Inheritance and gift tax

The convention on estates of 1978

Unlike most of its neighbours, Switzerland has maintained a double taxation convention with Germany in the field of inheritance tax. The Agreement between the Swiss Confederation and the Federal Republic of Germany for the avoidance of double taxation with respect to taxes on estates and inheritances of 30 November 1978 is published as SR 0.672.913.61. It entered into force on 28 September 1980 and remains in force.¹ Germany’s network of inheritance tax conventions is small and comprises only a handful of states, among them Denmark, France, Greece, Sweden, Switzerland and the United States. The German–Swiss convention is therefore a rare instrument whose survival is of considerable practical value for families with assets in both countries. It covers taxes on estates and inheritances only. Gifts made during lifetime fall outside it, so that any double taxation of gifts must be relieved under the unilateral rules of each state.

The convention follows the structure of the OECD Model on estates. Immovable property may be taxed in the state where it is situated, and so may the assets of a permanent establishment. Other assets are in principle taxable only in the state of the deceased’s domicile. As in the income tax convention, however, Germany secured special rights for itself. Where the deceased was domiciled in Switzerland at the time of death but had a permanent home in Germany or had been habitually resident there, Germany retains the right to tax the estate under its rules on unlimited tax liability, subject to a credit for Swiss tax. A further rule, Article 4 paragraph 4, allows Germany to tax the estate of a German national who had given up his German domicile and moved to Switzerland if the death occurs within five years after the move. The condition is that the deceased had been domiciled in Germany for at least five years within the ten years before he left. The provision does not apply to persons who moved to Switzerland to take up genuine employment for an employer in which they held no substantial interest or because of marriage to a Swiss national, nor to Swiss nationals.² The German taxing right of Article 4 paragraph 4 of the estates convention thus runs in parallel with the five-year period of Article 4 paragraph 4 of the income tax convention. Both reflect the same idea of a transitional period during which Germany does not let go of the emigrant.

German domestic law: § 2 ErbStG and § 4 AStG

The German inheritance and gift tax attaches unlimited tax liability to the status of either the deceased or donor or the heir or donee as a resident (Inländer). Under § 2 paragraph 1 number 1 of the Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG), residents include persons domiciled or habitually resident in Germany as well as German nationals who have not been resident abroad for more than five years without having a domicile in Germany.³ A German who moves to Zurich therefore remains subject to unlimited German inheritance and gift tax on his worldwide assets for five years after his departure. The estates convention restricts the German right in the case of death, but gifts made during those five years are fully taxable in Germany, since no convention applies to them.

A second layer is the extended limited inheritance tax liability of § 4 AStG. For persons subject to § 2 AStG, the inheritance and gift tax extends during the ten years after departure to all assets whose income would be non-foreign income within the meaning of § 34d EStG. This category reaches considerably further than the domestic assets that are taxable under the ordinary limited liability of § 2 paragraph 1 number 3 ErbStG.⁴ The canton of Zurich exempts transfers to spouses and descendants from its inheritance and gift tax. A German entrepreneur who dies in Zurich within the ten-year period leaving his German shares to his children may face German inheritance tax on these shares without any Swiss tax against which it could be credited.

The heirs’ residence is an independent connecting factor. If a child of the deceased lives in Germany, that child is a German resident and is subject to unlimited German inheritance tax on everything he or she inherits, regardless of where the deceased lived and for how long. The estates convention permits Germany to tax in this case as well, with a credit for Swiss tax.⁵ For German families in Zurich whose children study or work in Germany, this is the single most frequent source of German inheritance tax. It is regularly overlooked when the family’s planning focuses only on the domicile of the parents. The five-year period of § 2 paragraph 1 number 1 lit. b ErbStG, the ten-year period of § 4 AStG and the residence of each heir must therefore be mapped together before a family can assess its exposure.

Zurich inheritance and gift tax

On the Swiss side the inheritance and gift tax is a cantonal tax. The canton of Zurich exempts spouses, registered partners and direct descendants, and taxes other heirs at progressive rates that rise with the remoteness of the relationship. Part H has described the Zurich tax in detail. For German families the exemption of descendants is the main attraction of the canton in comparison with Germany. There the tax-free allowance for a child is 400,000 euros every ten years and the rates on larger amounts reach 30 per cent in the most favourable tax class. The German regime for business assets under §§ 13a and 13b ErbStG can reduce this burden considerably. Its relief is limited to the portion of the assets classified as productive and depends on conditions on wages and holding periods that many family companies find difficult to satisfy. The Federal Constitutional Court has twice held earlier versions of the regime partly unconstitutional. The taxation of large inheritances of business assets remains a recurring subject of German political debate.⁶

Family foundations and trusts

Wealthy German families often consider foundations and trusts as vehicles for the transfer of wealth across generations. The German tax law treats them with suspicion. Under § 15 AStG, the income of a family foundation whose seat and management are abroad is attributed to the founder if he is subject to unlimited German tax liability. Otherwise it is attributed to those beneficiaries or persons entitled on termination who are subject to unlimited German tax liability. The attribution also applies to trusts and other special-purpose entities. An exception exists for foundations in the European Union and the European Economic Area that are legally and actually separated from the founder and whose state exchanges information with Germany, but it does not extend to Switzerland.⁷ The transfer of assets to a foundation or trust is, moreover, subject to German gift tax at the rates of the least favourable tax class, unless the foundation is a family foundation within the meaning of § 15 paragraph 2 ErbStG or the founder is no longer subject to German tax.

For families who move to Zurich, the usual consequence is to postpone the establishment of a foundation or trust until German tax liability has ended, including the five-year period of § 2 paragraph 1 number 1 lit. b ErbStG, and until no beneficiary remains resident in Germany, which is often impossible to guarantee over the life of a structure. The Swiss private-law foundation cannot be used as a pure family maintenance foundation under Article 335 of the Civil Code, and the Swiss trust project has been abandoned. Families wishing to use such structures from Zurich usually turn to Liechtenstein foundations or to trusts under foreign law. These options are described in Part G and in the third chapter of this Part.

Notes

1. SR 0.672.913.61, Abkommen vom 30. November 1978 zwischen der Schweizerischen Eidgenossenschaft und der Bundesrepublik Deutschland zur Vermeidung der Doppelbesteuerung auf dem Gebiete der Nachlass- und Erbschaftssteuern. Bundesministerium der Finanzen, “Stand der Doppelbesteuerungsabkommen und der Doppelbesteuerungsverhandlungen am 1. Januar 2025”, 20 January 2025, section on inheritance and gift taxes, entry Schweiz: agreement of 30 November 1978, BGBl. 1980 II p. 594, entry into force published in BGBl. 1980 II p. 1341, effective 28 September 1980, https://www.steuerschroeder.de/blog/wp-content/uploads/2025/02/2025-01-20-stand-DBA-1-januar-2025.pdf. ↩
2. Article 4 paragraphs 3 and 4 of the convention of 30 November 1978, as summarised by Rose & Partner, “Doppelbesteuerungsabkommen (DBA) Deutschland – Schweiz” (inheritance tax), https://www.rosepartner.de/doppelbesteuerungsabkommen-erbschaftsteuer-dba/schweiz-dba-erbschaftsteuer.html: Germany may tax where the deceased had a permanent home in Germany within the five years before death and had such a home for at least five years within the ten years before giving it up, unless the deceased was a Swiss national or moved to Switzerland for employment or because of marriage to a Swiss national. ↩
3. § 2 para. 1 no. 1 lit. a and b ErbStG, https://lxgesetze.de/erbstg/2 (German nationals “die sich nicht länger als fünf Jahre dauernd im Ausland aufgehalten haben, ohne im Inland einen Wohnsitz zu haben”). The extended unlimited liability of German nationals under lit. b applies to both the transferor and the recipient. For German nationals who move to the United States, Article 4 paragraph 3 of the inheritance tax convention with the United States extends the period to ten years, a rule without equivalent in the convention with Switzerland: REB Steuerberatung, “Erbschaftsteuer bei Wegzug ins Ausland”, 27 April 2026, https://reb-steuerberatung.de/insights/erbschaftsteuer-bei-wegzug-ins-ausland-unbeschraenkte-und-erweitert-unbeschraenkte-steuerpflicht.html. ↩
4. § 4 AStG, https://lxgesetze.de/astg/4. Paragraph 1 extends the inheritance and gift tax to parts of the acquisition whose income would not be foreign income within the meaning of § 34d EStG where the deceased or donor was subject to the extended limited income tax liability under § 2 AStG at the time of the transfer. Under paragraph 2 the provision does not apply if the transferor proves that the foreign tax on the transfer amounts to at least 30 per cent of the German tax. ↩
5. Article 8 of the estates convention, as summarised by Rose & Partner, “Doppelbesteuerungsabkommen (DBA) Deutschland – Schweiz” (inheritance tax), cited above: Germany may tax where the beneficiary has a permanent home or habitual abode in Germany, limited to that beneficiary’s share, and avoids double taxation by crediting the Swiss tax. The rule does not apply where both the deceased and the heir were Swiss nationals. Unilaterally, § 21 ErbStG provides for the credit of foreign inheritance taxes. ↩
6. § 16 para. 1 no. 2 ErbStG (allowance of 400,000 euros for children), https://lxgesetze.de/erbstg/16; § 19 para. 1 ErbStG (rates of 7 to 30 per cent in tax class I), https://lxgesetze.de/erbstg/19; §§ 13a, 13b and 28a ErbStG (relief for business assets). Deutscher Bundestag, Wissenschaftliche Dienste, “Verfassungsgebot der Begünstigung von Ehegatten und Kindern bei der Erbschaft- und Schenkungsteuer nach der Rechtsprechung des Bundesverfassungsgerichts”, WD 4 – 040/26, 3 July 2026, https://www.bundestag.de/resource/blob/1194786/WD-4-040-26.pdf, on the judgments of 7 November 2006 (1 BvL 10/02), which held the uniform rates of § 19 para. 1 ErbStG incompatible with Art. 3 para. 1 GG because of the unequal valuation of different assets, business assets included, and of 17 December 2014 (1 BvL 21/12), which held the relief for business assets under §§ 13a and 13b ErbStG partly unconstitutional. ↩
7. § 15 paras. 1, 4 and 6 AStG, https://lxgesetze.de/astg/15. The exception in paragraph 6 is limited to family foundations whose management or seat is in a member state of the EU or a state party to the EEA Agreement, provided that the foundation’s assets are legally and actually withdrawn from the control of the founder and beneficiaries and that information is exchanged under the Mutual Assistance Directive or a comparable agreement. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.