Setting Up an Asset Management Firm Abroad: Opportunities, Risks, and Tax Obligations

Why do entrepreneurs consider setting up an asset management firm abroad?

Establishing an asset management company abroad is a topic of particular interest to entrepreneurs, investors, and individuals whose primary place of residence is abroad. The motivations are varied: more favorable tax rates in the country of incorporation, flexibility in cross-border asset structuring, access to international financial markets, or a planned relocation of one’s primary residence abroad. The idea of managing assets through a foreign company sounds appealing—but the tax and legal framework, particularly from a German perspective, is complex.

As an internationally networked law firm with particular expertise in International Tax Consulting We assist clients who wish to establish or review cross-border structures—with the goal of developing legally sound and economically viable solutions.

What is an offshore asset management company?

An asset management company—often in the form of a holding company—is an investment company that holds shares in other companies, manages real estate or securities, and pools the resulting income. Unlike operating companies, asset management focuses on the management and optimization of assets.

Establishing such a company abroad means that its registered office, management, and administrative functions will be located outside of Germany. Depending on the country of incorporation—such as Switzerland, Austria, Luxembourg, Malta, or other European or non-European countries—corporate income tax rates, regulatory requirements, and the interaction with German tax rules vary considerably.

Which German tax rules apply to foreign structures?

The main challenge is that German tax law does not simply cease to apply to foreign structures. For individuals residing in Germany, the worldwide income principle generally applies: income from a foreign company may still be taxable in Germany.

The following areas of regulation are crucial in this context:

Foreign Tax Act (AStG)
The AStG contains rules on additional taxation (Sections 7 et seq. AStG) that allow for the taxation of foreign passive income in Germany if the foreign company is resident in a low-tax country and certain conditions are met.

Exit Taxation (Section 6 of the Foreign Tax Act)
Anyone who moves their residence from Germany to another country and holds shares in a corporation may be subject to exit taxation—more on this in the following section.

Permanent Establishment Taxation
If the actual management of a foreign company is effectively located in Germany, the tax office may presume the existence of a German permanent establishment or residence.

What is exit taxation under Section 6 of the AStG?

Exit taxation is one of the most significant tax risks when entrepreneurs relocate their residence abroad while holding shares in a corporation. Section 6 of the Foreign Tax Act (AStG) treats the move for tax purposes as if the shares were fictitiously sold on the date of the move—even though no actual sale takes place.

Exit taxation applies if all of the following conditions are met: The taxpayer has been subject to unlimited tax liability in Germany for at least seven of the past twelve years and holds, directly or indirectly, at least 1 % of a corporation. In this case, the hidden reserves associated with the investment are realized and taxed—under the partial income method, this results in an effective tax rate of approximately 26 to 28 %.

As a result of the Annual Tax Act of 2024, additional changes have taken effect as of 2025, which, among other things, subject certain income from investment funds to exit taxation (Section 19(3), Section 49(5) of the Investment Fund Tax Act (InvStG)). The previously available indefinite, interest-free deferral in the event of departure from the EU was replaced, effective January 1, 2022, by Section 6(4) of the Foreign Tax Act (AStG), as amended, with an interest-free installment plan consisting of seven equal annual installments, which is generally granted upon provision of security.

What options are available to avoid exit taxation?

Anyone who wishes to establish asset management abroad or relocate their residence abroad has legal options, under certain conditions, to avoid or reduce exit taxation. However, these options must be implemented early on and with professional expertise.

Partnership Structure
According to the wording of the law, exit taxation under Section 6 of the German Foreign Tax Act (AStG) applies only to shares in corporations. Interests in partnerships—such as a KG or GmbH & Co. KG—are not directly covered by this provision, provided that Germany retains the right to tax business assets, for example through a domestic permanent establishment.

Gifts to Family Members Remaining in Germany
The planned transfer of shares to family members residing in Germany can completely avoid exit taxation for the person leaving the country. In this context, the gift tax exemptions must be carefully taken into account.

Early Restructuring
Ideally, conversion measures should be completed well in advance of a planned move in order to avoid retroactive tax consequences under the Conversion Tax Act.

Implementing these structures always requires a case-by-case analysis—promises of one-size-fits-all solutions are not appropriate here.

What does „substance“ mean in other countries, and why is it so important?

A foreign asset management company will only produce the desired tax effects if it actually has economic substance in its country of incorporation. Tax authorities and the courts carefully examine whether a company is genuinely active abroad or merely functions as a shell company.

Criteria for sufficient substance include, among other things: the company’s own business premises in the country of incorporation, qualified local managing directors, independent on-site decision-making processes, and a clear economic rationale for establishing operations abroad. For EU and EEA companies, Section 8(2) of the Foreign Tax Act (AStG) provides for rebuttal evidence: Anyone who proves that the company engages in substantial economic activity in its country of incorporation can avoid the additional taxation. For companies in third countries—including Switzerland—this proof of substance does not serve as exculpatory evidence; in those countries, the mere existence of passive, low-taxed income is sufficient to trigger the additional taxation.

What role does Switzerland play in cross-border wealth structures?

For clients with ties to Switzerland, there are both special planning opportunities and specific requirements. As an economically stable jurisdiction, Switzerland offers a reliable legal environment and attractive cantonal tax regimes. At the same time, matters involving German and Swiss tax law must be analyzed with particular care: The double taxation treaty between Germany and Switzerland determines which country has the right to tax—but it also contains pitfalls that can be overlooked without a thorough understanding of how the treaty is applied.

We collaborate with local partner law firms in Switzerland to structure cross-border wealth arrangements in a legally sound and tax-efficient manner. This approach ensures that both the German and Swiss perspectives are fully taken into account.

Are there any regulatory requirements for asset management abroad?

In addition to tax issues, regulatory frameworks also play an important role. In many countries, the professional management of third-party assets is subject to licensing requirements. Anyone who manages third-party assets may need to be licensed as a financial services provider—both in the country where the company is headquartered and, potentially, in Germany, if clients residing in Germany are being served.

Determining whether an asset management activity requires a license depends on the specific business model and requires a detailed legal review. Anyone who leaves this question unresolved risks fines or criminal penalties.

Conclusion: Care and planning come before speed

Establishing an asset management entity abroad can make good financial sense—provided that the tax and legal framework is consistently taken into account from the very beginning. Anyone who focuses exclusively on tax advantages without examining the net worth requirements, exit taxation, and German foreign tax rules risks significant disadvantages.

Our interdisciplinary team of certified public accountants, tax advisors, and attorneys works hand in hand and offers particular expertise in international matters—especially those involving Switzerland. We analyze your specific situation, develop legally sound structures, and guide you through the implementation process.

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