Exit tax in the European Union: key fiscal insights on company and asset relocation

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🏁 Introduction

The European exit tax is a fiscal harmonisation measure introduced by Directive (EU) 2016/1164, also known as ATAD I (Anti Tax Avoidance Directive).

Its purpose is to prevent companies from transferring their headquarters or assets abroad without paying tax on latent capital gains accumulated while operating within the country of origin.

In other words, it ensures that accumulated profits are not lost to taxation merely because a company changes its location or jurisdiction.

🏛️ Origin and entry into force

The Council Directive 2016/1164/EU, adopted on 12 July 2016, established for the first time a common European framework to combat tax avoidance.

Its Article 5 sets out the rules for the so-called exit tax applicable to companies.

EU Member States were required to transpose it into their national legislation by 1 January 2020, and today all EU countries apply it, with minor differences depending on their domestic law.

⚖️ Purpose of the European exit tax

The exit tax serves a clear objective:

• To prevent a company from relocating its headquarters, assets, or permanent establishment outside a Member State without paying tax on the revaluation generated during its period of residence.
• To avoid indefinite deferral of tax on unrealised gains simply by moving to another jurisdiction.

In essence, the measure seeks to preserve fiscal fairness within the single market.

🧾 When it applies

Article 5 of Directive 2016/1164 requires Member States to tax unrealised gains in four situations:

• Transfer of assets from the head office to a permanent establishment in another Member State or outside the EU.
• Transfer of assets from a permanent establishment located in a Member State to its head office or to another country.
• Transfer of the company’s tax residence to another State.
• Transfer of the economic activity of a permanent establishment to another country.

In all these cases, the State of origin may tax the difference between the market value and the book value of the assets at the time of transfer.

⏳ Payment deferral

To safeguard the freedom of establishment guaranteed by EU Treaties, the Directive provides that, when the transfer takes place within the EU or the European Economic Area (EEA), the taxpayer may defer payment of the tax for up to five years.

Thus, the tax remains due, but its collection is postponed, provided that the assets remain under a jurisdiction that cooperates in mutual assistance and tax recovery.

⚖️ Relationship with CJEU case law

The mechanism of the European exit tax is directly inspired by the case law of the Court of Justice of the European Union (CJEU), which had already examined similar situations:

• C-9/02 – Hughes de Lasteyrie du Saillant (France, 2004): the CJEU held that automatically taxing latent gains upon relocation infringed the freedom of establishment.
• C-371/10 – National Grid Indus (Netherlands, 2011): the Court accepted the exit tax provided that payment deferral is allowed when the transfer occurs within the EU.

The Directive 2016/1164 incorporated precisely this balance: 👉 allowing Member States to tax latent gains while safeguarding business mobility within the internal market.

🗺️ Implementation by Member States

All EU Member States have transposed Article 5 of Directive 2016/1164.
Some, such as Germany, France, and the Netherlands, already had equivalent rules before 2016 and merely adjusted them; others introduced entirely new regimes.

It can therefore be said that this mechanism is now common throughout the European Union.

👥 Extension to individuals – national competence

Although Directive 2016/1164 regulates the exit tax only for companies, several Member States have chosen to extend the principle to individuals, taxing latent capital gains when taxpayers move their fiscal residence abroad.

📊 Countries with a “personal exit tax” in force

• 🇫🇷 France – Code général des impôts, art. 167 bis (1999, amended 2011, 2019, 2023)

➤ To learn more, read our article on Exit Tax in France.

• 🇪🇸 Spain – Law 35/2006 on Personal Income Tax, art. 95 bis (2015)

➤ To learn more, read our article on Exit Tax in Spain.

• 🇩🇪 Germany – Außensteuergesetz §6 (2006)
• 🇩🇰 Denmark – Danish Tax Assessment Act §38 (2008)
• 🇵🇱 Poland – Personal Income Tax Act, arts. 30da–30dh (2019)

These regimes do not stem directly from the European Directive but share the same principle of fiscal territoriality and comply with CJEU jurisprudence.

🧭 Conclusion

The European exit tax is a key instrument of fiscal harmonisation aimed at preventing the artificial relocation of profits within the single market.

Since its entry into force in 2020, all EU Member States have applied it, ensuring that latent capital gains are taxed before assets or headquarters are relocated.

Furthermore, some countries —notably Spain and France— have extended the concept to personal income taxation, demonstrating the determination of certain jurisdictions to retain their high-value taxpayers.

👉 Would you like to understand how the European exit tax might affect your company’s structure or tax residence?

You can book a personalised consultation below or contact us through the form on our website.

Last review: November 2025