Does leaving Germany trigger tax on Indian shares you have not sold?
Yes, it can, and it catches Indian founders and senior employees out. Germany has an exit tax, the Wegzugsteuer under Section 6 of its Foreign Tax Act (AStG). When you give up German tax residence, it treats a substantial shareholding as if you sold it at full market value on the day you leave, and taxes the built-up gain, even though you have not sold a single share and have no cash from it.
Two conditions bring you in. First, you hold at least 1% of a company at any point in the five years before you leave. This is the Section 17 test, and it counts shares in a foreign company too, so your stake in an Indian private company or your Indian ESOPs are squarely in scope. Second, you were subject to full German tax for at least 7 of the last 12 years. So a person who spent several years working in Germany while holding equity back home is the classic case, and moving back to India is itself the trigger.
How Germany works out the exit tax
Germany taxes the unrealised gain: the market value of your stake on the day you leave, minus what it cost you. It does not tax the whole gain. Under the partial-income method (Teileinkünfteverfahren), 60% of the gain is taxable, and that 60% is charged at your personal German income-tax rate, which runs up to about 45% plus the solidarity surcharge.
Because there is no sale and no cash, the law lets you pay in seven equal annual instalments, interest-free, if you apply, though the tax office usually asks for security such as a bank guarantee. One recent change to note: from 1 January 2025 the exit tax also reaches a big Indian mutual-fund position, not just company shares. The valuation is the part that decides everything, so a defensible market value for an unlisted Indian company on your departure date is worth getting right.
The exit tax can lapse if you move back
There is a way out built into the law, and it matters if your move might not be permanent. Under Section 6(3) AStG, if your absence is only temporary and you become fully taxable in Germany again within seven years, the exit tax lapses and any amount paid is refunded. That window can be extended to twelve years on application, where you can show a reason for staying away longer and a genuine intention to return.
Two strings are attached. You must not sell the shares in the meantime, and you must not take large distributions out of the company, broadly more than a quarter of the departure value, or the relief is lost. So if returning to Germany is even a possibility, keeping the shares intact and the paperwork clean protects the refund. For someone moving to India for good, the return clause will not help, and the planning shifts to the Indian side and the timing of any eventual sale.
The India side: India taxes the real gain when you sell
India ignores Germany's deemed sale and taxes you only when you actually sell the shares, on the real gain from what you originally paid. For unlisted Indian company shares held more than 24 months, that is long-term capital gain at 12.5% without indexation, for sales on or after 23 July 2024, plus surcharge and cess. If the shares came from ESOPs, your cost is the value already taxed as salary when you exercised, and the holding period runs from then. The buyer must deduct TDS under Section 393(2), the old Section 195, on the payment to you as a non-resident, or less if you get a lower-deduction certificate first.
Under the India-Germany treaty, Article 13(4), India may tax gains on shares of an Indian company, so India keeps its taxing right whichever country you live in. The catch is that Germany taxed a deemed gain on the day you left, while India taxes the actual gain years later from your original cost. The two fall in different years and are measured differently, so India's ordinary foreign-tax credit does not cleanly wipe out the German charge on the overlap. That is why this is a plan-before-you-move problem, not a fix-it-after one.
A worked example: a founder moving back to India
Kabir spent eight years in Germany and holds 4% of an Indian private company he helped start, which he subscribed to for ₹25 lakh. By the time he moves back to India, his stake is worth about ₹2 crore. He has sold nothing.
On his departure, Germany treats this as a deemed sale at ₹2 crore, a gain of ₹1.75 crore. Only 60% is taxable, so ₹1.05 crore is charged at his German rate, say 42%, an exit tax of about ₹44 lakh. He pays it in seven interest-free instalments of roughly ₹6.3 lakh, even though not a rupee has come in. If he returned to Germany within seven years without selling, this would be refunded.
Three years later, now an Indian resident, he sells the stake for ₹2.6 crore. India taxes the real gain from his ₹25 lakh cost, ₹2.35 crore, as long-term gain at 12.5%, about ₹29 lakh plus surcharge and cess. The growth from ₹25 lakh to ₹2 crore was taxed once by Germany on the way out and again by India on the sale, with no clean credit to join them. Deciding when and whether to sell, and settling the Indian cost and residential status early, is what keeps that overlap from costing him twice.