Exit taxes: what it costs to leave

What is actually true

• The US covered expatriate test under IRC §877A has three limbs, and failing ANY ONE of them makes you covered. First, the net worth test: net worth of USD 2,000,000 or more on the expatriation date — a statutory figure that is NOT inflation-adjusted and has not moved since 2008, which is why it now catches ordinary professionals with a house and a pension. Second, the average annual net income tax test: average annual net income tax for the five years ending before expatriation exceeding USD 211,000 for 2026 (up from USD 206,000 for 2025), per Rev. Proc. 2025-32 §4.37. Note this is net income TAX, not income. Third, the certification test: failure to certify on Form 8854 five years of full US federal tax compliance — this limb catches people who pass the first two comfortably and is the most common route to covered status for the merely disorganised.
• For 2026 the mark-to-market exclusion is USD 910,000, up from USD 890,000 for 2025 (Rev. Proc. 2025-32 §4.38, under §877A(a)(3)). It applies to your NET gain across all mark-to-market assets in aggregate, not asset by asset — USD 1.2m of gains against USD 400,000 of losses is USD 800,000 net, entirely within the exclusion.
• Form 8854 is the mechanism for everything. It carries the certification, the balance sheet, and the deemed-sale computation; it is due when the income tax return for the year of expatriation is due; and failing to file it when required carries a USD 10,000 penalty and — far worse — means you cannot make the five-year certification, which makes you covered regardless of your wealth.
• The dual-national-from-birth exception is narrow and both conditions must be met. You must have become at birth a citizen of the US AND of another country, and continue as at the expatriation date to be a citizen of, AND taxed as a resident of, that other country; and you must have been a US resident for not more than 10 of the 15 tax years ending with the year of expatriation. The 'taxed as a resident of that other country' limb is what defeats most claimants — holding a second passport from birth is not enough if you are not currently tax-resident there. A parallel exception exists for certain minors who expatriate before age 18½.
• Not everything is marked to market. §877A(c) carves out deferred compensation items, specified tax deferred accounts, and interests in non-grantor trusts of which you were a beneficiary the day before expatriation. These are handled instead by withholding: 30% on taxable payments from eligible deferred compensation, and 30% on the taxable portion of non-grantor trust distributions to a covered expatriate — with the trust recognising gain as if it had sold the distributed property at fair market value. Specified tax deferred accounts are treated as fully distributed on the day before expatriation. Form W-8CE notifies the payor.
• The US exit tax does not end at the exit. Under IRC §2801, a US person who receives a covered gift or bequest from a covered expatriate pays tax at the highest estate/gift rate — 40% — on the value above the annual exclusion (USD 19,000 for 2025 and 2026), and the RECIPIENT pays it, on Form 708, due the fifteenth day of the eighteenth month after the close of the calendar year of receipt. Final regulations were published 14 January 2025 and apply to covered gifts and bequests received on or after 1 January 2025. This is a perpetual charge with no expiry: a covered expatriate's US-resident grandchildren are exposed decades later.
• The rest of the developed world uses deemed disposal, with widely varying deferral. Canada, Australia and Norway deem a sale; Germany, Spain, France and the Netherlands charge on shareholdings above a threshold; several allow indefinite deferral within the EU/EEA. The recurring pattern to watch is dry income — tax on gains never realised in cash.

Jurisdiction by jurisdiction

United States high

§877A covered expatriate if ANY of: net worth ≥ USD 2,000,000 (not indexed, unchanged since 2008); average annual net income tax for the prior 5 years > USD 211,000 for 2026 (USD 206,000 for 2025); or failure to certify 5 years of tax compliance on Form 8854. Deemed sale of worldwide assets at FMV the day before expatriation, with a USD 910,000 net gain exclusion for 2026 (USD 890,000 for 2025). Deferred comp, specified tax deferred accounts and non-grantor trust interests are excluded from mark-to-market and hit with 30% withholding instead. §2801 then taxes US recipients of later gifts/bequests at 40%, forever. Dual-national-from-birth exception requires citizenship of, AND current tax residence in, the other country from birth, plus US residence in no more than 10 of the last 15 years.

Canada high

Departure tax under s. 128.1 ITA: deemed disposition at FMV of most property on emigration. Excluded: Canadian real property, RRSPs/RRIFs/TFSAs and Canadian pensions (taxed later under other rules). Capital gains at a 50% inclusion rate against marginal rates. Form T1243 reports the deemed disposition; Form T1161 lists all worldwide property if the total FMV exceeded CAD 25,000. Payment can be deferred by election (T1244) without interest until actual disposition, but security is required where federal tax on the deemed disposition exceeds CAD 16,500 (CAD 13,777.50 for former Quebec residents); no security is required on the first CAD 100,000 of deemed gains.

Norway high

The most aggressive in Europe and tightened repeatedly since 2022. Exit tax on latent gains on shares, securities fund units, share savings accounts and endowment insurance, with a NOK 3,000,000 basic deduction applied to the aggregate latent gain. Effective rate approximately 37.84% (22% applied to the gain grossed up by a 1.72 factor). Under rules effective 20 November 2024 the tax MUST be paid within 12 years even if nothing is ever realised — pay now, pay in interest-free instalments over 12 years, or defer the whole amount for 12 years with interest. Moving within the EEA allows gains and losses to be netted before the deduction; outside the EEA only gains are counted and losses are ignored. Waived if you resume Norwegian residence within the 12 years.

Germany high

Wegzugsteuer under §6 AStG: applies where you hold 1% or more of a corporation and were German tax resident for at least 7 of the last 12 years. Deemed sale at FMV; the partial-income method taxes 60% of the gain at progressive rates, roughly 28.5% effective. Materially widened from 1 January 2025: the Annual Tax Act 2024 extended exit taxation to units in (special) investment funds held as private assets via §19(3) and §49(5) InvStG, triggered at 1% of issued units OR acquisition cost of at least EUR 500,000, taxed at 25%. Deferral in seven annual instalments on application. Classic dry-income exposure.

Spain medium

Exit tax under art. 95 bis LIRPF: applies to individuals resident in Spain for at least 10 of the previous 15 tax periods who hold shares with market value above EUR 4,000,000, or a stake above 25% in an entity whose shares exceed EUR 1,000,000. Unrealised gains taxed on cessation of residence. Immediate charge only on departure outside the EU/EEA; moves within the EU/EEA get automatic deferral, which crystallises if you subsequently leave the EU/EEA or dispose of the shares within 10 years.

Netherlands high

Conserverende aanslag (protective assessment) on emigration, covering Box 2 substantial-interest holdings (5%+), annuities and pension reserves. The critical and widely-missed point: for emigrations after 15 September 2015 the deferral is indefinite and the assessment does NOT lapse after 10 years — the old 10-year expiry was abolished. It becomes payable on disposal or surrender. Within the EU/EEA, deferral is automatic without security; outside, security is mandatory. Pension-related assessments run at Box 1 progressive rates up to 49.5%.

France medium

Exit tax on unrealised gains on substantial shareholdings for those resident in France for at least 6 of the previous 10 years. Comparatively forgiving in substance: automatic deferral for moves to the EU/EEA and to treaty states with administrative assistance, and the charge is cancelled — with any prepayment refunded — if you return to France still holding the assets or hold them through the monitoring period. The severity is procedural: missing the departure return or the annual monitoring filings can crystallise the whole liability immediately.

Australia medium

CGT event I1 on ceasing residence: deemed disposal at market value of all assets that are NOT 'taxable Australian property' (TAP — chiefly Australian real property and related interests, per s. 855-15 ITAA 1997). Election available under s. 104-165(2) to disregard the deemed disposal, which instead deems the assets to be TAP until a later CGT event or resumption of residence — meaning Australia keeps taxing rights on those assets indefinitely. The election is all-or-nothing across every affected asset; you cannot cherry-pick.