Residency8 min read
Exit taxes: what it costs to leave
Leaving is treated as selling. A dozen countries will tax you on gains you have not received, on the day you stop being resident — and the US version, which everyone talks about, is the one least likely to apply to you.
There is a moment, somewhere between deciding to leave and actually leaving, when a founder discovers that the country they are leaving has already priced the departure.
The mechanism is almost always the same. On the day you cease to be tax-resident, the state pretends you sold everything you own at market value, taxes the gain, and sends a bill for money you have not received and may never receive. It is a tax on an event that did not happen. For a founder whose net worth is mostly equity in a company they have no intention of selling, this is the single largest number in the entire relocation.
It is also the number nobody quotes, because the people who sell relocation sell the destination, not the departure.
The three shapes an exit charge takes
Every regime you are likely to meet is one of these, and knowing which one you are in determines what you can do about it.
- Deemed disposal. You are treated as having sold your assets the day before you left. Germany, Canada, France, Spain, Norway, Denmark and Australia all work this way, with different scopes and thresholds. This is the expensive one.
- Extended liability. You remain taxable on certain income for a period after leaving, regardless of where you now live. Common for pensions, employment income earned before departure, and gains on domestic real estate.
- Return clawback. No charge on the way out, but if you come back within a defined window, everything you realised while away is pulled into the year of return. The UK's temporary non-residence rule is the one founders trip over most.
The US regime, and why it probably is not your problem
Search for "exit tax" and you will get the American one. It is the most written-about and the least likely to apply to the founders reading this, because it is not triggered by leaving the United States. It is triggered by giving up US citizenship, or by a long-term green card holder ceasing to be one.
Owning a US LLC does not put you anywhere near it. Living in the US on an E-2 or an O-1 does not either. The regime under §877A reaches two categories of person:
- US citizens who relinquish citizenship.
- Long-term residents — green card holders who held that status in at least 8 of the last 15 tax years — who abandon it or are treated as having done so.
Being in one of those categories is necessary but not sufficient. The charge only lands if you are also a covered expatriate, which means failing any one of three tests.
| Test | Threshold | Notes |
|---|---|---|
| Average annual net income tax over the 5 preceding years | $206,000 for 2025 expatriations | Indexed annually. This is tax paid, not income earned — a much higher bar than it looks. |
| Net worth on the expatriation date | $2,000,000 | Not indexed, and has not moved since 2008. Inflation has been quietly lowering this bar for eighteen years. |
| Certification of 5 years of tax compliance on Form 8854 | Pass or fail | Fail this and you are a covered expatriate regardless of the other two. This is the one people fail by accident. |
If you are covered, the charge is a mark-to-market deemed sale of your worldwide assets on the day before expatriation, with an exclusion of $890,000 of net gain for 2025, also indexed. Above that, you pay at ordinary capital gains rates on gain you have not realised.
Three assets are carved out of the mark-to-market and handled worse. Deferred compensation is either subject to 30% withholding on future distributions or deemed distributed immediately, depending on whether it qualifies as "eligible". Specified tax-deferred accounts — an IRA, for instance — are deemed fully distributed on the day before expatriation. Interests in non-grantor trusts attract 30% withholding on later distributions.
The regimes that actually apply to founders
These are the ones that catch a founder with equity in a private company. Note how often the trigger is a shareholding percentage rather than a value — a 100% owner of a company worth very little today is inside the scope of most of them.
| Country | What triggers it | What is taxed | Can you defer? |
|---|---|---|---|
| Germany | Ceasing residence after 7 of the previous 12 years, holding ≥1% of a corporation | Deemed disposal of the shareholding | Interest-free instalments over 7 years, security generally required. The old open-ended EU/EEA deferral was abolished in 2022. |
| Canada | Ceasing residence, any holding | Deemed disposition of most property at market value | Yes, with adequate security and no interest. Canadian real property and registered accounts are excluded from the charge. |
| France | Resident 6 of the previous 10 years, holdings above €800,000 or over 50% of a company's profits | Deemed disposal of the holding | Automatic within the EU/EEA; elsewhere with guarantees. Relief after 2 or 5 years depending on size. |
| Spain | Resident 10 of the previous 15 years, shares above €4m — or above €1m if the stake exceeds 25% | Deemed disposal of the holding | Deferral available for EU/EEA moves and, on request, for temporary secondments. |
| Norway | Ceasing residence, unrealised share gains above NOK 500,000 | Deemed disposal of shares | Payment immediately, in instalments, or at realisation. Repeatedly tightened since 2022 — the old five-year escape is gone. |
| Australia | Ceasing residence, any holding | CGT event I1 — deemed disposal of non-Australian assets | You may elect to disregard the charge and be taxed on actual sale instead, which keeps the asset in the Australian net indefinitely. |
| Netherlands | Ceasing residence with a substantial interest (≥5%) | Protective assessment on the built-in gain | Deferred, but becomes collectible on disposal or certain distributions. |
| United Kingdom | No general exit charge | — | Instead: the temporary non-residence clawback. See below. |
The clawback, which needs no exit tax at all
The UK charges nothing when you go. It waits.
Under the temporary non-residence rules, if your period of non-residence is five years or fewer and you then resume UK residence, a defined set of income and gains realised during the absence is treated as arising in the year you return. Close-company distributions are in scope. So are certain chargeable-event gains, pension lump sums, and disposals of assets you held before you left.
For a founder this is a precisely aimed instrument. Leave, sell your company from abroad, come home — and the exit was worth nothing. The five-year clock is the whole planning problem, and it is measured against a definition of residence that is itself a multi-part test rather than a day count. That distinction is the subject of the 183-day rule is not a rule, and it matters more here than anywhere else.
What actually reduces the bill
Very little, once you have left. Almost everything that works is a sequencing decision taken beforehand.
- Leave before the value arrives, not after. Every deemed-disposal regime charges the gain at the departure date. A founder who relocates while the company is worth little and builds it from the new country pays nothing on the way out. The same founder who leaves after a priced round pays on the round's valuation. This is the entire game, and it is decided by the calendar.
- Check whether the residence clock has already started. Germany needs 7 of 12 years, France 6 of 10, Spain 10 of 15. Someone in year five of a German stay has a different problem from someone in year nine.
- Take the deferral, and understand what it costs. Instalments and protective assessments are usually available, usually require security, and usually convert to an immediate liability on a later sale. Deferral moves the payment. It rarely removes it.
- Do not fail the compliance test by accident. In the US regime specifically, the third covered-expatriate test is the one people fail — not because they owe tax, but because a return or an information filing was missed years earlier. Unfiled FBARs are a common culprit. Fixing that before you file Form 8854 is far cheaper than being covered.
- Count the return trip. If there is any chance of moving back, the clawback window is a hard constraint on when you can sell, not a soft one.
The sequence
In the order the decisions actually have to be made.
- Establish which regime the country you are leaving operates, and whether the residence clock in it has run.
- Value what you hold today, honestly. The deemed disposal is on market value, and a recent funding round is evidence of it.
- Decide whether the departure happens before or after the next value event. This is the decision that determines the cost.
- Confirm you can certify clean compliance for the period the regime looks back over.
- Establish residence in the destination properly — not merely presence — so there is a date on which the old residence demonstrably ended.
- Note the return window and treat it as a real constraint on when the company can be sold.
The company structure is the easy half of this. Where you personally are tax-resident on any given date is the half that decides the bill, and it is the half that no formation agent tracks.
Residency planning, with the dates actually recorded
Founders 8 tracks presence, residence status and the filings that follow from both — so the day you ceased to be resident is a fact you can evidence, not a claim you make later.
See the Personal OSFounders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.