Sole proprietorship instead of GmbH: Avoid exit tax
🇩🇪 Auf deutsch:
Einzelunternehmen statt GmbH: Wegzugsteuer vermeiden
An interesting idea for avoiding the accrual of exit tax is the establishment of a sole proprietorship, which is dissolved before moving away. This is an interesting solution for those entrepreneurs who are "solo-self-employed" anyway, i.e., have no employees.
In Brief
- The prerequisite is that you are able to uncomplicatedly "pause" your activity and deregister your business, e.g., as a freelance software developer, graphic designer, consultant, etc. – conversely, you have no employees and no long-term contracts with clients that would be affected by a cessation of activity.
- If you are considering moving away from Germany in the next few years, you establish a sole proprietorship now instead of a GmbH.
- You dissolve the sole proprietorship shortly before your move – you will then have to pay tax on, among other things, the items that now pass from the business into your private ownership (laptop, possibly client lists, etc.), but then you have a "clean" cut and no exit tax applies upon your move, since you own neither a GmbH nor another
company (sole proprietorship).
In Detail: Establish a sole proprietorship instead of a GmbH and dissolve before moving, no exit tax
Basically, this solution (structure) is very simple and the bullet points above have actually already described well what it is about. The idea here is that if you prospectively want to move away from Germany at some point in the future but are already planning self-employment now, you simply do *not* found a GmbH, but rather a sole proprietorship.
As a reminder: A sole proprietorship is essentially the simplest (and cheapest) form of self-employment in Germany. Your business name always includes your own name, e.g., "Software Development Max Mustermann". Bookkeeping is relatively simple (no double-entry bookkeeping as with a GmbH) and ongoing tax advisor costs are also cheaper than with a GmbH, since no annual financial statements etc. are required.
The only "disadvantage" might be that you always tax profits in a sole proprietorship at your personal income tax rate, i.e., depending on profit, 42% - 45%. But you have to reach that level first. The GmbH always pays "flat" approx. 30%, but upon distribution from the GmbH, another 26% capital gains tax applies; in the end, you ultimately end up at just under 50% there as well (disregarding more complex solutions like a holding GmbH).
The next prerequisite for this sole proprietorship solution is that you would be in a position to uncomplicatedly "pause" your activity. This is necessary because you want to dissolve and deregister your company before your move from Germany – logically, you should not have employees who rely on your company continuing to exist and paying monthly salaries. And you should also not have long-term client contracts where your clients naturally expect your company to also continue existing, issuing monthly invoices, and continuing to provide services.
This ultimately makes it clear that this idea only works for typical "freelancer" activities, e.g., as a freelance software developer or graphic designer.
As a reminder: A sole proprietorship is essentially the simplest (and cheapest) form of self-employment in Germany. Your business name always includes your own name, e.g., "Software Development Max Mustermann". Bookkeeping is relatively simple (no double-entry bookkeeping as with a GmbH) and ongoing tax advisor costs are also cheaper than with a GmbH, since no annual financial statements etc. are required.
The only "disadvantage" might be that you always tax profits in a sole proprietorship at your personal income tax rate, i.e., depending on profit, 42% - 45%. But you have to reach that level first. The GmbH always pays "flat" approx. 30%, but upon distribution from the GmbH, another 26% capital gains tax applies; in the end, you ultimately end up at just under 50% there as well (disregarding more complex solutions like a holding GmbH).
The next prerequisite for this sole proprietorship solution is that you would be in a position to uncomplicatedly "pause" your activity. This is necessary because you want to dissolve and deregister your company before your move from Germany – logically, you should not have employees who rely on your company continuing to exist and paying monthly salaries. And you should also not have long-term client contracts where your clients naturally expect your company to also continue existing, issuing monthly invoices, and continuing to provide services.
This ultimately makes it clear that this idea only works for typical "freelancer" activities, e.g., as a freelance software developer or graphic designer.
Example
- You want to become self-employed now as a freelance software developer, but are also considering moving away from Germany in the next few years.
- Against this background, you decide to establish a sole proprietorship instead of a GmbH.
- Your sole proprietorship runs well – you find a few clients who commission you to develop their software.
- A few years later, you want to move away from Germany. Since your clients are (hopefully!) all project-based, you simply stop accepting new orders from a certain point in time. A few months before your move, you have no work and thus no more revenue. You dissolve your sole proprietorship and deregister it – your tax advisor helps you to, among other things, correctly calculate what taxes you may have to pay if business assets (laptop etc.) now pass into your private assets. However, the tax burden should be limited.
- You move away from Germany. At this point in time, you have no sole proprietorship, so you do not have to undergo so-called "Entstrickung" (simply put, exit tax for partnerships). And naturally, you do not have a GmbH either.
- So you pay no exit tax.
- Abroad, you could theoretically, perhaps after a certain waiting period, resume your activity. To do this, you would establish a new company locally (or in another country). You should ensure that this is not a classic so-called "transfer of functions" ("Funktionsverlagerung"), i.e., that you simply moved your company abroad. Instead, you should ensure that it was truly your interest to temporarily give up your activity and resume it abroad after some consideration. Another idea here would be not to name your new company the same as your old company.
Pitfalls
The biggest pitfall here is certainly avoiding a so-called "transfer of functions." Simply put, a transfer of functions happens if you were to simply move your German company abroad from one day to the next, i.e., dissolve a German company on Day 1 and establish your foreign company (perhaps even with the same name) on Day 2. Then the tax office would insinuate that you simply moved your company abroad and you would have to tax that. So that must absolutely be avoided here.
It is probably a significant gray area as to how many days must pass between the dissolution of your German company and the establishment of your foreign company (after the move). In principle, it is absolutely plausibly conceivable that you genuinely wanted to give up your activity originally (in Germany) and wanted to resume it after some time for reflection (abroad).
The question of how many "minimum" days should pass in between and how this should be concretely structured will probably be answered differently by every tax advisor (while billing a few hours for it).
One consideration, however, is also that tax offices may not have a particularly great interest in pursuing this with such "small" solo-self-employed individuals – the usual issue of transfer of functions often concerns rather large corporations that, for example, move software development to a country with lower wage levels.
When does it not work?
It is important to highlight when this model does not work or is very difficult. And that is, as mentioned above, the case if you have a company that has ongoing obligations to employees or clients.
Or, put another way, if you have employees who are paid their salary monthly, then it is probably quite impossible to just say to them "hey cool, I want to move away from Germany, I'm dissolving the company here for half a year, but no stress, afterwards you'll be hired by a new company of mine, ciao".
It is just as difficult to justify this to clients who, for example, pay a monthly price for a recurring service, e.g., consulting or software. You would somehow have to inform them that the company with which they have concluded a contract is now being dissolved "just like that" and in the worst case the service will temporarily not be available – with software, that is relatively unthinkable.
All in all, I would strongly suspect that this model only has a chance of working for classic solo-self-employed individuals or freelancers.
Summary
If you are considering moving away from Germany in the next few years but want to become self-employed now, consider carefully whether you wouldn't rather establish a sole proprietorship instead of a GmbH.
As described above, the advantage lies in the fact that you can dissolve it relatively uncomplicatedly before your move and potentially resume the activity after your move.
The model probably only works if you do not plan to have employees or long-term client contracts. Provided these prerequisites are met, however, it can be one of the most uncomplicated and cheapest models to avoid falling under the German exit tax!
As described above, the advantage lies in the fact that you can dissolve it relatively uncomplicatedly before your move and potentially resume the activity after your move.
The model probably only works if you do not plan to have employees or long-term client contracts. Provided these prerequisites are met, however, it can be one of the most uncomplicated and cheapest models to avoid falling under the German exit tax!
By the way: Join our Telegram community to exchange ideas with other people who have solved the German exit tax for themselves!
Dr. Oliver Eidel
Ich bin Oliver und bin Unternehmer aus Deutschland - mein bekanntestes Unternehmen ist OpenRegulatory, welches eine Compliance-Software für Medizinprodukte-Hersteller anbietet.
Seit 2025 musste ich mich mit der deutschen Wegzugsteuer auseinandersetzen, da ich nach Thailand auswandern möchte. Auf dieser Webseite teile ich meine Erkenntnisse, die ich mir relativ mühsam durch (teure) Gespräche mit Steuerberatern erarbeiten musste. Hoffentlich spare ich dir dadurch Zeit und Steuerberatergebühren! :)
Seit 2025 musste ich mich mit der deutschen Wegzugsteuer auseinandersetzen, da ich nach Thailand auswandern möchte. Auf dieser Webseite teile ich meine Erkenntnisse, die ich mir relativ mühsam durch (teure) Gespräche mit Steuerberatern erarbeiten musste. Hoffentlich spare ich dir dadurch Zeit und Steuerberatergebühren! :)