Exit taxes: what it costs to leave

What is actually true

• The US covered expatriate test under IRC §877A has three parts, and failing any one of them makes you covered. First, the net worth test. This means 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. That is why it now catches ordinary professionals who simply own a house and a pension. Second, the average annual net income tax test. This looks at average annual net income tax for the five years ending before expatriation, and the threshold is USD 211,000 for 2026, up from USD 206,000 for 2025, per Rev. Proc. 2025-32 §4.37. It is worth noting this is net income tax, not income. Third, the certification test. This is triggered by failing to certify on Form 8854 five years of full US federal tax compliance. This part catches people who clear the first two tests comfortably, and it is the most common route to covered status for those who are simply disorganized.
• 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 comes to USD 800,000 net, which falls 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. Failing to file it when required carries a USD 10,000 penalty. Far worse, it 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 you must continue, as at the expatriation date, to be a citizen of, and taxed as a resident of, that other country. You must also have been a US resident for not more than 10 of the 15 tax years ending with the year of expatriation. The condition that trips up most claimants is being taxed as a resident of that other country. 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 when you leave. Under IRC §2801, a US person who receives a covered gift or bequest from a covered expatriate owes tax at the highest estate and gift rate, 40%, on the value above the annual exclusion (USD 19,000 for 2025 and 2026). 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 charge never expires. A covered expatriate's US-resident grandchildren can still be exposed decades later.
• Most of the developed world relies on deemed disposal instead, though the deferral rules vary widely. Canada, Australia and Norway deem a sale outright. Germany, Spain, France and the Netherlands charge tax on shareholdings above a threshold. Several jurisdictions allow indefinite deferral within the EU/EEA. The pattern worth watching for is dry income, tax owed on gains you have never actually realized in cash.

Jurisdiction by jurisdiction

United States high

Under §877A, you count as a covered expatriate if any one of three things is true. Your net worth is USD 2,000,000 or more, a threshold that is not indexed and has not changed since 2008. Your average annual net income tax for the prior 5 years exceeds USD 211,000 for 2026 (USD 206,000 for 2025). Or you fail to certify 5 years of tax compliance on Form 8854. Once you are covered, the IRS treats your worldwide assets as sold at fair market value the day before expatriation, though a net gain exclusion applies: USD 910,000 for 2026 (USD 890,000 for 2025). Deferred compensation, specified tax deferred accounts and non-grantor trust interests sit outside this mark-to-market rule. Instead, they face a 30% withholding tax. Separately, §2801 taxes any US recipient of a later gift or bequest from you at 40%, and that rule never expires. There is an exception for dual nationals from birth, but it is narrow. It 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

Canada's departure tax, under section 128.1 of the ITA, treats most of your property as sold at fair market value the moment you emigrate. A few things are excluded from this deemed disposition: Canadian real property, RRSPs, RRIFs, TFSAs and Canadian pensions, all of which are taxed later under separate rules. Capital gains are taxed at a 50% inclusion rate against your marginal rate. Form T1243 reports the deemed disposition, and Form T1161 lists all worldwide property if its total fair market value exceeded CAD 25,000. You can defer payment by election on Form T1244, without interest, until you actually dispose of the property. But security is required once 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

This is the most aggressive exit tax regime in Europe, and it has been tightened repeatedly since 2022. It applies to 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. The effective rate is 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. You can pay now, pay in interest-free instalments over 12 years, or defer the whole amount for 12 years with interest. Moving within the EEA lets you net gains and losses before the deduction applies. Move outside the EEA, and only gains are counted, losses are ignored. The tax is waived if you resume Norwegian residence within the 12 years.

Germany high

This is Germany's Wegzugsteuer under §6 AStG. It applies if you hold 1% or more of a corporation and were German tax resident for at least 7 of the last 12 years. The law treats this as a deemed sale at fair market value. Under the partial-income method, 60% of the gain is taxed at progressive rates, for an effective rate of roughly 28.5%. The rules widened materially from 1 January 2025. The Annual Tax Act 2024 extended exit taxation to units in (special) investment funds held as private assets, under §19(3) and §49(5) InvStG. This is triggered at 1% of issued units or an acquisition cost of at least EUR 500,000, and taxed at 25%. You can apply for deferral in seven annual instalments. In practice, this is a classic case of dry-income exposure, tax owed on a gain you have not actually received in cash.

Spain medium

Spain's exit tax, under art. 95 bis LIRPF, applies if you have been resident there for at least 10 of the previous 15 tax periods and hold shares worth more than EUR 4,000,000, or a stake above 25% in a company whose shares exceed EUR 1,000,000. Unrealised gains are taxed the moment your residence ends. The charge is immediate only if you move outside the EU/EEA. Moves within the EU/EEA get an automatic deferral, though that deferral ends if you later leave the EU/EEA or sell the shares within 10 years.

Netherlands high

The Netherlands issues a conserverende aanslag, a protective assessment, when you emigrate. It covers Box 2 substantial-interest holdings of 5% or more, along with annuities and pension reserves. Here is the point most people miss. For anyone who emigrated after 15 September 2015, the deferral is indefinite. The assessment does not lapse after 10 years. That old 10-year expiry has been abolished. The tax becomes payable only when you dispose of the assets or surrender them. If you move within the EU/EEA, deferral is automatic and no security is required. If you move outside it, security is mandatory. Pension-related assessments are taxed at Box 1's progressive rates, up to 49.5%.

France medium

France applies an exit tax on unrealised gains from substantial shareholdings, if you have been resident in France for at least 6 of the previous 10 years. In practice, it is fairly forgiving. Moves to the EU/EEA, or to treaty states with administrative assistance arrangements, qualify for automatic deferral. The charge is cancelled outright, and any prepayment refunded, if you return to France still holding the assets, or if you keep holding them through the monitoring period. The real risk is procedural, not substantive. Miss the departure return, or one of the annual monitoring filings, and the entire liability can become due immediately.

Australia medium

CGT event I1 triggers when you stop being an Australian resident. At that point, the law treats you as having sold, at market value, everything you own that does not count as taxable Australian property. Taxable Australian property, or TAP, means chiefly Australian real property and related interests, as defined in s. 855-15 ITAA 1997. You can elect under s. 104-165(2) to set aside that deemed sale. If you do, those assets are instead treated as TAP until a later CGT event occurs, or until you resume residence. That means Australia keeps the right to tax them indefinitely. The election applies to every affected asset together. You cannot pick and choose which ones to include.