What Is Exit Tax?
Exit Tax refers to a charge on unrealised gains under which national law treats assets as disposed of when a taxpayer leaves the taxing jurisdiction.
Also known as: Exit Charge, Departure Tax.
How Exit Tax works
Exit Tax applies when a taxpayer ends tax residence, moves assets abroad or otherwise removes assets from the domestic taxing right, and the leaving state then taxes the gain accrued up to departure, generally measured as market value minus tax value, even though no sale has taken place. For companies, Article 5 of the EU Anti-Tax Avoidance Directive, applied from 1 January 2020, covers transfers of assets between a head office and a permanent establishment, transfers of tax residence and transfers of a permanent establishment's business, and allows payment in instalments over five years when the destination is an EU or EEA state. Deferral under the Directive ends if the assets are disposed of or moved to a non-EEA third country, the taxpayer becomes bankrupt or instalments remain unpaid, and the receiving Member State generally accepts the exit value as the starting tax value. For individuals, regimes are national: the United States, for example, applies a mark-to-market regime under Internal Revenue Code section 877A to covered expatriates, treating property as sold at fair market value on the day before expatriation. Other countries tax departing individuals on unrealised gains on shares or other assets under their own thresholds, holding periods and deferral rules, so the existence, scope and timing of any Exit Tax vary by jurisdiction.
Exit Tax vs Capital Gains Tax (CGT)
Unlike Capital Gains Tax, which is generally triggered by an actual sale or disposal, Exit Tax is triggered by leaving the taxing jurisdiction and taxes gains still unrealised at departure.
| Exit Tax | Capital Gains Tax (CGT) | |
|---|---|---|
| Trigger | Change of residence or transfer of assets out of the taxing jurisdiction | Actual sale, exchange or other disposal of an asset |
| Gain measured | Market value at departure minus tax value, with no proceeds received | Disposal proceeds minus acquisition cost, under national rules |
| Payment timing | Immediate, deferred or in instalments depending on the regime and destination | Generally for the tax year of disposal |
Example
Illustrative example: A founder resident in Country A holds shares in a company whose value has grown substantially since incorporation, and then becomes resident in Country B. If Country A operates an Exit Tax on individuals, the departure is treated as a deemed disposal of the shares, and the gain between acquisition cost and market value at departure is assessed in Country A although no share was sold. Depending on Country A's rules, payment may be due immediately, deferred until an actual sale or spread over instalments, sometimes against security. A later sale may then be taxed in Country B on a stepped-up base or relieved under a tax treaty, subject to local rules.
Common misconception
Myth: Exit Tax concerns only very large fortunes and multinational groups.
Reality: Depending on national thresholds, Exit Tax can reach founders and investors holding appreciated shares in small companies, and EU rules cover companies of any size moving assets or residence.
Frequently asked questions
What is an exit tax?
Exit Tax is a charge on gains accrued but not realised when a taxpayer leaves a taxing jurisdiction or moves assets abroad, calculated as if the assets had been sold at market value on departure.
Which countries have an exit tax?
EU Member States apply Exit Tax to companies under the Anti-Tax Avoidance Directive from 1 January 2020, the United States applies one to covered expatriates, and several countries tax departing individuals under national rules with differing thresholds.
Can exit tax be deferred?
Exit Tax can often be deferred: the EU Anti-Tax Avoidance Directive allows companies moving to EU or EEA states to pay in instalments over five years, US covered expatriates can elect deferral, and other national regimes set their own conditions.
Does exit tax apply to digital nomads?
Exit Tax affects digital nomads only where the departure country's law covers assets held, typically appreciated shareholdings above national thresholds, or where a US citizen or long-term resident expatriates and qualifies as a covered expatriate.
Related terms
- Transfer of Residence — Event that commonly triggers Exit Tax
- EU Anti-Tax Avoidance Directive (ATAD) — EU source of corporate exit taxation rules
- Tax Residency
Related guides
- Ceasing tax residency in Germany — Departure rules in a country with exit taxation
- Why digital nomads are leaving the UK — Context on leaving a residence country
- US expat tax reform debate — US expatriate tax context
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
