Many digital nomads, founders, and perpetual travelers set up foreign corporate structures, like a US LLC, a Spanish SL, or a Gibraltar holding, believing they can legally escape high taxes. However, on June 18, 2026, the German Federal Ministry of Finance (BMF) published its final circular on permanent establishments. This new guidance has completely changed the game, turning simple paper structures into massive tax traps for anyone with links to Germany.
Under German tax law, a business cannot exist in a tax vacuum. This is known as the principle of "no floating income" (keine betriebsstättenlosen Einkünfte). Even if you travel constantly and do not own a physical office, you legally always have a place of management.
If you manage your US LLC or foreign company while staying in a hotel, an Airbnb, or a temporary coworking space, your place of management travels physically with you. Under Section 12 of the German Fiscal Code (AO), this temporary workspace becomes your company's taxable permanent establishment. Consequently, the country where you are physically staying can legally claim the rights to tax your company's global profits.
Many founders believe they have left the German tax system simply by deregistering their residential address. However, German tax authorities apply extremely strict rules under Sections 8 and 9 AO to determine whether you have actually cut ties.
If you keep your old "childhood room" (Kinderzimmer) at your parents' house, or have a key to a relative's apartment that is theoretically available for your use, Germany will not recognize your tax exit. If you spend too many days in the country or keep these living spaces available, your unlimited German tax liability remains fully active.
Even if you successfully deregister your address, you might still fall into the trap of extended limited tax liability (erweiterte beschränkte Steuerpflicht) under Section 2 of the German Foreign Transaction Tax Act (AStG).
If you hold German citizenship, lived in Germany for at least five of the last ten years, and move to a low-tax country (or travel without establishing a new tax residency elsewhere), you remain subject to German tax on your substantial economic interests. This extended liability lasts for ten years after your departure.
What happens if the German tax office determines that your tax exit failed? They will use a "type comparison" (Typenvergleich) to classify your US LLC or foreign structure.
If they classify your LLC as a corporation and deem you a German resident, Germany's strict CFC rules (Hinzurechnungsbesteuerung) kick in. This means the German tax office will tax the global profits of your foreign structure directly at your personal tax rate, even if you did not distribute a single cent to yourself.
Operating a foreign company while living or traveling is still highly beneficial, but only if your legal structure matches your actual lifestyle. Doing it wrong can cost you your entire business profit in back-taxes and penalties.
Contact us today to review your corporate setup and secure your tax optimization.
