Exit taxes in Europe are becoming a critical financial concern for high-net-worth individuals preparing to relocate abroad. Each year, millions of Europeans review their tax returns, organize deductions, and check their refund status. Many choose to file a tax return to claim refundable credits, such as the additional child tax credit, which can result in a substantial tax refund. But what if you’re not just preparing for another tax filing season what if you’re planning to move your wealth internationally?
In 2025, countries across Europe are rapidly expanding their exit tax regimes, mirroring the model established by the United States. These laws are designed to ensure that taxpayers pay taxes on their worldwide income and worldwide assets before exiting the national tax system.
If you’re a long-term resident or successful entrepreneur planning to change tax residency or restructure global holdings, this guide will help you understand how exit taxes in Europe work—and how to protect your assets before it’s too late.
Understanding Exit Taxes in Europe
An exit tax is a tax on unrealised capital gains. It applies when an individual leaves their tax residency or transfers their worldwide assets to a more favorable jurisdiction. While the U.S. exit tax focuses on covered expatriates, several European countries have already adopted their own versions of this policy.
Exit taxes in Europe aim to prevent wealth flight by taxing individuals on the increase in the value of certain assets like businesses, property, and investments, when they cease to be tax residents.
Countries in Europe with Exit Taxes
France
France imposes an exit tax on individuals transferring their tax residency abroad. The tax applies to unrealised capital gains from shareholdings worth over €800,000, or representing more than 50% control in a company.
Germany
Germany applies an exit tax on substantial shareholders, those holding at least 1% of a corporation if they move abroad. These individuals are taxed on their theoretical capital gains at fair market value.
Spain, Netherlands, and Others
Several other EU countries have similar frameworks under local and EU-wide anti-abuse rules. These are rapidly being expanded or modernized, often with modern computer systems and data sharing agreements between tax authorities.
Why Exit Taxes Are Gaining Momentum in Europe
With increased fiscal pressure and budget deficits following the COVID-19 pandemic and energy crisis, European governments are introducing tax hikes and modernizing tax enforcement. Here’s why exit taxes are spreading:
- To capture tax revenue before wealth leaves the system
- To address tax avoidance through offshore structures
- To align with OECD and EU anti-avoidance directives
- To prevent high-net-worth individuals from relocating to countries with no income tax
Exit taxes are becoming a central tool in tax law updates across Europe, and many taxpayers are unaware of the tax liability they may face. Exit taxes serve as a final payment for any unpaid taxes, and calculating one’s tax liabilities accurately is crucial for compliance with tax obligations. Consulting a tax professional is essential for accurate calculations for exit tax purposes.
Who Is Subject to the Exit Tax in Europe?
European exit taxes generally apply to individuals who:
- End long-term tax residency
- Own significant capital assets, such as company shares, real estate, or crypto
- Relocate to low-tax or non-cooperative jurisdictions
- Fail to maintain compliance with income tax return obligations
The US Exit Tax specifically applies to individuals renouncing their US citizenship or green card. Taxpayers with high adjusted gross income, large capital gains, or significant holdings in family businesses are particularly at risk.
Common Triggers for Exit Tax
- Transferring retirement accounts, such as pension plans or investment funds, abroad. The tax return filing due date for 2024 is the final opportunity for contributions to both traditional and Roth IRAs.
- Moving businesses or high-value shares to a foreign jurisdiction
- Becoming a tax resident in a zero-income-tax country, like the UAE or Monaco
- Failing to submit accurate tax forms or declare fair market value of assets
The Cost of Inaction
Failing to act early can result in:
- Retroactive taxation on past capital gains
- Asset overvaluation due to rising markets
- Loss of access to tax refunds, child tax credit, or earned income tax credit
- Missed deadlines and penalties for filing an incorrect or late paper return
Unpaid taxes can lead to penalties and interest that accrue over time, emphasizing the importance of timely tax payments.
Waiting too long can push you into a higher tax liability bracket or result in unexpected taxation of your worldwide income.
How to Prepare Before You Leave Europe
Whether you’re moving to Dubai, Switzerland, or another low-tax jurisdiction, the following steps will help reduce your estimated tax liability and keep you compliant.
1. File Early and Accurately
Use the filing season to e-file your income tax return or individual income tax return as early as possible to avoid delays and get your tax refund faster. Use direct deposit or file electronically for a quicker and more efficient submission.
2. Track Your Income and Deductions
Ensure you’re properly documenting:
- Medical expenses
- Student loan interest
- Donations and Roth IRA contributions
Choosing the standard deduction can simplify the tax process while potentially providing substantial reductions in taxable income.
Use correct tax forms to reflect these deductions, which can reduce your net worth on paper.
3. Make Estimated Tax Payments
If you have irregular income or operate a business, be proactive about estimated tax payments. Understanding tax year specifics, such as filing deadlines and eligibility criteria, can impact taxpayers’ obligations and potential benefits. Paying your income taxes electronically ensures on-time submission and easier recordkeeping.
4. Restructure Your Assets Legally
Before becoming a covered expatriate or exiting the European tax system, consider:
- Transferring certain assets into holding companies or trusts
- Donating to family members or charitable causes
- Selling appreciating assets in advance of your expatriation date
Long-term residents, specifically Green Card holders who have lived in the US for a significant period, can be classified as ‘covered expatriates’ and may face tax implications upon renouncing their citizenship.
Always consult a tax professional before making structural changes to avoid errors.
5. Seek Expert Advice
A qualified advisor will help you:
- Navigate filing extension rules
- Accurately calculate fair market value of investments
- Leverage treaty benefits between countries
- Avoid identity theft and system errors when filing your federal tax or local returns
Visiting the IRS website can provide access to tools for tracking refund status, obtaining tax information, and finding assistance programs.
Calculating the Exit Tax
The tax is typically calculated based on unrealized capital gains on your total worldwide assets, minus any liabilities. Valuations must be current and accurate. Filing federal income tax returns electronically can expedite the refund process and ensure compliance with tax regulations. In some countries, the maximum capital gains rate can reach over 25%.
Taxpayers may also face special rules on retirement accounts, property, and business assets. This is why exit tax planning requires a comprehensive understanding of both personal and corporate holdings.
What Assets Are Subject to Exit Tax?
- Bank accounts
- Public and private stocks
- Real estate (personal or rental)
- Pensions and retirement accounts
- Life insurance with cash value
- Crypto holdings
- Art, vehicles, and collectibles
- Shares in limited companies or partnerships
The Bureau of the Fiscal Service highlights the increased risks associated with paper refund checks, emphasizing the importance of utilizing efficient and secure payment methods for tax refunds.
These may be taxed based on their fair market value at the time of exit, even if not sold.
Filing and Paying Exit Taxes
Navigating the process of filing and paying exit taxes can be intricate. Individuals subject to the exit tax must file Form 8854, the Initial and Annual Expatriation Statement, with the IRS. This form requires a detailed report of worldwide income, assets, and any outstanding tax liabilities. The exit tax is generally due on the expatriation date, and timely payment is crucial to avoid penalties and interest. Ensuring all information is accurate and complete is essential for compliance and to prevent future complications.
Filing Season: What to Expect
The tax filing season can be particularly hectic for those subject to the exit tax. The IRS typically starts accepting tax returns in late January. Filing electronically is highly recommended, as it can expedite the refund process, often within 10-21 days. Conversely, mailing a paper return can result in a delay of 3-4 weeks. It’s crucial to gather all necessary tax forms before filing, especially if your financial situation involves complexities like marriage, divorce, childbirth, retirement, home transactions, or ownership of crypto and foreign assets. Consulting a tax professional can help navigate these complexities and ensure accurate filing.
Filing Extension: What If You Can’t File on Time?
If you find yourself unable to file your tax return by the deadline, you can request an extension using Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This extension grants you until October 15, 2025, to file your federal tax return. However, it’s important to note that any taxes owed must still be paid by April 15, 2025, to avoid penalties and interest. Planning ahead and making estimated tax payments can help manage this obligation.
Special Considerations
When dealing with exit taxes, there are several special considerations to keep in mind. Covered expatriates, for instance, are subject to specific rules and must file Form 8854 with the IRS. Additionally, strategic asset distribution between spouses can sometimes modify an individual’s status, potentially reducing tax liabilities. However, it’s crucial to employ only legal financial strategies to avoid severe penalties for tax evasion. Consulting with a tax professional can provide guidance on the best course of action.
Covered Expatriates and Federal Taxes
Covered expatriates are individuals with a net worth of $2 million or more, or those who have been U.S. citizens for at least eight of the past 15 years. These individuals are subject to the exit tax and must file Form 8854 with the IRS. The exit tax treats all property as if it were sold at its fair market value on the day before expatriation. The net gain from this deemed sale is reduced by $866,000, providing some relief. Covered expatriates must also settle any outstanding tax liabilities, including income tax, capital gains tax, and other obligations. Proper planning and compliance are essential to manage these responsibilities effectively.
Real-World Example: Why Planning Early Pays Off
A French tech founder failed to plan ahead before moving to the UAE. Without proper valuations and declarations, he was taxed retroactively on €3 million in paper gains.
Filing your own return accurately and utilizing professional support can enhance confidence in handling individual tax situations. In contrast, a German investor worked with a cross-border tax advisor, restructured holdings six months before relocation, and took advantage of treaty benefits. The result is that zero exit tax owed and full compliance with German tax laws.
Final Thoughts: Don’t Let Exit Taxes Catch You Off Guard
As Europe modernizes its tax system and follows global trends, exit taxes are becoming a core part of international wealth regulation. Roughly 93% of taxpayers file their federal income tax returns electronically, highlighting the efficiency of e-filing.
If you’re considering a move abroad, it’s critical to:
- Know your estimated tax liability
- Maximize deductions and credits before departure
- Use direct deposit and file taxes electronically
- Review your bank account reporting and tax residency status
- Work with a tax professional to ensure every form is accurate and timely
Need Help?
Whether you’re preparing to leave France, Germany, the UK, or any EU country, we can connect you with trusted advisors who specialize in offshore tax planning, exit tax calculations, and worldwide income reporting.
Act now. By the time next year’s tax season rolls around, your window to act may have already closed.
Comments are closed