Exit Tax and Second Citizenship in 2026: What an Exit Tax Is and How It Works

What is an exit tax?

An exit tax is a charge that some countries levy on the unrealised gains embedded in a person's assets at the moment they stop being tax resident there, or, in certain regimes, at the moment they renounce citizenship. Unlike ordinary capital gains tax, which arises when an asset is actually sold, an exit tax can be triggered by the change of status itself, treating assets as if they were sold on the day before departure. The rules, rates, thresholds and reliefs are defined entirely by the departing country's own legislation.

The purpose is straightforward from the state's perspective: to tax value that accrued while a person was within its system before that person leaves. Because modern wealth is often held in illiquid forms such as company shares, investment portfolios and property, an exit tax can create a liability even though no cash has changed hands. This is why the topic is widely discussed, and also why it is widely misunderstood.

Which countries operate an exit tax?

Several developed economies operate an exit tax or an equivalent deemed-disposal mechanism, each with its own scope. The design varies significantly from country to country, so the following are illustrative examples rather than an exhaustive or definitive list.

• United States: Under Section 877A of the Internal Revenue Code, certain "covered expatriates" who renounce US citizenship or give up long-term permanent residence are treated as having sold their worldwide assets at fair market value, with the resulting gain taxable above an inflation-adjusted exclusion. Uniquely, the US test is tied to citizenship and long-term residence rather than only to tax residence.
• Germany: The Wegzugsteuer (exit taxation under the Aussensteuergesetz) can apply to substantial shareholdings when an individual ceases German tax residence.
• Norway: Operates an exit tax on unrealised gains on shares and certain assets when tax residence ends.
• Canada: Applies a "departure tax", treating most property as disposed of at fair market value when a person ceases Canadian residence.
• Australia: Treats certain assets as disposed of at market value when an individual ceases to be an Australian tax resident, with an election available for some assets.

Some countries, such as the United Kingdom, do not operate a formal general exit tax but have related rules, for example temporary non-residence provisions and continuing charges on locally situated assets. Every regime differs, and the precise thresholds and reliefs change over time, so country-specific professional advice is always required.

Does a second citizenship remove or reduce an exit tax?

No. Acquiring a second citizenship does not remove or reduce an exit tax. An exit tax is imposed by the home country under its own law, and the charge is determined by that country's rules and by the person's asset base and status, not by which passports the person holds. Holding another nationality does not change the calculation, the threshold, or the trigger event defined by the departing state.

This is one of the most persistent misunderstandings in the field. A second passport is a travel and identity document and, where applicable, a citizenship status; it is not a mechanism that switches off another country's tax legislation. For US citizens in particular, the Section 877A charge is assessed on renunciation according to net worth, income history and compliance, entirely independently of any other citizenship already held. Suggestions that a passport can "unlock" or "avoid" an exit tax are inaccurate.

Why does tax follow residence rather than the passport?

Tax follows residence because most national tax systems, and the international framework that connects them, assign taxing rights based on where a person actually lives and has their centre of life, not on nationality. A person's tax residence is determined by objective tests, and it is that residence, together with the location and nature of assets, that drives most tax outcomes. Citizenship is generally not the deciding factor, the United States being the notable exception because it taxes on the basis of citizenship as well as residence.

Residence is assessed through domestic rules and, where a treaty applies, the tie-breaker tests in the OECD Model Tax Convention. Typical factors include the number of days spent in a country, the location of a permanent home, and the centre of vital interests, meaning where personal and economic ties are strongest. Because these tests look at genuine facts, a change of residence that lacks real substance will not be recognised, regardless of any additional citizenship a person may have obtained.

What home-country rules continue to apply after a move?

Home-country rules do not switch off simply because a person acquires another citizenship or spends time abroad. Departing countries maintain a range of provisions specifically designed to preserve their taxing rights, and these continue to operate according to their own terms.

• Residence tests: Statutory day-count and ties tests determine when a person genuinely ceases to be resident, and tax authorities examine departures of higher-net-worth individuals closely.
• Deemed-disposal and departure rules: Where an exit or departure tax applies, the deemed sale of assets is calculated under the home country's formula, including any available deferral elections.
• Locally situated assets: Many countries continue to tax gains on real estate and certain other assets located within their borders, irrespective of the owner's residence.
• Information reporting: Under the OECD Common Reporting Standard (CRS), financial institutions in most jurisdictions automatically report account information to tax authorities, so cross-border financial positions are visible to relevant governments.

The practical consequence is that a change of nationality has no bearing on whether these rules apply. What matters is the person's genuine tax residence and the specific facts of their assets and ties.

How do citizenship and residency programmes relate to tax at all?

Citizenship and residency programmes relate to tax only indirectly, because they concern legal status and the right to live in a country, whereas tax outcomes are decided separately by residence rules and personal circumstances. A programme such as a golden visa can give a person the legal right to reside somewhere, but whether they become tax resident there, and what that means, depends on how much time they spend, where their home and family are, and the interaction of two or more national tax systems.

Investment migration options span a wide range. On the citizenship side, Caribbean programmes and others are compared on our citizenship by investment overview. On the residency side, programmes such as the United Arab Emirates Golden Visa, Cyprus permanent residency by investment and the Portugal Golden Residence Permit are set out on our golden visa overview. For those with United States business ties, the Grenada Citizenship by Investment Programme is often discussed because Grenada holds a US E-2 investor treaty; this is a mobility and business consideration, not a tax-avoidance feature. None of these programmes removes an exit tax, and each should be assessed on its own merits alongside professional tax advice.

Wider structural shifts, including how nationality and residence interact with regulation and access to services, are explored in our measured explainer on digital sovereignty and citizenship. As with tax, the honest position is that these are considerations to understand carefully, not problems that a passport alone can solve.

Why does relocating for tax reasons require qualified professional advice?

Relocating for tax reasons requires qualified professional advice because it is a major, highly regulated decision that engages the laws of at least two countries, carries real financial consequences, and is scrutinised by tax authorities. The interaction of exit taxes, residence tests, treaty tie-breakers, reporting obligations and anti-avoidance rules is complex and jurisdiction-specific, and getting it wrong can be costly or, where arrangements lack genuine substance, unlawful.

A credible approach starts with specialist tax and legal counsel in the relevant countries, who can assess a person's actual circumstances before any step is taken. The role of an investment migration advisory is to help people understand the citizenship and residency landscape and, where appropriate, to coordinate with those professionals, not to offer tax advice or to promise tax outcomes. Mirabello Consultancy operates strictly on that basis: we provide clear information about programmes and requirements, and we work alongside qualified tax counsel rather than in place of them.

Common questions about exit tax and second citizenship

Does getting a second passport reduce my exit tax?

No. An exit tax is set by the home country's law and is calculated on the person's assets and status at the trigger event, not on the passport held. A second citizenship changes legal status and mobility, but it does not remove, reduce or defer another country's exit tax.

Is an exit tax the same as capital gains tax?

Not exactly. Capital gains tax normally arises when an asset is actually sold. An exit tax can treat assets as if they were sold on departure, taxing unrealised gains when a person ceases tax residence or, in some regimes, renounces citizenship. The precise mechanics depend on the country.

Which countries have exit taxes?

Examples include the United States (Section 877A on renunciation) and deemed-disposal or departure rules in Germany, Norway, Canada and Australia, among others. Some countries, such as the United Kingdom, have no general exit tax but do have related provisions. Each regime differs and changes over time.

Does moving abroad end my home country's tax rules automatically?

No. Residence tests, deemed-disposal provisions, charges on locally situated assets and CRS information reporting continue to apply on their own terms. What matters is genuine tax residence and the facts of a person's ties and assets, not nationality alone.