What exactly is the Wegzugsteuer?
The Wegzugsteuer (literally, "exit tax") is a levy that the German tax system imposes on individuals who permanently give up their tax residency in Germany. The legal basis is found in Section 6 of the Außensteuergesetz (AStG) — Germany's international tax law.
The principle is as follows: when a German citizen relocates abroad, Germany treats it as a "deemed disposal" of their shareholdings in companies and financial assets, taxing the unrealised capital gains accrued up to the date of departure, even though those gains have not actually been converted into cash.
It is important to understand that the Wegzugsteuer does not tax all assets. It specifically targets shareholdings in corporations (mainly shares and equity stakes) that exceed 1% of the company's share capital.
Key point: The Wegzugsteuer does not affect individuals who only hold bank accounts, individual investment funds, or real estate. It applies solely to direct shareholdings in companies (GmbH, AG, etc.) exceeding the 1% threshold. If your wealth is predominantly financial or property-based, this tax may not apply to you.
When does the Wegzugsteuer apply when moving to Paraguay?
The Wegzugsteuer is triggered when all of the following conditions are met simultaneously:
- The individual has been a tax resident in Germany for at least 7 of the last 12 years prior to departure.
- They hold shares in one or more corporations exceeding 1% of the share capital of each company.
- They relocate their tax residency to a country with which Germany has no Double Taxation Agreement (DTA) that protects the taxpayer — and Paraguay has no DTA with Germany.
The fact that Paraguay and Germany have no Double Taxation Agreement is significant: without a DTA, Germany applies the most restrictive rules of the AStG, including immediate payment or instalment plans for the Wegzugsteuer.
How is it calculated?
The Wegzugsteuer is calculated on the unrealised gain in corporate shareholdings at the time of leaving Germany:
- Fair market value of the shares on the date of departure (determined using accepted valuation methods, often the adjusted book value method or an independent appraisal).
- Less the acquisition cost (original price paid for the shares).
- The difference is the taxable unrealised gain.
- This gain is taxed at the capital gains tax rate in force in Germany (currently 25% plus the Solidaritätszuschlag, totalling approximately 26.375%).
Worked example: A German citizen who owns 30% of a GmbH purchased in 2010 for €50,000 and worth €400,000 in 2025 has an unrealised gain of €350,000. The Wegzugsteuer on that gain would be approximately €92,300 (€350,000 × 26.375%).
| Element | Description | Impact |
|---|---|---|
| Shareholding threshold | Minimum 1% of share capital | Below threshold, no Wegzugsteuer |
| Residency period | 7 of the last 12 years in Germany | Less than 7 years: possible exemption |
| Tax rate | ~26,375% (capital gains + Soli) | Applied to the unrealised gain |
| Tax base | Fair market value − acquisition cost | Only the unrealised capital gain |
| Payment without DTA | Immediate or instalment (7 years) | Paraguay: no DTA → full payment |
Instalment plan: the option Paraguay opens up
One of the most common questions is whether the Wegzugsteuer payment can be deferred or paid in instalments. The answer depends on the destination country:
- EU/EEA countries: the Wegzugsteuer is automatically suspended as long as the taxpayer remains in an EEA country. It is only triggered when the gains are actually realised.
- Countries without a DTA with Germany (like Paraguay): payment is due immediately; however, the taxpayer may apply for an interest-free instalment plan over 7 annual payments, subject to providing a guarantee to the German tax authorities.
The 7-year instalment plan is a tactically very important option: it allows you to relocate to Paraguay and start saving on taxes before you have fully settled the debt with Germany. The annual tax savings in Paraguay can far exceed the annualised cost of the Wegzugsteuer.
Legal strategies to reduce the impact
1. Pre-departure restructuring
If planned well in advance (at least 2–3 years), there are corporate structures that can legally reduce the Wegzugsteuer tax base. This includes reorganising shareholdings, distributing dividends before departure, or converting corporate assets into other forms of wealth not affected by the tax.
2. Conservative technical valuation
The fair market value of shares in unlisted companies is often subjective and depends on the valuation method used. A rigorous independent appraisal using methods recognised by the Finanzamt can result in a valuation significantly lower than an intuitive estimate. The legal margin for manoeuvre here is real.
3. Temporary return to Germany
If the taxpayer returns to Germany within 7 years of departure, the Wegzugsteuer can be retroactively annulled. This means the risk of a "trial" relocation is low: if Paraguay doesn't work out, returning within the deadline eliminates the obligation.
4. Reducing shareholdings before departure
In some cases, reducing the shareholding below 1% before relocating eliminates the Wegzugsteuer tax base for that company. This requires tax and legal coordination, but it is a legally valid approach.
Important notice: None of these strategies should be implemented without specialist tax advice. The German AStG contains specific anti-avoidance provisions and the German tax authorities (Finanzamt) are well acquainted with attempts to minimise the Wegzugsteuer. Planning must be genuine, documented, and carried out well in advance.
The German tax deregistration process: beyond the Wegzugsteuer
The Wegzugsteuer is only one element of the German tax deregistration process. For the departure to be complete and avoid future problems, the following steps are necessary:
- Deregister from the municipal register (Einwohnermeldeamt) at your place of residence.
- Notify the relevant Finanzamt, providing your new address in Paraguay.
- Obtener la residencia paraguaya ante la Directorate General of Migration de Paraguay.
- Close or transfer German bank accounts — maintaining active accounts in Germany may be interpreted as a residency tie.
- Settle insurance policies, contracts, and contractual commitments that establish ties to Germany.
- Assess whether Wegzugsteuer applies and, if so, arrange for payment or an instalment plan.
- File the final income tax return in Germany as a full-year resident for the year of departure.
Germany applies the criterion of "vital economic interests" (wirtschaftliche Interessen) to determine whether a taxpayer has effectively severed their residency. Maintaining an active business in Germany, property in your own name, or close family members who remain resident may lead the Finanzamt to challenge the effectiveness of your deregistration.
The German community in Paraguay
One factor that frequently surprises Germans researching Paraguay is the depth of the historical German presence in the country. German immigration to Paraguay began in the second half of the 19th century, with colonies such as Nueva Germania (founded in 1887) and Mennonite communities of German origin in the Chaco and the interior.
In Asuncion, the German community revolves around the German School (Deutschen Schule), the Paraguayan-German Chamber of Commerce and Industry (AHK Paraguay), and several cultural associations with decades of history. This community infrastructure makes the integration of a modern German citizen significantly easier than in other Latin American destinations.
Conclusion: the Wegzugsteuer should not deter you, but it must be planned for
The Wegzugsteuer is a real cost that many German citizens with corporate shareholdings will have to face when moving to Paraguay. However, in the vast majority of cases, the annual tax savings in Paraguay (0% on foreign income vs. up to 45%+ in Germany) far exceed the cost of the Wegzugsteuer within a 3–5 year horizon.
The key is planning: ideally started 18–24 months in advance, coordinating German tax lawyers and Paraguayan advisors specialised in European clients.
The Impulse Your Legacy team regularly works with German citizens who are evaluating the move to Paraguay. They can guide you through the entire process — including coordination with tax advisors in Germany — and help you establish your residency in Paraguay. No-obligation consultation →
Frequently asked questions
Does the Wegzugsteuer apply if I only hold investment funds or ETFs?
Not directly. The Wegzugsteuer under Section 6 AStG applies exclusively to direct shareholdings in corporations exceeding 1% of the share capital. Investment funds, ETFs, or shares in listed companies (where the total holding does not exceed 1%) do not trigger Wegzugsteuer.
Can I avoid the Wegzugsteuer by setting up an EU holding company before leaving?
This is a strategy some advisors suggest, but it is subject to very high scrutiny by the Finanzamt. The anti-avoidance provisions of the AStG and the European ATAD directives can neutralise such structures if they lack genuine economic substance. It requires specialist tax advice and must be executed well in advance.
If I leave and return within 7 years, does the Wegzugsteuer disappear?
Yes. If the taxpayer returns to Germany and re-establishes their tax residency there within 7 years (12 years in some cases), the assessed Wegzugsteuer may be refunded, provided the actual gains have not been realised during the period of absence.
This article is for informational purposes only and does not constitute individual tax advice. German tax law (AStG) is subject to frequent changes. Always consult a specialist tax advisor before making any decisions.