A Client Came to Us With Everything in the Wrong Place

The call came from a German entrepreneur in his late forties. He had spent twenty years building a mid-sized software business. He had also, over the same period, accumulated a home in Bavaria, an apartment on the Croatian coast, a minority interest in a Hong Kong-based trading company, a German investment portfolio, and a set of bank accounts spread across three institutions.

He was planning to sell the business within eighteen months and leave Germany shortly after. He had spoken to his German tax adviser about the sale. He had not spoken to anyone about the departure.

He believed the two were separate questions. They are not.

What the Diagnostic Surfaced

The Portfolio Resilience Diagnostic mapped his position across five dimensions. The results were not surprising to us. They were surprising to him.

Jurisdictional exposure was the most immediate issue. His plan was to sell the German business, receive the proceeds into his German bank account, and then leave Germany. In that sequence, the exit tax under §6 AStG — assuming the relevant threshold and holding conditions were met — would apply not only to his shareholding in the software company — already being addressed in the sale negotiations — but also to his minority interest in the Hong Kong trading company, which he had held for more than five years and which had appreciated significantly. He had not considered the Hong Kong interest in the context of §6 AStG at all. His German tax adviser had not focused on it in the context of departure.

Concentration risk was the second finding. The majority of his liquid wealth — post-sale — was going to sit in German bank accounts, in euros, in institutions subject to German regulatory jurisdiction, while he was in the process of becoming a non-resident. The concentration was not a problem in isolation. Combined with the transition period between departure and the establishment of a new domicile, it created a window of particular vulnerability.

Custody structure flagged the absence of any formal arrangement around the Croatian real estate and the Hong Kong interest. Both were held in his personal name. Both would pass through his German estate on death, subject to German inheritance law and, for the Croatian property, Croatian succession procedures running in parallel.

Compartmentalisation was effectively zero. Every asset was in his personal name, in a single legal layer, with no separation between his personal liability exposure and the assets themselves. A claim against him in any jurisdiction — Germany, Croatia, Hong Kong — could reach everything.

Liquidity under stress was the final dimension. The Croatian apartment was illiquid. The Hong Kong interest was a minority position with limited exit rights. In a scenario where he needed to access capital quickly — a health event, a legal claim, a currency dislocation — his options were narrow.

What We Found on Closer Examination

The Stress Test engagement went deeper. Three issues emerged that the Diagnostic had flagged but not fully quantified.

The first was the §6 AStG exposure on the Hong Kong interest. The interest had been acquired at nominal cost and had grown to a value that, on a deemed disposal calculation at the point of departure, would generate a liability running to seven figures. This was not the primary asset he was focused on. It was not in the room when he was negotiating the software company sale. It needed to be in the room.

The second was the sequencing problem. His intended sequence — sell, receive, then leave — was a materially inefficient order from a tax perspective. The proceeds of the business sale, received while he was still a German tax resident, would be subject to German capital gains treatment in the normal way. That part was already structured. But leaving Germany after receiving those proceeds, without first addressing the Hong Kong interest and the structure of the Croatian real estate, would likely trigger the §6 AStG deemed disposal on the Hong Kong position and leave the Croatian property sitting in his personal estate with no formal succession mechanism.

A more effective sequence was: address the Hong Kong interest before departure, establish the offshore structure before the business sale completed, transfer the Croatian real estate into the structure, and then execute the departure — in that order, with the German sale proceeds flowing into an already-established holding architecture rather than into personal bank accounts that would then need to be restructured from outside Germany. Each of these steps required careful execution to avoid triggering unintended tax consequences of its own.

The third issue was destination. He had chosen Croatia as his destination, partly because he already had the apartment there. Croatia is an EU member state. Its tax treatment of incoming residents, its CRS obligations, and its inheritance law are all relevant to the structure. A destination that felt natural — he already had a home there — required careful analysis before it was confirmed as the right choice for the structure he was building.

What We Built

The structure that emerged from the engagement had four elements.

A Cook Islands trust was established as the holding layer, with the client named as primary beneficiary and his two adult children as secondary beneficiaries. A protector was appointed — a trusted professional outside the trustee relationship — with the power to replace the trustee and approve distributions above a defined threshold.

A Nevis LLC was established within the trust to hold the financial assets — the investment portfolio and, following the business sale, the liquid proceeds. This provided the operational flexibility to manage distributions and interact with banking relationships in multiple jurisdictions without requiring the trust itself to be the direct counterparty in every transaction.

The Croatian real estate was transferred into a Croatian company, the shares of which were held by the Nevis LLC, subject to local tax, legal, and structuring considerations applicable at the time of transfer. This separated the property from the client’s personal estate, created a more controlled and administrable inheritance mechanism — the shares pass under the trust deed rather than through Croatian probate — and provided a vehicle for any future sale of the property that did not require the client’s personal involvement in Croatian legal proceedings.

The Hong Kong minority interest required separate handling. The interest was restructured before departure in a manner that managed the §6 AStG exposure — the mechanics of which are specific to the facts and not appropriate to describe in general terms here. The restructuring was executed before the German tax residency ended, within the window that remained available.

The sequencing of the departure was planned with precise timing. The order in which each element was executed — the restructuring, the trust establishment, the asset transfers, the Croatian company formation, the business sale completion, and finally the loss of German unlimited tax liability — was determined by the interaction between German exit tax rules, Croatian tax law, and the Cook Islands trust’s establishment requirements. A different order would have produced a different, and worse, tax outcome.

What the Client Understood at the End

The client came to the engagement believing he had one problem: selling his business efficiently. He left with a structure that addressed five dimensions of exposure he had not previously mapped, a sequence for his departure that was materially different from the one he had planned, and a holding architecture that is designed to continue to function for his beneficiaries after his death without requiring them to navigate German, Croatian, and Hong Kong legal proceedings simultaneously.

The Hong Kong interest, which he had not thought about in the context of the departure, turned out to be the most time-sensitive element of the entire engagement. The window for addressing it cleanly closed at the point of departure. It was addressed with weeks to spare.

The cost of not having the conversation earlier was not the professional fees for the engagement. It was the seven-figure §6 AStG liability that would likely have crystallised on the Hong Kong interest absent restructuring, had the departure proceeded as originally planned.

This article describes an anonymised and composite engagement for illustrative purposes. It does not constitute legal, tax, or financial advice. The specific structures and sequencing described are fact-dependent and should not be relied upon as applicable to any other individual’s circumstances. Independent legal and tax advice should be obtained before taking any action in connection with a change of tax residency or business exit.