gains tax, here €78k!), so that the total administrative assets in your Holding plus your operative GmbH become smaller again. Then you might be able to contribute the Holding (and thus also the operative GmbH).
  Whether that makes sense given the price of €78k plus the formation costs for the foundation is another question - other solutions, e.g., founding a KG-Holding, quickly appear more sensible and cheaper.

Summary: German Foundation for Structuring Exit Tax