What is Exit Tax: Everything You Need To Know In 2024

So, you’ve decided to embark on that adventure and leave? You’re going to travel the world working remotely or perhaps you’ve even decided to move to a new country that’s going to be your new home base.

You were faced with the decision of whether you’d also officially, leave your home country and decided to go for it. But there’s one thing to consider – Exit tax.

That’s right, the exit taxes are just a minor detail you have to arrange with the Tax Authorities in your home country before.

There are countries that make you pay a tax when you leave. And with leaving I mean: when you’re officially giving up your tax residency in your home country. Want to know more? Here’s a full guide.

Disclaimer: Please keep in mind that the purpose of this blog post is to simply shed some light on Exit Taxes so that people become aware of them. This blog post won’t go into all the requirements, triggers, and exemptions of each and every country out there.

What is Exit Tax Everything You Need To Know

Exit Tax – Overview

Let’s start this guide with some questions I often receive, such as the countries that impose exit tax, what it is, and more.

What is Exit Tax?

To put it very shortly: an Exit Tax is a capital gains tax as if you would have sold all your assets when you left your home country and then had to report your gain from it.

In other words: it’s usually applied to unrealized capital gains.

Under What Circumstances is Exit Tax Applied?

Exit taxes are typically applied when a taxpayer renounces their residency or citizenship in a country, especially if they are moving to a lower-tax jurisdiction.

This tax is often triggered by substantial changes in tax status, such as expatriation or relocating assets abroad.

The intention is to tax unrealized gains or certain assets that the individual holds at the time of their departure, ensuring that tax obligations are settled before leaving the country.

Are There Any Specific Incomes Exempt From Exit Taxes?

Exit taxes generally focus on unrealized capital gains and high-value assets. However, regular income like salary or wages earned prior to the exit is typically not subject to exit taxes.

Each country has specific regulations, and certain types of assets or income may be exempt based on local tax laws. For instance, retirement accounts or assets below a certain threshold might be exempt in some jurisdictions.

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What are the Legal Implications of Not Paying Exit Taxes?

Failing to pay required exit taxes can lead to significant legal consequences. This can include fines, penalties, or even criminal charges, depending on the jurisdiction and the amount.

Additionally, it may result in difficulties in settling in a new country or hinder the ability to travel back to the country of former residence.

Non-compliance can also negatively impact one’s credit and financial standing, making it important to adhere to these tax obligations.

Countries that Impose Exit Tax

There are quite a lot of countries that impose Exit Taxes, and there’s a good bunch of countries on the list where plenty of digital nomads come from.

Most people aren’t even aware of this and simply pack their bags and leave, no matter the reason, just traveling or moving to a tax haven. So, you’re not alone if this is you.

Here’s a non-complete list:

  • Australia
  • Canada
  • Denmark
  • France
  • Germany
  • Spain
  • South Africa

Let’s get deeper into the topic.

Taxes digital nomads

Canada

Canada imposes an exit tax on emigrants for unrealized capital gains on property at the time of departure. Exceptions include certain personal items and retirement savings plans.

This ‘deemed disposition’ tax ensures that Canada collects on gains accrued during the taxpayer’s residency period.

Spain

Spain applies an Exit Tax only to high-net-worth individuals who have shares worth more than 4 million euros or one million if they hold a stake of 25% of a single business and then transfer their residence outside of Spain.

In Spain, exit taxes are levied on unrealized capital gains from significant shareholdings when changing tax residency. This applies to taxpayers who have been Spanish residents for at least ten out of the last fifteen years. Deferred payment options are available under certain conditions.

Denmark

Denmark’s exit tax targets unrealized gains on shares and other securities when residents move abroad. Individuals who have lived in Denmark for at least seven years are subject to this tax.

Payment can be deferred but accrues interest and the tax is due if the individual disposes of the assets or fails to return to Denmark within a specified period.

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France

France does not have a typical exit tax; however, high-net-worth individuals and those holding significant shareholdings may face a ‘departure tax’ on unrealized capital gains.

This applies if they have been French residents for at least six out of the last ten years before leaving.

Germany

Germany’s exit tax applies to individuals who relinquish their tax residency and hold significant shares in a company. The tax is calculated on unrealized gains of these shares at market value.

This primarily affects those moving to non-EU/EEA countries or territories with no tax treaty with Germany.

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Australia

In Australia, exit taxes apply to residents moving abroad permanently.

This ‘departure tax’ is based on the deemed disposal of assets, meaning individuals are taxed as if they sold their assets when leaving the country.

Certain personal assets and retirement accounts may be exempt. It’s crucial for individuals to understand their tax obligations before changing their residency status.

South Africa

South Africa’s exit tax is applied as part of its ‘capital gains tax’ regime on residents who cease to be tax residents.

It covers the deemed disposal of worldwide assets, excluding immovable property located in South Africa. This ensures taxation on the gain in value of assets accrued during the period of residence.

Domicile Test for digital nomad taxes

The United States

The United States is a little different from the other countries on the list.

It’s one of the only two countries worldwide (like Eritrea) that still obliges a USA citizen to pay taxes in the States, even when they have officially immigrated, hence do no longer have residency in their patrial country.

So, when does that Exit Tax apply to American citizens?

To avoid having to pay taxes in the United States for the rest of their lives, many American expats decide to give up their American citizenship at some point.

Quite a decision in itself, as you can imagine. An often unexpected surprise then awaits them in the form of the Exit Tax.

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Green-card Holders are Faced with the Exit Tax

But even non-American citizens can be impacted by this Exit Tax, as it also applies to lawful permanent residents or green card holders who are considered long-term residents.

Anyone who has been a lawful permanent resident in at least eight out of the fifteen taxable years before officially leaving the country is considered a long-term resident.

How Much is the Exit Tax?

As explained before, the Exit Tax is calculated over the capital gain you would have earned on selling all your assets before leaving. These net capital gains can be taxed as high as 23.8%

Example:

Let’s use an example to put things into practice.

Imagine: you’re a Canadian-born citizen and you purchased a condo in Toronto in your twenties for $100,000 CAD. In a few months, before your 30th birthday, you’ve decided to follow your heart, take a leap of faith and move to Italy.

However, to not burn all the bridges behind you in case your new Dolce Vita life turns out a little less Dolce than expected, you decide to not sell your condo but instead rent it out.

To keep this example simple, let’s assume that other than your condo, you don’t have assets in Canada.

The condo is now worth $200,000 CAD. If you became a non-resident of Canada, you would be deemed to have sold the condo and would need to report a taxable capital gain of $50,000CAD (1/2 of the $100,000 gain) on your income tax return and pay Exit Tax of up to $25,000 (depending on which state you’re in and which progressive tax rate applies) even though you haven’t sold the property.

I know this sounds crazy. That’s why tax planning is key. You may actually be able to elect to defer this tax (with limits), post-trigger, or elect to trigger losses on an exempted property to reduce the Exit Tax.

In some cases, you may also elect to carry back a subsequent loss or undo a triggered gain (if you decide to move back to Canada).

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What to Do to Officially Give Up Residency?

First of all, get informed. Find out if your home country imposes an Exit Tax, and get familiar with all specifics. You can do your own research online of course, but also reach out to us.

We’re more than happy to help you with your country’s tax specifics. The next thing to do is to look at your own situation. What’s your net worth when leaving your home country?

Is the Exit Tax a Reason to Prevent Yourself from Going Abroad?

No way, if you’d ask us! Surely, any taxes you didn’t expect come as an unpleasant surprise and could possibly create difficulties if you were not prepared to pay them.

However, the fact you’re reading this article now already got you past that stage in which you could be unexpectedly surprised and that’s amazing.

Conclusion

Inform yourself of the Exit Tax of your home country and look at your personal situation to understand what amount you’d have to pay.

If your home country does impose an Exit Tax then I recommend preparing a list of all of your assets and the estimated fair market values and the cost of each. You may want to get your accountant involved to make estimates and valuations of shares or other assets.

Make sure you don’t forget all other administrative notifications that you need to do before leaving such as notifying your bank and the tax office that you are planning to leave and when you will become a non-tax resident.

It might also pay off to review any current corporate structure and to look at steps on how to minimize the Exit Tax and any ongoing filing requirements as a non-tax resident.

Moving abroad or starting to work remotely will bring upon some costs, and just look at this as an extra cost. However, you’re going to do great things.

You’re going to earn your money in a new way, and you might even earn much more than you did in your home country. We’re always here to help, so please reach out to us and we are more than happy to assist you on your journey.

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Do you want professional help with your own International Tax Strategy and Corporate Structure?

Check out our current services. We are here to guide you and help you navigate through the complex world of International Taxes and Business Structures.

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We hope you have enjoyed this article. If you have any further questions please leave us a message below and we’ll get back to you as soon as we can.

    NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.

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