What is Exit Tax?

How it works

The mechanism is the same everywhere: at the moment you cease tax residency, the country deems a sale at market value of in-scope assets and taxes the latent gain — even though no actual cash event happened. The point is to capture appreciation that built up under the country's tax umbrella before you take it offshore.

Major regimes:

• United States — §877A "expatriation tax". Triggered only when a US citizen renounces or a long-term green-card holder (8+ of 15 years) relinquishes. Applies only to "covered expatriates": net worth ≥ $2 million, or average annual federal tax over 5 prior years ≥ a threshold (around $200k indexed), or failure to certify 5-year compliance. Mark-to-market on worldwide assets above an exclusion (~$868k indexed in 2025) at long-term capital gains rates.
• France — article 167 bis CGI. Triggered when a tax resident of 6+ of the prior 10 years moves abroad, and either (i) holds direct or indirect ≥ 50% in a French company, or (ii) holds securities worth more than €800,000. Tax on latent gains at the 30% PFU flat rate (or progressive election). Automatic deferral for moves within the EU/EEA; deferral on request for moves elsewhere subject to a guarantee.
• Germany — Wegzugsbesteuerung (§6 AStG). Triggered when a German resident of at least 7 of the last 12 years emigrates while holding ≥ 1% in a corporation. Mark-to-market gain taxed; deferral conditions tightened in 2022 — even EU/EEA moves now generally require security and 7-year instalment payment.
• Netherlands — exit tax on substantial shareholdings (5%+) and pension rights when leaving Dutch tax residency.
• Norway, Sweden, Denmark, Spain, Italy — narrower regimes, with thresholds and asset-class scope varying.

The UK has no general exit tax on individuals (corporates yes), though anti-avoidance regimes for short-term residents and post-departure capital gains can apply.

US §877A specifics

Covered expatriate determination:

• Net worth test: ≥ $2 million on the date of expatriation.
• Tax liability test: average annual US federal income tax over the 5 prior years exceeded the indexed threshold (~$201k for 2024).
• Certification test: failure to certify on Form 8854 that all federal tax obligations have been met for the 5 prior years.

Failing any one test → covered. Mark-to-market on worldwide assets above the exclusion ($868k 2025); special rules for deferred compensation, IRAs, and trust interests; potential succession-tax overlay for US heirs receiving covered gifts/bequests after expatriation.

Examples

• French entrepreneur sells the business in 2027 after moving to Dubai. Moves residency 1 January 2026, holds 80% of a French SAS valued €10M with a near-zero basis. Article 167 bis CGI exit tax triggers on departure date: latent gain ~€10M × 30% PFU = €3M. Move to UAE = no automatic deferral; can request deferral with a guarantee (typically a bank guarantee covering the tax). Sale in 2027 at €12M lifts the deferred €3M into payable status; the additional €2M of post-departure gain is captured by France only if the deferral conditions had specific clawback triggers.
• US citizen renounces in 2026, net worth $5M. Covered expatriate (net worth > $2M). Mark-to-market on worldwide assets ($5M) minus exclusion ($868k 2025) = $4.13M of taxable gain at long-term capital gains rates. Tax bill in low six figures. Form 8854 required.

Common mistakes

• Underestimating coverage. France triggers above €800k of securities — much lower than people expect. Germany triggers at 1% shareholding regardless of value. US §877A triggers at $2M net worth.
• Skipping the planning window. Pre-departure restructuring (gifts, trust transfers, partial sales) typically must complete before residency breaks. Post-departure restructuring is often too late.
• Treating EU/EEA deferral as waiver. It's a postponement with reporting obligations and clawbacks. Germany's tightened the deferral in 2022; France maintains automatic deferral but with strict reporting.
• Forgetting US estate-tax overlay on covered gifts. US heirs of a covered expatriate are subject to additional tax on certain gifts and bequests received from the expatriate post-renunciation.