I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it.
If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a year to sign off on having done the management within Germany.
Of course, if you want to move the company out of the country, you'll need to pay taxes on any value increase the company had. As others have described this is pretty reasonable though - you get taxed exactly as if gains were realized. This is tax you would have had to pay some time in the future anyways, except by moving to a tax-evasion country.
The only unreasonable part of the law is how they can assume your valuation based on earnings, but that only applies if you can't provide a valuation based on German standards.
Exactly, you need to get proper advice on how to structure your business in Germany. Basically, putting your shares in holding companies is both common and not dodgy. Corporate taxes are more friendly than personal income taxes. You can do constructions with salaries, dividend, etc.
Doing this is standard practice if you are founding a company. You need to plan for your startup to be actually successful and being on the receiving end of a big exit. You can't just wing it and hope for the best.
Germany has a large amount of wealthy small investors, business owners, family owned businesses, etc. And many of those might retire in places like Spain, Italy, etc. There are ways. You just need to understand the system.
That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.). But once you know the how this backwards and dysfunctional system works, you can get it to work for you. Because painful as it is, the system does work more or less as advertised. But you do need to familiarize yourself.
BTW. this is a topic where LLMs can be helpful. You can skip a lot of the traditional advisers and other middle men, if you are a bit smart on that front. Using an accountant is actually worth the money for liability reasons. So don't skimp on that. But otherwise, knowing what you are getting into in terms of bureaucratic process can save a lot of time.
That's probably the very last spot where you want to use an LLM, especially not in Germany. One single mistake can cost you a fortune, and you won't be able to spot the mistake because you're not an expert. LLMs could be used to prime you for conversations with an expert (but be prepared to be corrected on points of law and fact) but they are no substitute. Corporate law is a legal minefield, tread with utmost care.
The whole proposition is in a way bizarre: if you have this problem you almost certainly can afford proper guidance and if you need to resort to an LLM for that guidance you almost certainly don't need such complex constructs in the first place!
I would say not with tax law anywhere. It is very complex and has all sorts of interactions between things - e.g. double tax treaties.
That said, a lot more people would probably use complex constructs if they were not so expensive to set up because of the advice needed. I just do not think LLMs help.
I'm not saying use it blindly. But it helps going into discussions with experts, advisers, etc. with some preparation and knowledge. Worst case you are wrong and they'll correct you and best case you pre-empt some actual problems. And it's not like advisers, accountants, etc. don't make mistakes, overlook stuff, or sometimes work against your interests. It helps being a bit hands on. And LLMs make that a lot easier.
Also LLMs are great for picking apart complex bureaucratic procedures, figuring out what next needs to be done, what the meaning is of some 10 page pile of crap the tax office dumped in your mail box, etc. Especially if you are not a native German speaker. You can ask your critical questions, get it to explain stuff you don't understand, etc. In the end, you are responsible for your actions. Limited liability in Germany isn't that limited. So, spending some time on figuring out whether you are doing it right is hard work. LLMs help.
But yeah, don't vibe run your private finances and sources of income.
Crazy theory: most posts here are from German Tax office. They give a "free" advice, and send a fat tax penalty 5 years latter! Suprise: you never left!
If the German tax office is actually using HN for such schemes I'd have to give them more credit for using technology effectively than I currently do. It would be funny if they did though.
> That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.).
That's where you hire a professional accountant. Which you should be doing anyway at the point where you raise any sort of external funding that's not family members.
I don't get why people are always complaining about German taxes. As long as you're small, you can just wing it. And when you pass the threshold, professionals are cheap.
In Switzerland, I would trust the mechanisms put in place for dealing with 'Treuhandlers' (trustees) to deal with this situation correctly. In Germany I would absolutely not if the stakes got high enough.
> be in Germany twice a year to sign off on having done the management within Germany.
Pretty stupid. You are signing paper that claims you never left Germany!!!
You are opening up yourself to personal German tax residency, with all pleasures it brings. Payable 10 years back!
And do not believe that 185 days bs. Correctly losing tax residency in state like Germany, Denmark, Norway or Australia is very difficult. You can not keep any assets like company or house there!
Edit: why downvotes? Many states only require 90 days or less to become tax resident. Australia is fine with a house. Norway will tax your income for 3 years after leaving!
Claiming you manage holding company within Germany, is a huge red flag!!!
> You are signing paper that claims you never left Germany!!!
No you aren't. You are signing a paper that says a managerial decision about the shares of the company happened in Germany. Where you live does not matter. You just have to do a board meeting, and be physically present in Germany during the meeting.
In fact, you likely want to keep any proof of your travel from a different country, which makes it obvious to the authorities that you don't spend all your time there.
There's multiple variants though, this is just one of them. You can also pay someone to manage the shares (and of course contractually bind them to not do anything without permission).
Edit: Also, to be clear, you don't need to manage the company from Germany. You only need to manage the holding company from Germany, where the only managerial decision is related to the shares themselves.
It’s because of a fundamental difference between how capital gains tax and income tax are collected.
Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation.
I’m from a country which has no exit tax on capital gains and notoriously a certain wealthy telecoms magnet - having been resident all his life - moved to Portugal just before realizing billions of capital gain. Thus despite earning multiple billions through businesses activities in his native country, he effectively paid zero tax.
I myself have benefited from this lack of capital gain exit tax as I moved to a country with very low capital gains tax. So despite the fact that my modest equity portfolio earned most of its growth while I was living in Ireland, when I sell, the Irish government will get nothing.
The problem, it seems to me is the method of valuation for the deemed disposal and/or the fact that it can cause a “liquidity squeeze“ for the tax payer.
I don’t see a simple solution - maybe other than getting rid of capital gains taxes completely and collecting more consumption taxes, for example, but I’m sure this would just open up a range of other tax evading loopholes.
Capital gain tax is stupid anyway. It's one of the first tax that should be removed.
You can tax business at home by land/revenue/resources usage/ip protection taxes. As it is owners in different jurisdictions pay a different (or sometimes no) tax on selling shares. Selling itself is something you want to encourage, not discourage. It's a pointless tax that penalizes exactly the things you want to encourage.
You think that someone moving to Portugal to avoid it is unfair but then a share holder living in 0 cap gain jurisdiction in the first place would pay 0 anyway.
It is at least not wildly regressive like consumption taxes are.
It would be better to tax IP protection, inheritance, resource use and land only but realistically if we get rid of capital gains the tax burden will land squarely on wage earners doing all of the actual work who are already taxed more than the people who own their productive output.
There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families. You can tax luxury good at higher rates.
EU countries already realize it's the case with IT services (everyone wants their share with digital tax) and with big supermarket chains (big issue in Poland). It's just painfully slow for them to connect the dots and introduce a general solution.
Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell.
If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT.
You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.
I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago.
With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly).
Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).
What did the Irish government do to entitle itself to a chunk of the appreciation of your equity portfolio of presumably non-Irish companies? What did they do to contribute to that equity growth?
Governments collect tax in lots of different ways: income taxes, sales/consumption taxes, import taxes, capital gain taxes, property taxes, inheritance taxes, etc,
What’s so special about capital gains taxes that requires the government to have had some sort of active involvement to be justified?
Capital gains are theoretical. You do not have that as money, but the state does want it as money. They are not what someone paid for your assets, they are what someone THINKS someone else might pay. Most smaller companies cannot be sold easily, and of course, the government is unwilling to take that as the valuation being zero (because what someone is willing to pay right now is in fact zero). And the government is unwilling to take any risk (they take cash only). So they're taxing money you do not have available to spend, and may not have at all.
Think of it as taking a $10k diamond with you. It's worth something, but ... maybe next year artificial diamonds double the size of your diamond start costing $500, and your diamond's value goes to $550. The difficulty is that the government demands "10%", which is $1000 in taxes on the "value" of your diamond now.
So for a big range of company sizes it's effectively a tax on nonexistent assets. This would not be the case for a huge (let's say revenue of 500k or more) company.
But the government chooses not to tax those big companies.
Perhaps the simple solution is to give those small business owners the option of selling their business to the government at whatever price the government feels it is worth.
Any claim of valuation is really only meaningful as a purchase offer.
If you lived in Ireland in that period, you benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads, bought things in shops, so and on so forth.
Regardless, the idea that the government can only tax you if it directly gave you sufficient benefit, _in your assessment_, is of course nonsense. Taxes are what you owe to the society you live in, not about what society owes to you.
If you are lucky enough to be internationally mobile, this does not exempt you from contributing to the communities you spend time in as you travel around the world. You cannot expect to arrive in a country, earn money from it, and depart again without paying your fair share of taxes.
If you do not like how a country has structured its tax law and what priorities it has as a society, you are of course always free to not move there in the first place.
> benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads
That is a terrible basis for argument: we mostly each get similar usage of services (roads, police, yadda yadda) which should be an argument for a fixed amount of tax per person (a poll tax).
If you wish to argue that we get what we pay for: then rich people pay wayyyyyy more so they should get more government services???
The wealthy surely don't get better policing: instead the wealthy pay heaps for their own insurance and security systems.
Be careful making any argument based on services received for money spent because the well off pay a lot and don't receive a lot for it.
Without society it's pretty hard to be well off in the first place. The entire concept of property becomes pretty meaningless without some very basic concepts of a legal system and territorial integrity. Without that you can only own what you can physically defend.
Wealthy people and large companies do generally employ security, but that is merely supplemental. They enjoy the backdrop of a society where the vast majority of people at least recognize the basic concept of ownership, and where protection from external state actors is provided. More to the point, they live in a system where most people see negative expected return from just killing them and taking their stuff
Abstractions like insurance further require a system where agreements can be made and mostly enforced, and where the need for the insurance is low enough for the premium to be workable.
The small security team at any given company is there to handle the the exceptions that don't conform to the larger society's rules. It doesn't replace that protection entirely. You'd need a standing army for that, and you'd have to work full time just to maintain its loyalty.
Even with no direct services whatsoever, people benefit from society in more or less direct proportion to their wealth -- and arguably the benefit accrues exponentially as wealth increases, given that this enables the exponential growth of capital.
> Without society it's pretty hard to be well off in the first place.
What a pointless argument - you could just as easily chose cause and effect in the other direction: without businesses then society has nothing. Zero businesses, zero tax income.
My main point is that society needs to encourage business owners. If marginal tax is too high, then owners have no incentivise to earn themselves an extra dollar. When owners earn less then society gets less.
There's a balance to incentives.
I'm not working currently because my taxation rate is too high. I'm fine with that since I value my time highly. However financially my country could be getting more from me by lowering my taxes enough to encourage me to work. But voters don't care about what is sensible - they care about optics - and politicians care about voters more than they care about the economy.
Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...
If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax?
That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.
Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?
You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.
Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing.
That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains.
I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset.
No, a mortgage is a loan. You don't "make" any money by taking a loan since you obviously have to pay the money back.
Don't worry that if a loan was considered "making money" it would be taxed as income... which would make no sense at all. In fact, disguising transactions as loans while not intending to repay the money is a well-known tax evasion scheme, which tax authorities always keep an eye on.
You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
The money is paid back during the course of decades, when that money will be worth 1/4, 1/3 or half to what it is worth now. And your real estate is ripe to be mortgaged again for another jackpot payout.
Hundreds of millions of people all over the world do it, and tax authorities applaud it. Who do you think writes the tax code?
> You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
That's incorrect on both counts. You did not make money and the loan is not a way to realize the profit since you have to pay it back, as explained before.
I think this illustrates that finance and accounting are very poorly understood.
Where I live we have the option to put capital holdings in flat-rate taxed accounts, based on the size of the investment. I thought this was common elsewhere too.
I'm unsure how strange this is. As a Canadian, when I left the country I had to undergo what's termed a deemed disposition - i.e., pretend you sold all your assets and then pay the relevant taxes on the net gains you've enjoyed to that point. This includes proposing a value for any companies that are not publicly traded. See: https://www.canada.ca/en/revenue-agency/services/tax/interna...
So if all your money is tied up in your company you have to sell part of your business in order to be allowed to leave the country and by the way thanks for creating all those jobs? Sounds slightly CCP to me.
I know of at least 4 countries that have exit taxes, and while the US doesn’t have an exit tax if you simply move abroad (it does if you renounce citizenship) it has other very punitive taxes for expats. So, it isn’t a unique thing to Germany or, assuming you’re correct, China.
Isn't USA even worse? If you move as US citizen to EU, you would need to pay bot h local EU tax and USA tax right? (I am not a USA citizen, this is legit question)
The US does not have an exit tax for businesses, but has an absolutely horrible tax system in which expats are treated badly.
The reporting requirements for expats are insane: all bank/brokerage/whatever accounts with max levels during the year, FATCA and FBAR forms, and the cherry on top: Form 8858 ("Foreign Disregarded Entities", whatever that is) which is needed for your self-employment and for each of your rental properties. If you think this is easy, look it up — https://www.irs.gov/forms-pubs/about-form-8858
It's pretty much impossible to file your taxes yourself, you will never get it right. You have to pay specialized accountants, some of which will charge you >$1500 to prepare a yearly return with self-employment and rental.
Then come the actual taxes to pay, which are the least of all problems.
Expats are treated this way because they have no lobbying power.
I can confirm this from experience. The instant your situation becomes more complicated than "I work one full time job and have no investments to my name whatsoever" you are in for a brutal time without an accountant by your side.
On the other hand, if you do have an accountant by your side, you potentially expose yourself to some of the most powerful labor arbitrage on the planet as a tech worker. Making $100k remotely from the US might sound like a bad deal until you live in a country where the average wage is $20,000. Like all things US tax wise, you are disproportionately rewarded for being clever and reading a lot.
One big difference is that the clock only start ticking after you get green card, whereas with Germany any residence year counts. Oh, and citizens of course aren't affected - since US continues to tax them wherever, but Germany like almost all other countries practices residence-based taxation.
It is very close to being all other countries. AFAIK the only other country that taxes non resident citizens is Eritrea - and the US has said its unfair they do it!
US-EU transplant here. No, the United States does not have anything even vaguely similar like this. Seriously putting forward the idea of an exit tax on anyone who owns more than 1% of any LLC worldwide would in all likelihood be deeply politically unpopular. It goes against the very name and spirit of a limited liability company, for one. For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun. There is a a much narrower exit tax for US citizens who wish to actually give up their citizenship outright (not just move out) but that generally only comes into play for anyone with $2 million or more in net worth, and exists probably to discourage tax evasion, to my understanding. There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
> For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
I'm sure that a sizeable percentage of Americans own a significant amount of shares via 401k or whatever, but it feels surprising if 1 in 10 own more than 1% of a company, because all of those people holding shares as investments will be buying shares in companies with thousands or millions of other investors.
But maybe it's true - I just googled about the US has 340m people and 32.5m companies - so the majority of them must be small (population/number of companies). And while a lot of companies will be owned by the same people or just administrative divisions of a group of companies, most companies have multiple directors so maybe on average it does balance out to 1 in 10 owning a decent chunk of a company. It just feels like a surprising fact.
This site [1] has some interesting stats on size of businesses, although it's interesting that in 2019 these figures say there were less than 8m businesses, which disagrees with what google told me. Also says over half of US companies have 0-4 employees.
It's a surprising number, but a useful one for calibration. Most people assume that the number is closer to 1 in 100 or even 1 in 1000, but that's because they forget the vast, vast numbers of people who just quietly run their own operations in some form. You don't have to be Apple to make enough money to pay the bills on your own, or even reach the high net worth category.
It's worth noting that the numbers don't vary that much between the US and the EU, which actually weakens my claim that such a tax would be politically unpopular if introduced. About 1 in 20 Germans seem themselves to own enough of a business to fall under their own exit tax, checking just now, but I'm not familiar enough with DACH business practices to know if setting up an actual honest-to-goodness LLC for a one man operation is as common there as it is in the United States.
> There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
To be clear, this is if you move _your company_ out of Germany (which I don't think the article makes very clear). In those terms it seems to make a little more sense. As outlined in this comment.[0]
The double income taxation of their expats that America, Eritrea, and Myanmar do is a bit different, but I think they have double taxation agreements with most countries. So in actuality most Americans don't have to fully pay the double tax (depending on where they live, and how much they earn) though they still have to file and everything.
> You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun.
That's certainly what I was thinking of, given I have a few US friends here in the UK. Isn't the way to stop that to simply give up dual citizenship?
From one perspective, yes, you can get around this by simply giving up dual citizenship.
From the perspective of one's whole life, once that US citizenship is gone, it's gone. You can't reinstate it like you can with many other nations. And losing first-class access to the world's greatest economy is a very heavy price to pay. It only makes sense if you are absolutely sure you, and by extension your children and their grandchildren and their grandgrandchildren (because they only get US citizenship at birth if you yourself are a US citizen at their birth), will never want to have anything to do with the US again.
Ultimately I decided against it. The idea that I have a country I can always move to and conservatively 3-5x my take home pay compared to even one of the best paying countries in Europe is one hell of a liberating feeling. Don't discount that kind of optionality lightly.
You won't be double taxed, the US taxes the difference between your local income tax rate and the US federal tax rate. So if you live in London you're not paying any US tax because the UK income tax rate is higher. It helps stop rich people from "totally live in <tax haven>". If only we had that for companies..
I think where people get confused is that it's implemented as a tax credit which is equal to the income tax you pay locally.
On top of that the first $130k earned is also exempt, so it only applies to high earners as well
Not "unless". You have to actively review the tax treaty to see whether it actually gives you things superior to the US's own Foreign Earned Income Exemption. Those documents aren't the hardest things in the world to read, but they're not light reading either.
Not in most cases. According to this estimate, who comes from an organization that is against US citizens abroad having to file[0], 77% have AGI "well below" the cutoff where you would have to pay taxes. For those that are above that threshold, you can deduct the taxes you pay in your home country agains what you would have been charged in the US. For almost everyone in the EU, that is a higher rate than the US taxes, so you don't pay anything on that European income.
_However_, you do still have to pay taxes on your US income if you're abroad. So if you are making money from freelancing with US companies (and, I assume, they aren't paying a European business you have set up), then you'll pay US taxes there, but due to tax treaties you are generally not double taxed.
It would be a bureaucratic pain but if I were to move back to Europe (having become a US citizen) I don’t expect I would end up paying any tax to the US after applying the foreign tax credit.
But there could be a whole lot of complexity around stuff like ETFs and mutual funds and whether they were recognized by both countries.
I think the numbers in the article are mixed up.
Earnings 200k. Wage 120k. So the profit is 80k for the calculation. 80×13,75=1.100k. 60% of it = 660k.
Personal tax at 120k income = 45%. More likely less as for health insurance, etc.
660k×45% = 297k exit tax.
Which can be paid in 7 yearly rates. So 42k per year. You still have a company that has earnings of 200k.
It also depends on how the company is valued:
If based on balance sheet (retained profits + share capital) e.g. 5×100k retained = 500k value, the exit tax is 18k/year for 7 years.
If simplified earnings method with factor 13.75 is used it much higher valuation, the exit tax is at the 42k/year.
The crazy thing is that as a business owner (GmbH/AG) you can’t even move to another EU country any more since 2022. As the owner of such a company it feels like I have become a slave of the government.
- enjoy owning and managing a business
- do think that owning and managing a business should come with the same compensation as any other dayjob (hairdresser or whatever)
While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.
Because it shouldn't come with the same compensation as any other day job.
Let's say you can make $80,000 as a hairdresser. You are seriously proposing that someone who takes all of the risk of
* Renting their own hair salon,
* Building up their own clientele,
* Taking out loans to purchase hair dressing equipment, and
* The thousand other things the business owner has to do in addition to actually dress hair themselves,
should walk away with the same amount we the person who just gets hired to dress hair.
No one would ever start a legal business under such a regime. It's all downside! Which is why you never see people actually owning and running businesses (successful ones at least, and most unsuccessful ones too) with the mindset you describe.
They can and frequently such people are; but they aren't very obvious because they stop while the business is still small. If we don't harness greed into doing something productive then there isn't enough motivation in the world to power a modern industrial society. People like Bezos would just sit around running a local bakery or something instead.
The way the system works is people who create unfathomable amounts of wealth get to keep unreasonable amounts of it. If that link is broken, they'll stop at creating a reasonable amount of wealth and then everything grinds to a halt. If someone is in a situation where they are doing a good thing they should have every incentive to keep going and not stop.
The thing you're describing is an underpaid CEO position without equity. If you're competent enough to get the job in competition with people who want to get paid, I'm sure you can.
Risk. There is nothing to fight against, but "we" might consider educating ourselves so that we understand why the calculation that happens through the price mechanism benefits all, and moreso than any alternative.
>While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.
Ironically some of the biggest european companies are related to luxury items.
Why is that? It has been the case for a very long time for taxation; the decision gravity has to be in the where the company is. But curious if this is something else as 2022 is too recent for this.
Norway also has crazy exit tax and wealth tax. I heard lots of complaints that this system makes it almost impossible to build a decent vc-driven tech startup.
Kinda makes it harder to attract foreign talent to Norwegian startups as it could affect their decision moving to Norway. While I think the number of people affected is exaggerated, the most well-known case would be the Dune Analytics founder who had to pay more in tax than his salary and was forced to either take a loan to pay taxes (no guarantee the company would succeed) or move out of the country.
An exit tax in itself does nothing to prevent hoarding of wealth. It might enable you to deploy other taxes that would make rational people leave the country, but it's a bit of a "lock the doors and rob people" strategy.
If you have good advisors as a wealthy person you know this and leave as soon as an exit tax is on the table. If you start new businesses you start them outside of the country
If you're a regular non-wealthy person who happens to become successful you're stuck paying high taxes of course, but you'll probably learn and structure your next venture better.
Norway has a high wealth tax (it’s gonna be 1.1% of total wealth per year in normal cases), high capital gains tax, and an exit tax treating moving abroad as a capital gains event.
This means, if you start a not-yet-publicly-listed company, get investment at a high valuation (on paper), you must pay wealth tax as if you had that money liquid in your own name. But you don’t have it liquid, it’s yet just a valuation of a VC, so you are screwed.
This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
Scandinavia is attractive as a destination if you are poor and especially from the 3rd world and could benefit from free government services and welfare, but for anyone entrepreneurial or already wealthy, there are many better alternatives.
> This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
There's nothing stopping them from doing that in Norway, they just have to pay their dues. Which are nowhere near the rate of those in a real communist system that people are so quick to label it as.
I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
> I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
1.1% is deceiving. 1.1% is actually over 20% tax on savings (assuming a common drawdown of wealth at 4% per year). Plus savings are usually money that has already been taxed. If you can invest at a higher return then the numbers improve but the risk increases (and governments don't share the risk or otherwise ameliorate it) and the taxes remain if you win.
1.1% sounds small. Any analytical person analysing the rewards versus the risks of founding a company will decide that it isn't worth it. Even if you win, you lose.
Here in New Zealand no founder can plan for a decade timeframe because there's a high chance a new government will screw you if you make any winnings. Currently our taxation system encourages entrepreneurship a little (no CGT).
A taxation system needs to be designed to incentivise individuals to create businesses. The government wins through income taxes and sales taxes - it doesn't need to kill the golden goose by overtaxation.
Most people have a selection bias: they see the winners and think those "greedy bastards" should pay more. Few people weigh up the invisible costs of the people that tried and failed. Very few people consider the benefits accrued to society from businesses (consumer surplus, tax income through other taxes, etcetera).
What is stopping it is the fact that the "wealth" they are being taxed on doesn't actually exist, so by starting a company and getting investment you create tax liability that is impossible to pay.
Early stage companies have a high valuation on paper as an artifact of selling small amounts of equity for relatively large sums of money. This leaves you with purely theoretical wealth in the form of equity which you have not yet sold, and potentially can't sell.
As a concrete example, let's say your tax rate is 15%. If you start a business, and give an investor a 10% stake in that business in exchange for $1M, your remaining 90% stake in the company is now worth $9M. Congratulations, you're wealthy! Now you need to "pay your dues" of 15% of that $9M... good luck with that. You are now bankrupt and deeply in dept to the government.
It's also an attractive destination for people wanting to live in a society that's not completely broken by inequality and are willing to pay their membership dues for living in such a society.
Not everyone's top priority is building a big ol' dragon pile of gold.
One of the basic principals of the EU is freedom of movement between countries.
One could argue that imposing such an onerous tax on moving to another EU country breaks this principal, so maybe worth a legal challenge - for someone with a lot to loose.
Or, alternatively, the bureaucrats in charge would argue that all EU countries need to implement similar exit taxation laws - that's where it seems to be heading lately.
This is one of those cases where you really need to hire a specialist, rather than listen to the internet.
Sure, you can't port your company out of germany, but there is nothing stopping you re-structuring so that you have an umbrella company based in the country of choice.
Agree about a specialist, but probably moving an existing company into an umbrella structure is likely to be considered similarly to a sale for tax purposes.
In the UK, you have to specifically request HMRC to authorise any such plans if you want to avoid paying tax on it, and even then I believe it's only (relatively) simple if you're doing a straight share swap - so the existing company becomes fully owned by a newly created group company and the existing shareholders get the same allocation of shares in the new company. Anything else needs HMRC to assess the values of both companies and decide whether a taxable event has occurred, and what the nominal value to be taxed is. I'm pretty sure if you were trying to move an existing company into an offshore parent company, it'd be treated as a sale.
"not. As soon as your net worth goes beyond ~€2m, you can afford fancy tax advisors which set up a trust in Liechtenstein for you."
Is it really that complicated to go that route? This is an honest question, I have little knowledge about these things, but from the outset: How hard could it be to set up a trust, especially in Liechtenstein, where presumably there are already thousands of them and this kind of business is basically an economic sector of its own.
I have little knowledge of these things either, I've only heard second hand because aspects of historical tech $work used to put me in close proximity to professionals who deal with these things. Eventually you get a noob level understanding once you've been in the same room long enough.
TL;DR A trust is not a "simple" legal form like a company is.
You have to consider the three-way "internal" relationship (settlor <-> trustee <-> beneficiaries). Which can be legally structured as you wish (blank sheet when writing the trust deeds). And then for "external" relationships (trust <-> third party), the in-country law will apply and so you need to know how that fits in.
Then you need to know what type of trust you want. Do you want a Fixed Interest Trust ? A Discretionary Trust ? A Charitable Trust ? A Special Purpose Trust ? Something else ?
Then you have things like professional relationships. Your trust will, for example, almost certainly need an in-country bank account. Your professional advisor will almost certainly know some bankers.
So sometimes its easier just to hire an advisor, work through the prep, then fly in for the day for a nice lunch with your advisor to sign a few papers.
There are no trusts in Liechtenstein.
They don't have the concept of trusts as they are civil law countries.
What they have are foundations e.g family foundations etc..
Don’t forget the energy suicide Germany has committed. Cheap energy was the backbone of Germanys rich industrial economy, and that rug has been (allowed and even encouraged) to be pulled by none other than the country now offering them a “very good price” on LNG…
As USA is the main destination for IPO, wouldn't many German companies naturally leave?
Also once you are successful you can afford to pay the costs to arrange the companies affairs in a tax efficient manner e.g. utilise low tax regions with the EU such as Luxembourg and wider world.
This kind of rethorical question is annoying. If you have an opinion, state it.
> Perhaps the Germans could make their IPOs more business friendly
The main reason companies tend to get listed in the US (or, in the case of many large existing companies, to get listed there on top of their existing listing in their home country) is that the US stock market is the largest in the world, and listing there means easier access to more would-be buyers, and therefore better market capitalization.
I suspect your advice to German policymakers wasn't "somehow make Frankfurt the largest trading place in the world", but that's litterally what it would take.
Or they're doing it right and someone else is doing it wrong, often the wrong thing appeals to business as the wrong thing is quicker and higher profits. Not saying that's the case with Germany, but it sure doesn't feel like you're default doing something 'wrong' if you're scaring people who already seem to hate paying their taxes.
The business owners are doing something very wrong. They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
So when you get money out of this, you pay your fair share of taxes, like everyone.
>They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
Empirically that seems to be false, given the number of successful businesses created in Europe in the past couple decades is way way less than in the US or China, even though Europe has better infrastructure, education and public healthcare.
Could you tell me on what data you are basing this argument on? I see this sentiment pop up in every related conversation but haven't seen the source of these claims. Could you help me out?
Yes, it means you have opened the capital, goods and service market way too much and businesses are now abusing that to avoid their basis civil duties.
The best civic thing a business can do is provide a valuable service and thereby make money. Just look at all the wonderful things we have as a result - airplanes, internet phones, air conditioning, cars, agriculture, movies, AI - the list is endless.
The Internet evolved from Arpanet, a network established by DARPA. Given that was created by a government agency, and therefore funded by the same taxes companies are trying to avoid, I'd argue that it's a great example for why companies should indeed follow their civic duties and pay their taxes.
It's also worth pointing out that many of those "wonderful things" had to be regulated by governments due to how bad their business practices and environmental effects are when pursuing making money. Sure, we have cars, but that's coming from the same industry that brought us leaded fuel and global warming.
I'm afraid he's not (that was pretty much Milton Friedman's position as well as all of his UChicago fellow, which is the reason why we're back to the gilded age with robber barons all around)
I dont see how you couldn't structure this with an offshore licensing deal. Ie Irish company picks up 99% of billing, German company sends Irish company license fees etc and reduce profit of German company to zero for three years.
IANAL, but it seems it also applies to foreign companies. Who owns the irish company? Also tax authorities tend to look very carefully at these transfer pricing arrangements as you are also potentially dodging the corporate tax rate.
> The purpose of this rule is to tax the increase in value of these shares that came about in Germany but has not yet been realised before they are able to escape the reach of German taxes by the move abroad.
Doesn't sound all that crazy to me.
Also, the proposed analogy to the Berlin wall feels quite pathetic for those that have actually lived behind it.
> And then your exit tax is calculated by taking the average of the past 3 years of earnings of that company, multiplied by 13.75 (which is crazy), and then taking 60% of that which is taxed at your personal income tax rate (likely 42%; Teileinkünfteverfahren)
This does not match the results from 5 minutes of googling, not for individuals at least. What is being taxed is the shares you're holding, as if you're selling them, which results in a tax on their increase in value compared to when you've bought them. [disclaimer: I just did a quick search on this, I'm not a tax consultant or lawyer.]
I haven't looked for the regulations on companies moving their headquarters away from Germany. It's possible those rules are the above, and the author confused them with the rules for individuals.
Either way, if the author believes they're right, they should dig up some citations. There are none in that article. Is this based on advice they've received? Did they do their own research? Are they a tax consultant or lawyer? 13.75 is a very "spottable" number, how about a link to the law that has that number?
- First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
- The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
- Factor 13.75 is defined in Bewertungsgesetz (BewG), § 203 Kapitalisierungsfaktor [3]
- The tax rate of 42% is the marginal tax rate in Germany (at least below €250k income, beyond that it's 45%) - so the assumption here is that, in the year in which you leave Germany, you've already had some salary income (say, €90k) which bumps you into the marginal tax rate for any additional income on top of that.
> - First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
You're misreading that law. It says moving away is equivalent to selling shares and that §17 EStG is applicable. Which in turn says:
(2) Veräußerungsgewinn im Sinne des Absatzes 1 ist der Betrag, um den der Veräußerungspreis nach Abzug der Veräußerungskosten die Anschaffungskosten übersteigt.
> - The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
§199 BewG says "…kann das vereinfachte Ertragswertverfahren (§ 200) angewendet werden, wenn dieses nicht zu offensichtlich unzutreffenden Ergebnissen führt."
Key phrase there being "kann". It doesn't have to. You can probably sue against it getting applied, if they're really insisting on it. And note §11 BewG says:
"…so ist er unter Berücksichtigung der Ertragsaussichten der Kapitalgesellschaft oder einer anderen anerkannten, auch im gewöhnlichen Geschäftsverkehr für nichtsteuerliche Zwecke üblichen Methode zu ermitteln; dabei ist die Methode anzuwenden, die ein Erwerber der Bemessung des Kaufpreises zu Grunde legen würde…"
So, finding a reasonable method that a buyer would use to determine the values of the shares is explicitly pointed out.
1. Yeah, valid - I was assuming the default case of "you founded your company in Germany and are moving away at some stage". In that case, you could deduct the initial share capital (often €25k) from the valuation, as that was your "purchase price". In most cases, that doesn't lead to a significantly different outcome.
But yeah, if you actually bought shares of an existing company at a certain (higher) price, than of course the "taxable delta" might change your calculation.
In that respect, I was wrong as I assumed everything would get taxed. This is only roughly the case when you founded the company yourself in Germany, as mentioned above. Thanks for the correction!
2. True! As mentioned in my post, you can also pay someone to assess the value of your shares, which would most likely result in a valuation lower than 13.75x. You will have the additional costs of getting that assessment though, and you'll have to convince the authorities that your assessment is closer to the truth than the default valuation which is based on 13.75x.
They basically treat you as if you sold your shares or company when leaving the country. If you run a one man company that is currently making a good profit, this can become really expensive.
This multiplier would be ridiculous for an LLC you are just shareholder of but in case of one person company which usually derives most of its value from the work of the founder it's just on another level.
One person shops would rarely get 3-5x multiplier if the founder leaves. It's straight up "you belong to us" type of regulation. Next they will make you fight in the arena to win your freedom.
From a startup founders perspective, it might be worth mentioning that if you own the business personally in the US, you likely qualify for so-called the small business exemption (QSBS) - that means from the price for which you sell your company the first $10M (yes, million!) of capital gains are tax free, and after the latest reform $15M. If you're married: x2.
> You could, of course, sell or wind down your company, which would solve all problems outlined here. But this is not an option for most entrepreneurs.
For a software business, you could presumably:
- Incorporate a company in your country of choice
- Transfer subscribers from German company to new foreign company (depending on payments provider, this can be a massive effort, for example, not a simple form field in Stripe).
- If new company incorporated in a country you want to live in, use it to obtain an investor Visa
- German company now has 0 in revenue, wind it down and leave.
Better do it properly. Western countries have tax departments that can make your life a living hell if you do it wrong. If you have enough resources to be subject to an exit tax, I highly recommend paying for proper tax advice.
This is fraud and you'll end up in jail. Your company is not "you". You are a shareholder but as a CEO, you should do what's best for the "company" and what you described is criminal activity to bankrupt the company.
It's not bankruptcy if the company has no liabilities. You're allowed to wind down a profitable company because you can't be bothered running it any more.
A question of legality might come from German authorities determining if this is solely to avoid tax, which is open-ended. It might be hard for them to make this argument if you can prove you transferred operations to country X to maximize company's growth, access local talent, closer proximity to customers etc.
Regardless, anther commenter pointed out that the exit tax applies to all companies that you own regardless of location. In that case, the approach isn't feasible.
Also it goes without saying, seek your own legal advice rather than trusting random comments on the internet.
> You're allowed to wind down a profitable company
I can't speak for all jurisdiction but on one that I worked in, this is not legal. This might be more defensible if the company really is just you but not if it has employees and can operate with a different CEO than you.
I guess if you have a limited liability company but in some countries at least you don't have such duty when running a one person or a small partnership shop.
> German company now has 0 in revenue, wind it down and leave.
You forgot about employees. If German employment law is anything like the Dutch one, then it means you can't wind down the company while you have employees. They may refuse to leave. Firing them may be subject to government approval, who may also refuse.
It's because the government essentially takes over the employees, buy paying non-employment money. You deciding that some people don't work for you anymore creates costs for those people and also for the community.
It's sensible, to prevent… well, exactly this kind of situation: taking away people's livelihoods as part of a tax dodge is an abuse of power. The power of being an employer comes with responsibility.
If the company's dissolving for legitimate reasons (e.g. there's no longer a market for the services), then that's one thing – but "I've had the company send all its customers to a competitor, also owned by me" is an extremely obvious loophole to work around employee protections, and it's correct that it should be closed.
It's not dumb. You're not allowed to close a business in the US until you check a lot of boxes, too. You have to show you don't have outstanding debts and so on. The banks won't let you do that because it's an easy way to escape debt. That's exactly why bankruptcy is an extended legal process.
If an employee is guaranteed X months salary upon notice of layoff in the contract, that's debt you have to resolve before you legally close. If you have a 5 year lease agreement for the property, that's also debt you have to resolve. It's exactly the same idea.
You're confusing "winding a business down" with "bankruptcy" in the US.
As long as you follow the law, there is no government "approval" of a dissolution. You notify shareholders and creditors, then resolve any outstanding payments, then dissolve.
a quick check says it isn't. you only have to consider the notice period which depends on how long people have been working there. which means you can't wind down in a hurry but there is no right to refuse to leave nor any refusal from government.
Sidefact: Bigger corps work around this by building holding structures etc, which is a legal soft-tax-evasion way to do this. But all the smaller businesses get hit hard, so as usual the party is paid by the lower end of the income bracket.
Something I've noticed with German business law is that it is very much structured in such a way that if you aren't an incumbent player, you are essentially incentivized to be absorbed by them.
In the US we do have issues with businesses, but it's not like the Bosch, Thyssen, or Tschira family are any less unethical.
The level of hierarchy I've noticed in German firms and founders is insane to say the least. I'd love to do some quantitative research into this, but I haven't been in academia or policy for years now.
Lots of countries have some level of exit tax on unrealised capital gains, but the devil is in the details. A painful part in the German case is that they have a fixed company valuation method that might make it untenable to leave the country.
It's one thing to tax people on assets they actually have or that are easily realisable like ETFs, as they then pay a portion of money they have ready access to. It's quite a different thing to invent a value for something and tax on that. The company ownership in question might not be realisable at anything close to that amount, especially for a startup, if you don't leave before making a profit
So don't do startups in Germany. The exit tax is just one of many reasons for that, the whole German system is bureocratic and inflexible compared to nearby countries.
The EU forces every member state to implement an exit tax to trap entrepreneurs in a disadvantageous situation (Anti-Tax Avoidance Directive).
Some countries such as Sweden implements this only minimally - making capital gains of Swedish companies you hold realised within 10 years of moving abroad are taxed, so just don’t sell in 10 years but take out credit with those assets as collateral.
Of course outside the EU, such as Switzerland and the UK, these governments are not bound by EU rules and don’t impose exit taxes.
Which is why so many European millionaires are doing their best to live in these countries
The reframing of anti tax avoidance to be a "trap", a "disadvantageous situation" is egregious.
Like maybe just pay your dues? Contribute back to the society that enabled you to become rich in the first place instead of parasitically extracting value?
Who are you to decide what is reasonable and what is unreasonable over the democratically elected lawmakers? This is a deeply anti-democratic attitude.
Democracy in most EU countries is messed up. People don't get to vote on stuff. There are usually 2-3 major parties that campaign on this or other hot issue. There is nothing that can be done about most issues even if vast majority of citizens support them.
Parliamentary indirect democracy is an illusion. It's just a capture by the political class. Will of the people has very little to do with what is done. I would love to live in actual democracy where we get to vote on stuff and popular policies are implemented while unpopular get struck down. It's even worse than American system where at least you can vote for your representative who has some independence. Here they are just a party official and if they don't vote along the party lines the party will run someone else next time around. Their loyalty is not to the electorate.
Yup, this is possible. It would have to be at some fair market value, and you'd (obviously) have to tax that in Germany. And depending on how much you trust your buddy, you might or might not have to draft up some complicated legal framework that you indeed have the right to buy back your company at some stage :)
> But no, it’s not fine, because the same person was working for a salary of €0 just a few years ago and likely has nowhere close to €700k of random savings stashed away for paying some taxes.
By your own admission, this person earned almost a million euros in the past 3 years.
not sure how useful this is. germany is a great place to live, safe, with great infrastructure and access to europe, good food, lots of personal freedoms, orderly society, few overtouristic’ed cities, and a thoughtful populace for the most part.
I wasn't joking at all when I previously said in [0], moves like this is how to lose and now this is another reason why tech founders do not start companies in Europe and when a company gets too big, especially in Germany.
Just don't be surprised to see a decline in tax revenue when countries like Germany chase the wealth creators out of the country with high taxes + exit taxes.
> People say Germany is a good country for being an employee, and this is also true for exit tax.
Which proves again that regulatory environment is downstream from culture: In a country like Germany, with Europe’s lowest share of entrepreneurs/workforce, there is very little political emphasis on creating comfortable environments for the out-group.
Most Germans can’t relate to these people at all, and every awareness campaign have to incorporate teaching the target audience (in order to make them understand the problem in the first place). A meticulous, tenacious, undertaking one can imagine that immediately gets stomped once the political gravy train comes around full steam with anti-capitalist or otherwise hyperbolic rhetoric.
(I haven’t looked but would bet that adherents to this rhetoric are already at it even in the comments here, pointing out how deserved the exit tax is etc)
Or you could pay your fair share to contribute back to the country that supported you initially by providing education, labour, infrastructure, etc.
The moment we talk about piracy it's all about how poor billionaires will have to sleep in their cars if you make a digital copy of something you would not have otherwise bought, but when it comes to supporting the society that created you and your wealth, suddenly it's all about finding ways to weasel out of paying.
It's an exit taxes, but as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That doesn't seem particularly unfair. If you can image a scenario where someone buy Apple at $1, and it's now worth $1,000. They just leave Canada, pay no tax, then sell in a low tax jurisdiction.
However, it can be a massive pain in the ass for illiquid assets or assets you don't intend to sell at that point in time. A good example might be a pension. Getting hit with a tens of thousand dollar tax bill for a pension you won't receive for another 2 decades is painful.
> as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That is also what Germany does. The 13.75 multiplier is the fallback number used if there is no valuation for the company. It's such an irrelevant number that tax advisers writing about the topic don't even bring it up. Get a valuation.
They do tax on residency rather than citizenship. If you are a structured embezzler in another country, than expect the CRA auditors after 184 days in Canada.
Also, Canadian laws don't stop at the border as a citizen... so breaking laws in other places still puts you in legal peril for extradition.
Notably, corporate tax rates are often much lower in Canada, and export free trade is available with most trading partners. Note the US taxes on citizenship regardless of where you live (or if you hold multiple citizenship), and failure to file your IRS statement was an $8k fine last I heard. The fine often stays even if you owe the IRS $0, and temporarily live in another region.
The TLDR version: talk with corporate tax accountants in each region before filing, and do not assume the late tax filing fines will magically not apply to your situation. AMCHAM will usually help guide investors on their filing obligations for type C corporations in the US. =3
That is nuts, I always assumed that would fall under the capital gains taxes in the investors T5 filing at the end of the year. (could be dramatically lower rate if you get stuck with cash at the end of the year)
Now I know why the brand trademarks are usually held by an independent entity, and licensed to a domestic number company.
I guess that is why we pay the corporate accountants. lol =3
- A printer (the most important equipment of any German startup founder)
- Envelopes for letters
- A stamp with your company name (some companies and agencies you deal with require you to stamp things, because a stamp obviously proves, beyond any doubt, that you are acting on behalf of your company, because obviously no one would be able to create a similar stamp with your company's name on it, right)
- A virtual office address at a coworking space (because you're receiving physical mail, and also there are weird tax reasons not to register your company at your home address)
- A mail-scanning service (because you don't want to walk to the coworking space every few days to pick up your physical mail)
- A mail-forwarding service (so that the mail gets forwarded from your virtual office address, which now has exactly no purpose at all, to your mail-scanning service)
A good one! I remember I needed a stamp when I started a business in Poland as well!
I've never used it and never was asked to so I guess the regulations no longer apply.
Poland is pretty good at digitalizing bureaucracy as well. You can do most things online including talking to the tax office and solving problems with your tax declarations.
Taxes are reasonable but
I am still bitter about cap gain tax as it's a form of a wealth tax for someone that invest in equities - at some point moving to more tax friendly jurisdiction saves enough that you can fund your comfortable life and save 100% of your income.
I also think tax burden is going to increase significantly there in coming years.
Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far.
That being said, it's probably overly simplistic to blame political parties for this - there's a lot of e.g. county/state-level bureaucracy in Germany which gets in the way of making any sort of constructive changes. It's a bit like blaming the CEO of a bloated company for not making it "agile" in a short period of time. Sure, leadership is important, but the reality is, it's.. complicated.
I would think it's a joke but once literally had an office clerk in Germany scratching with fingernail my signature to check whether it's by pen and in the right color.
He actually lived in Berlin for a few years before he died. But you're right, he spent most of his life in Prague. However, his native language was German.
Certainly an interesting man. I highly recommend checking some of his work (ie. The Metamorphosis).
Here we go, the usual blurb. In practice you need to really cause trouble for anything to happen to you but, anyway, this is quite irrelevant to the point here.
The developed world is increasingly facing a funding crisis brought on by this propaganda that if we tax corporations and the very wealthy then they'll leave.
One of the most farcical examples of this is the decades-long race to the bottom on business taxes and incentives between Kansas City, Missouri and Kansas City, Kansas. For the non-Americans out there, this is basically one city but it sits at the border of two states. So the two states are constantly torching money to lure businesses that play this system and simply go back and forth.
I believe this situation will come to an end and there are several reasons for this:
1. For the EU in particular, reliance on US tech giants is increasingly becoming a security issue. The Eu will increasingly wants homegrown alternatives so the option of leaving will simply not exist because you could leave but then you lose the EU as a customer;
2. For a long time multinational companies used transfer pricing to avoid paying taxes. What's transfer pricing? Let's say you buy a sofa in China for @200, ship it to the US for another $200 and then sell it for $1000. You've made a gross profit of $600. What if instead you have a subsidiary in Vanuatu, which has no corporate income tax (AFAIK), and it buys the sofas for $400 and sell them to the US company for $950? Well, you've booked $550 in profit where there's no tax and only $50 profit where there is.
That's technically illegal. It's often-called transfer pricing manipulation.
So what do tech giants like Google do? They sell their IP to an Irish subsidiary. There's a nominal process to make sure this is done for a "fair" value (according to the IRS). Then they pay royalties to their own Irish subsidiary to shift profits to a lower tax regime. Previously, this created a problem because they couldn't repatriate the money without paying (then) 30%+ corporate taxes but this all changed in 2017 with a tax holiday and a change to how this kind of income was treated. The net result was way lower than 30% net tax however, even with Biden's 15% minimum tax (which was a good thing) that came later.
What's the difference between this kind of profit-shifting with IP and transfer pricing manipulation? Absolutely nothing, except one is illegal and one isn't.
3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK; and
4. While individuals may be able to notionally "leave", assets generally can't. Land can't be moved overseas. Natural resources that are mined or fished or logged can't be moved overseas. So it's really an empty threat.
I'm really sick of this "the businesses will leave" propaganda.
Why are taxes so high though? Like in Sweden I'd pay literally 80% tax on extra sole trader income - 30% employer tax, 30% income tax, 20% high income tax.
But there is no Swedish moon base, or ultra high speed rail, etc. - where does it all go? We have higher taxes but less infrastructure investment than a century ago.
Because we don't tax the people with all the money. It's why someone making $100,000 a year loses probably half of it or more to federal, state and local income taxes, property taxes, sales taxes, etc and Warren Buffett pays 3%.
There is a persistent idea that we cannot or should not tax wealth because it's "unfair". We certainly can. We do it all the time. Property taxes, depending on your jurisdiction, are either taxed based on assessed value or whatever the assessment method is correlates strongly to property value.
I can't speak to the specifics of Sweden and its tax base but in general a key problem in the developed world is the skyrocketing cost of housing. Why is this a problem? Because it's an input into the cost of everything. It makes your labor more expensive, which in turns makes what they do more expensive. I have heard getting an apartment in Sweden is rather difficult. Stories of having to register at birth and waiting 20+ years. I could be wrong.
But everywhere in the developed world has high housing costs (in terms of real income) because we constrain supply, subsidize demand (particularly to the very rich) and allow people to hoard housing.
If "businesses will leave" was propaganda, you wouldn't need an exit tax, would you?
If there is an exit tax because companies would leave otherwise, why would someone rational start a new company in the country rather than leave first?
Governments have extraordinary powers to bring individuals and corporations to heel if necessary. Governments can:
- Charge exit taxes on people who "leave". As someone else pointed out, the US already does this with citizens who renounce citizenship (and it applies to long term permanent residents too);
- A lot of assets simply can't leave. Physical assets, land, etc;
- Assets and corporations can be nationalized;
- You can use tariffs and other legislative methods to punish those companies that "leave";
- You can also just deny access to a market for pretty much any reason you want. For example, Huawei is heavily restricted in use in American telecoms infrastructure for "national security" reasons; and
- You can generally impose cvarious levels of capital controls to limit the inflows and outflows of capital in pretty much any way you want. China does this heavily.
China is often criticized because the companies are an extension of the state. That's true. They are. But what we have instead is governments that are extensions of corporations. Can we really say that's working out better?
The US economy is rapidly becoming Russia. Russia has autocratic rule with oligarchs who pay fealty to Putin. In return they can do whatever they want. Do you really think we're different at this point?
Compare that to China. China isn't afraid to "disappear" their billionaires for awhile to bring them into line aka Jack Ma [1]. Exactly where he went and why and what happened is still unclear. China continues to crack down on tax evasion by so called "yin and yang" contracts (eg [2]). And China executed two for a scandal involing tainted baby formula [3].
What do we get? A world where governments can't punish companies for offshoring because that violates "free trade". Companies can take governments to a WTO court. And have.
You're not wrong. The reasons why come down to really one or more of these factors:
1. To lower labor costs. For example, the Big 3 auto makers are unionized. Tesla's manufacturing isn't. Guess who earns more? [1];
2. Deregulation. Some things (eg polluting) are way easier to get away with in Texas than, say, California;
3. To shift the tax burden from the owners to the workers. Texas famously has no state income tax. It does have sky high property taxes though. Property taxes are a super regressive tax;
4. For the politics of the owners; and
5. Other miscellaneous reasons. For example, Texas is about the absolute worst place to get divorced for a spouse who is a parent and isn't the primary income earner. Why? Texas courts won't let you move out of state with the children [2] and child support will be severely capped [3], even if, say, the other parent is a billionaire.
> I'm really sick of this "the businesses will leave" propaganda.
I don't think anything you've said convinces me it's propaganda.
Businesses are profit-seeking ventures. They will optimize their operations to maximize profits.
So I'm not sure why you'd call it "propaganda" to say that companies will leave. I think the evidence is that they will.
Of course, taxes are not the only variable in a profit-maximizing formula. US companies aren't going to flee in mass if Somalia decides to have zero corporate taxes. But you can't ignore that companies will optimize their operations and structure if they can lower taxes.
>3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK;
Wasn’t this only a thing while the UK was in the EU, because the EU expressly allowed it?
Or, you know, just pay your normal taxes like every citizen?
The social contract works because we say that everybody should pay his or her taxes in accordance with their means, so if everybody who gets money suddenly flees, it doesn't work.
That's why you should just appreciate what you have: good infrastructure, good education, democracy, AND PAY YOUR TAX
Otherwise you become a shithole country like the USA
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While rather sarcastic, your comment does hit an interesting point: How much does the infrastructure and society of any given state contribute to the "building" of a company?
I'd argue that, for software companies, not very much; at least if you contrast it with a hardware company. If you're, say, forging steel, you're using roads, trains, a lot of electricity, you've got an industrial plant, worker unions, public accident insurance, etc., etc. - a significant chunk of state-associated infrastructure is a part of your business, and was a part of your business when you built it.
But for software companies? I mean, you need a stable internet connection, good mobile phone coverage (tricky in Germany sometimes), rule of law, efficient bureaucracy (e.g. when hiring people), good banks which don't lose your money, electricity, etc. - none of these "infrastructure factors" feel as big as the ones for a hardware business.
On the contrary, for a software business, one could argue that Germany is actively hostile to you: Founding a company takes weeks / months and is expensive (notary), most processes are still paper-based, hiring people (especially internationally) is a huge pain, mobile internet is spotty, residential internet has outages. Charging customer credit cards via Stripe exposes you to a rabbit hole of VAT bureaucracy - all companies I've met so far rolled their own, broken software stack to somehow match up their Stripe + VAT charges with their internal bookkeeping software (e.g. Datev). A huge mess. It doesn't end there.
> You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
This is a great point.
The flip side is that if a government fails to deliver those, they have failed their side of the social contract. Then ideally, the citizens they've failed should be able to opt out..
What about a software company founded in Germany by someone who grew up in another country, and accordingly got their education elsewhere?
What if that company is a remote company which hires people all over the world, and none of those people benefited from the {education|peace|law enforcement|trust} in Germany?
I do agree with you, in principle, that a company is somewhat coupled to the country it was founded in. The exact nature of that coupling, however, is not that simple, I would say.
> I'd argue that, for software companies, not very much
If you build any successful business, including a software business, in a lawless and corrupt country you will have local mafias try to extort you for money the moment they hear about it. In especially corrupt countries, corrupt cops/prosecutors etc will be in on it so there will be nothing to protect you. Blackouts will be common due to a poor power grid. Likewise, internet access will be unreliable, slow and expensive due to poor infrastructure.
A country like Germany is absolute godsend compared to, say, Nigeria or Cambodia.
While minimal infrastructure investments would need to be made to entice software companies, their is a political price to pay by allowing young business people into your country who likely will out-earn the average resident (many historical examples of this). This makes the majority of people unhappy, but brings in educated-non-criminal customers and tax dollars. Lets say Germany does (1) great, they attract 1000 smart europeans to found companies, and 10 years later 1 of those companies becomes a megacorp.
2. Keep software companies happy
10 years has passed, new politicians are in charge. Pursuing #1 is a separate strategy to #2. I would hope i live in a country that wants to (1) attract young talent and (2) keep talent happy, but of course thats not necessarily true. The new politicians in charge need to appease the majority of people again as its election season!
I think Germany / USA can't really have an honest conversation about this as Germany + USA already have highly progressive tax systems. A significant % of USA and Germany residents don't pay any reasonable amount of tax, and are drains on the tax system. I assume these %s are likely projected to grow in the future rather than decline.
If the price of bread happens to rise? Then our politicians and voters will support squeezing more tax out of productive sects of society for the short term gains. Then those productive and mobile members of society will slowly move elsewhere.
"If you comply here, you will be compliant in almost all EU countries or even around the world" situation, many qualified students, international talent pool due to attractive cities, quality of life, startup grants/funding, hotspot for B2B fairs...
Presumably you paid for that infrastructure in the form of taxes while you did business in the country. Why, then, should the state have additional claims on the money you made? Were the taxes they collected already not enough?
That's not what the exit tax is, though. The German exit tax is effectively just a way to give the existing capital gains tax a way to tax unrealized gains when you leave the country, to prevent you from dodging taxes on capital gains by simply leaving the country.
In other words, it's not an additional claim. It's simply an enforcement mechanism for the money you already hypothetically owe.
Yes, that's true, but the implementation is.. not very elegant.
In theory, the exit tax should ensure that Germany gets the taxes of the sale of your company. So, if you ever sold your company once you're no longer in Germany, Germany wouldn't get those taxes, so it charges you immediately once you leave Germany in a sort-of "virtual" sale.
This, of course, sucks tremendously because you actually haven't sold your company, and "normal" people don't have this sort of cash on hand.
Other countries have "smarter" exit tax implementations and only charge you when you actually sell your company in the future. I think that's pretty fair. It also doesn't hinder people from leaving the country.
As an immigrant to Germany, I've often made the observation that Germany frequently has a really severe implementation problem. So I'm generally very sympathetic to that idea.
That being said, I'm not entirely sure that's the case here, and this is often also brought up in the context of strengthening the inheritance tax in Germany. In both the inheritance tax and the exit tax, the inherent applicability conditions are such that the end result is that there simply aren't that many people in a situation where it actually has a measurable impact. For the exit tax, you'd need to find people who 1. want to leave Germany, 2. already started a company here, 3. that company grew large enough that the Wegzugssteuer would really be a burden, and 4. that don't have enough liquidity, or cannot raise enough liquidity by selling some of their ownership, to cover the tax. That ends up being a really small number of people, which always eases questions about the reasonability (Angemessenheit) of the law. And in the context of inheritance tax, there's the added point that there's a floor to its application.
As another commenter mentioned, even for those situations where the exit tax actually is burdensome, just as with inheritance tax, there are two really simple solutions: first, create a floor for the minimum valuation by which the exit tax is actually assessed, and second, allow you to "sell" shares to the German government as a means of paying the tax, turning the Finanzamt into a silent shareholder in the company. I think both of these would be substantial improvements to both the German exit tax and inheritance tax.
Another reasonable implementation would be for the government to accept payment in the form of shares of your company. Personally I think this is how all taxation of illiquid assets should be done, but I suppose it could get complicated.
In Germany only 40+% of your income goes to taxes and social security. Plus another meager ~20% on most things you buy. Plus a small tax on many things that are supposedly bad for you, like ~70% on cigarettes. Death is taxed at a discount, only 15-40% depending on how rich you were.
This take is wildly out of sync with the reality that the U.S., as one of the few developed nations without free healthcare, pays more for their healthcare than all of them while having worse than average outcomes.
The worst healthcare is in reality American healthcare. We pay through the nose for the privilege of getting terrible results.
Switzerland has almost the same system as the US, and it works - when my wife needed an MRI, she got referred at around 11am by a specialist, for a call around 1pm to see if she's available that afternoon. She wasn't so they agreed on the next day.
I received a CAT scan a couple years ago, about 4 hours after I wandered into urgent care. Before they stuffed me through the toroid, I asked the operator to set the dials to 1988 so I could advise my former self to buy MSFT with everything I had.
The bill was quite a whopper, though Obamacare paid most of it. Of course, my Obamacare premiums are about 4x what they were before Obamacare.
Of course. And historically, US health care costs rose at about the rate of inflation until the late 1960s, where the curve tilted strongly upwards at a much higher rate, and continues today.
What happened in the late 1960s? The advent of "free" healthcare!
The idea that a company is "siphoning out" value is fundamentally flawed. The company is creating value, and society enables it.
This enablement is ongoing, and should be paid for with ongoing tax.
If the actual value creator decides that they can get a better deal somewhere else, then barriers to exit come in because the government is trying to get more out of a company than it provided. (Since if there are superior places to operate, the worth of what the state you are leaving provides must be overvalued, otherwise you wouldn't leave).
I think most people would be okay with an exit tax if it's reasonable. Requiring the owner of a business generating €20k in profit to then pay €70k in taxes is not reasonable.
Canada also has an unreasonable exit tax. Canadian founders are taxed on 50% of the FMV of their shares on departure. So if you own half of a company that is worth $50m, your taxable income for the year of departure is increased by $12.5m.
Agreed. As mentioned in another comment, I think it'd be fair to levy the exit tax when you actually sell your company in the future. Like, if I ever sell my business, I'd be happy to pay my fair share of German taxes on said business, even if I'd no longer be a tax resident of Germany.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
Perhaps you would apply the same logic to a family car, or the clothing you bought? Should they tax the value of your medical degree when you leave the country?
Exit taxes are generally applied as if the taxpayer sold all capital assets on the day of leaving.
At least in the US taxation regime (I'm unfamiliar with others), family cars don't qualify for a capital loss, and rarely appreciate. Clothing would be similar.
But it doesn't seem unreasonable that a country should want to be paid tax on unrealized gains as you're leaving. It would probably be more fair to wait until the gains were realized and then apportion the gains among the countries of residence, but if you're leaving, it's going to be hard to compel your participation later, so it makes more sense to do it as you're leaving.
yep, there’s a reason these people start their businesses in stable economied countries, yet certain groups of them do everything to pretend they owe nothing back.
i’d love to see a comprehensive study on how much corporate tax avoidance costs a country vs food stamps so we can get an accurate view on who leeches/gains more. my suspicion is corporate wage theft/tax avoidance/evasion/subsidies are significantly higher, particularly if we add in executives and major stock holders.
In the article it shows that very rich owners can evade the tax (probably they've already planned and left!), while middle class people the tax wipes out their business and probably send them bankrupt. It's more like handcuffs than socialism.
I am sure they could achieve the same goals of fair tax but learn some game theory before doing so.
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As someone running a business in germany, they do everything but encourage small businesses. It is extremely painful to run a business in this country, it has archaic systems and the only reason I’m successful is because of surrounding european countries like Netherlands who handle 90% of my products with efficiency.
I do not rely on most suppliers here as they are far behind in their systems (relying on phone calls, hidden prices and slow response times).
The other half of my business is successful is because of America, I use suppliers there to ship directly to my customers for environmental reasons.
Trust me when I say, I run a business despite being here and there’s nothing that they do to “encourage us”. I’m just stubborn.
Berlin wall of tax? Seriously? Nobody gets shot trying to cross the border here and it's clear that the ones who can afford a decent financial advisory will get around most of the regulations anyways.
I don't see how this business economist whining belongs on hn.
EU countries really like turning the screw on small business owners. They come up with all those requirements, taxes and limitations and then when they notice the world is getting ahead their idea to fix it is to raise taxes even more and create "business incubators" where government officials redistribute part of it to their buddies.
Oli (Oliver? Not sure which you prefer, which I realize now I should have asked a long time ago in our first call) -
Just wanted to reiterate that I really appreciate what you have done with both OpenRegulatory and Formwork, as it was a big unlock for one of the companies I helped a few years ago as we navigated our way into the QMS / FDA / med. reg. world.
While reading this as a many-times-over-founder myself, I deeply felt multiple emotions which this would bring upon me if I were in your shoes after all the work I know you’ve put in.
I hope you are able to navigate this to a happy / successful outcome for yourself and any others involved for the relevant compan(y/ies)!
I am grateful for what you have contributed over the years on the software and documentation fronts with OpenRegulatory and Formwork both.
I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it.
If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a year to sign off on having done the management within Germany.
You do need a bit more expensive tax advisor, but it's not that difficult. There's a description here: https://www.juhn.com/fachwissen/internationales-steuerrecht/... (3.1.)
Of course, if you want to move the company out of the country, you'll need to pay taxes on any value increase the company had. As others have described this is pretty reasonable though - you get taxed exactly as if gains were realized. This is tax you would have had to pay some time in the future anyways, except by moving to a tax-evasion country.
The only unreasonable part of the law is how they can assume your valuation based on earnings, but that only applies if you can't provide a valuation based on German standards.
Exactly, you need to get proper advice on how to structure your business in Germany. Basically, putting your shares in holding companies is both common and not dodgy. Corporate taxes are more friendly than personal income taxes. You can do constructions with salaries, dividend, etc.
Doing this is standard practice if you are founding a company. You need to plan for your startup to be actually successful and being on the receiving end of a big exit. You can't just wing it and hope for the best.
Germany has a large amount of wealthy small investors, business owners, family owned businesses, etc. And many of those might retire in places like Spain, Italy, etc. There are ways. You just need to understand the system.
That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.). But once you know the how this backwards and dysfunctional system works, you can get it to work for you. Because painful as it is, the system does work more or less as advertised. But you do need to familiarize yourself.
BTW. this is a topic where LLMs can be helpful. You can skip a lot of the traditional advisers and other middle men, if you are a bit smart on that front. Using an accountant is actually worth the money for liability reasons. So don't skimp on that. But otherwise, knowing what you are getting into in terms of bureaucratic process can save a lot of time.
> this is a topic where LLMs can be helpful.
That's probably the very last spot where you want to use an LLM, especially not in Germany. One single mistake can cost you a fortune, and you won't be able to spot the mistake because you're not an expert. LLMs could be used to prime you for conversations with an expert (but be prepared to be corrected on points of law and fact) but they are no substitute. Corporate law is a legal minefield, tread with utmost care.
The whole proposition is in a way bizarre: if you have this problem you almost certainly can afford proper guidance and if you need to resort to an LLM for that guidance you almost certainly don't need such complex constructs in the first place!
I would say not with tax law anywhere. It is very complex and has all sorts of interactions between things - e.g. double tax treaties.
That said, a lot more people would probably use complex constructs if they were not so expensive to set up because of the advice needed. I just do not think LLMs help.
I'm not saying use it blindly. But it helps going into discussions with experts, advisers, etc. with some preparation and knowledge. Worst case you are wrong and they'll correct you and best case you pre-empt some actual problems. And it's not like advisers, accountants, etc. don't make mistakes, overlook stuff, or sometimes work against your interests. It helps being a bit hands on. And LLMs make that a lot easier.
Also LLMs are great for picking apart complex bureaucratic procedures, figuring out what next needs to be done, what the meaning is of some 10 page pile of crap the tax office dumped in your mail box, etc. Especially if you are not a native German speaker. You can ask your critical questions, get it to explain stuff you don't understand, etc. In the end, you are responsible for your actions. Limited liability in Germany isn't that limited. So, spending some time on figuring out whether you are doing it right is hard work. LLMs help.
But yeah, don't vibe run your private finances and sources of income.
Crazy theory: most posts here are from German Tax office. They give a "free" advice, and send a fat tax penalty 5 years latter! Suprise: you never left!
If the German tax office is actually using HN for such schemes I'd have to give them more credit for using technology effectively than I currently do. It would be funny if they did though.
> That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.).
That's where you hire a professional accountant. Which you should be doing anyway at the point where you raise any sort of external funding that's not family members.
I don't get why people are always complaining about German taxes. As long as you're small, you can just wing it. And when you pass the threshold, professionals are cheap.
In Switzerland, I would trust the mechanisms put in place for dealing with 'Treuhandlers' (trustees) to deal with this situation correctly. In Germany I would absolutely not if the stakes got high enough.
> be in Germany twice a year to sign off on having done the management within Germany.
Pretty stupid. You are signing paper that claims you never left Germany!!!
You are opening up yourself to personal German tax residency, with all pleasures it brings. Payable 10 years back!
And do not believe that 185 days bs. Correctly losing tax residency in state like Germany, Denmark, Norway or Australia is very difficult. You can not keep any assets like company or house there!
Edit: why downvotes? Many states only require 90 days or less to become tax resident. Australia is fine with a house. Norway will tax your income for 3 years after leaving!
Claiming you manage holding company within Germany, is a huge red flag!!!
> You are signing paper that claims you never left Germany!!!
No you aren't. You are signing a paper that says a managerial decision about the shares of the company happened in Germany. Where you live does not matter. You just have to do a board meeting, and be physically present in Germany during the meeting.
In fact, you likely want to keep any proof of your travel from a different country, which makes it obvious to the authorities that you don't spend all your time there.
There's multiple variants though, this is just one of them. You can also pay someone to manage the shares (and of course contractually bind them to not do anything without permission).
Edit: Also, to be clear, you don't need to manage the company from Germany. You only need to manage the holding company from Germany, where the only managerial decision is related to the shares themselves.
> You can not keep any assets like company or house there!
Alternatively, simply keep both the house and company in Germany. No exit tax since, thanks to that house, you haven't technically exited, right?
It is not so easy as you describe.
You definitely need advice from professionals, yes. All included, I'd expect it to cost 5k€-30k€, but not more.
It’s not as crazy as it initially seems.
It’s because of a fundamental difference between how capital gains tax and income tax are collected.
Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation.
I’m from a country which has no exit tax on capital gains and notoriously a certain wealthy telecoms magnet - having been resident all his life - moved to Portugal just before realizing billions of capital gain. Thus despite earning multiple billions through businesses activities in his native country, he effectively paid zero tax.
I myself have benefited from this lack of capital gain exit tax as I moved to a country with very low capital gains tax. So despite the fact that my modest equity portfolio earned most of its growth while I was living in Ireland, when I sell, the Irish government will get nothing.
The problem, it seems to me is the method of valuation for the deemed disposal and/or the fact that it can cause a “liquidity squeeze“ for the tax payer.
I don’t see a simple solution - maybe other than getting rid of capital gains taxes completely and collecting more consumption taxes, for example, but I’m sure this would just open up a range of other tax evading loopholes.
Capital gain tax is stupid anyway. It's one of the first tax that should be removed.
You can tax business at home by land/revenue/resources usage/ip protection taxes. As it is owners in different jurisdictions pay a different (or sometimes no) tax on selling shares. Selling itself is something you want to encourage, not discourage. It's a pointless tax that penalizes exactly the things you want to encourage.
You think that someone moving to Portugal to avoid it is unfair but then a share holder living in 0 cap gain jurisdiction in the first place would pay 0 anyway.
It is at least not wildly regressive like consumption taxes are.
It would be better to tax IP protection, inheritance, resource use and land only but realistically if we get rid of capital gains the tax burden will land squarely on wage earners doing all of the actual work who are already taxed more than the people who own their productive output.
There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families. You can tax luxury good at higher rates.
EU countries already realize it's the case with IT services (everyone wants their share with digital tax) and with big supermarket chains (big issue in Poland). It's just painfully slow for them to connect the dots and introduce a general solution.
Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell.
Source -> https://www.ato.gov.au/individuals-and-families/coming-to-au...
If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT.
You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.
Canada does this too. Don’t most countries?
I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago.
With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly).
Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).
What did the Irish government do to entitle itself to a chunk of the appreciation of your equity portfolio of presumably non-Irish companies? What did they do to contribute to that equity growth?
I don’t understand the question.
Governments collect tax in lots of different ways: income taxes, sales/consumption taxes, import taxes, capital gain taxes, property taxes, inheritance taxes, etc,
What’s so special about capital gains taxes that requires the government to have had some sort of active involvement to be justified?
Capital gains are theoretical. You do not have that as money, but the state does want it as money. They are not what someone paid for your assets, they are what someone THINKS someone else might pay. Most smaller companies cannot be sold easily, and of course, the government is unwilling to take that as the valuation being zero (because what someone is willing to pay right now is in fact zero). And the government is unwilling to take any risk (they take cash only). So they're taxing money you do not have available to spend, and may not have at all.
Think of it as taking a $10k diamond with you. It's worth something, but ... maybe next year artificial diamonds double the size of your diamond start costing $500, and your diamond's value goes to $550. The difficulty is that the government demands "10%", which is $1000 in taxes on the "value" of your diamond now.
So for a big range of company sizes it's effectively a tax on nonexistent assets. This would not be the case for a huge (let's say revenue of 500k or more) company.
But the government chooses not to tax those big companies.
Perhaps the simple solution is to give those small business owners the option of selling their business to the government at whatever price the government feels it is worth.
Any claim of valuation is really only meaningful as a purchase offer.
If you lived in Ireland in that period, you benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads, bought things in shops, so and on so forth.
Regardless, the idea that the government can only tax you if it directly gave you sufficient benefit, _in your assessment_, is of course nonsense. Taxes are what you owe to the society you live in, not about what society owes to you.
If you are lucky enough to be internationally mobile, this does not exempt you from contributing to the communities you spend time in as you travel around the world. You cannot expect to arrive in a country, earn money from it, and depart again without paying your fair share of taxes.
If you do not like how a country has structured its tax law and what priorities it has as a society, you are of course always free to not move there in the first place.
> benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads
That is a terrible basis for argument: we mostly each get similar usage of services (roads, police, yadda yadda) which should be an argument for a fixed amount of tax per person (a poll tax).
If you wish to argue that we get what we pay for: then rich people pay wayyyyyy more so they should get more government services???
The wealthy surely don't get better policing: instead the wealthy pay heaps for their own insurance and security systems.
Be careful making any argument based on services received for money spent because the well off pay a lot and don't receive a lot for it.
Without society it's pretty hard to be well off in the first place. The entire concept of property becomes pretty meaningless without some very basic concepts of a legal system and territorial integrity. Without that you can only own what you can physically defend.
Wealthy people and large companies do generally employ security, but that is merely supplemental. They enjoy the backdrop of a society where the vast majority of people at least recognize the basic concept of ownership, and where protection from external state actors is provided. More to the point, they live in a system where most people see negative expected return from just killing them and taking their stuff
Abstractions like insurance further require a system where agreements can be made and mostly enforced, and where the need for the insurance is low enough for the premium to be workable.
The small security team at any given company is there to handle the the exceptions that don't conform to the larger society's rules. It doesn't replace that protection entirely. You'd need a standing army for that, and you'd have to work full time just to maintain its loyalty.
Even with no direct services whatsoever, people benefit from society in more or less direct proportion to their wealth -- and arguably the benefit accrues exponentially as wealth increases, given that this enables the exponential growth of capital.
> Without society it's pretty hard to be well off in the first place.
What a pointless argument - you could just as easily chose cause and effect in the other direction: without businesses then society has nothing. Zero businesses, zero tax income.
My main point is that society needs to encourage business owners. If marginal tax is too high, then owners have no incentivise to earn themselves an extra dollar. When owners earn less then society gets less.
There's a balance to incentives.
I'm not working currently because my taxation rate is too high. I'm fine with that since I value my time highly. However financially my country could be getting more from me by lowering my taxes enough to encourage me to work. But voters don't care about what is sensible - they care about optics - and politicians care about voters more than they care about the economy.
I mean, other than give access the infrastructure, the people and the rule of law... what did the romans ever do for us?
Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...
Capital gain is the profit made on the sale of a capital asset.
There is no gain or loss until the asset is sold. Taxation is not deferred, it applies when the gain is made, i.e. upon sale.
This needs to be repeated more often.
If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax?
That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.
Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?
You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.
> did I just magically make $900k?
Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing.
That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains.
I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset.
No, a mortgage is a loan. You don't "make" any money by taking a loan since you obviously have to pay the money back.
Don't worry that if a loan was considered "making money" it would be taxed as income... which would make no sense at all. In fact, disguising transactions as loans while not intending to repay the money is a well-known tax evasion scheme, which tax authorities always keep an eye on.
You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
The money is paid back during the course of decades, when that money will be worth 1/4, 1/3 or half to what it is worth now. And your real estate is ripe to be mortgaged again for another jackpot payout.
Hundreds of millions of people all over the world do it, and tax authorities applaud it. Who do you think writes the tax code?
> You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
That's incorrect on both counts. You did not make money and the loan is not a way to realize the profit since you have to pay it back, as explained before.
I think this illustrates that finance and accounting are very poorly understood.
The obvious solution is for the state to accept illiquid securities as payment for tax.
This would be hilarious. I would support that change for entertainment value alone.
Where I live we have the option to put capital holdings in flat-rate taxed accounts, based on the size of the investment. I thought this was common elsewhere too.
> a certain wealthy telecoms magnet
It’s okay to name him here you know. [redacted] can’t get you on HN
I'm unsure how strange this is. As a Canadian, when I left the country I had to undergo what's termed a deemed disposition - i.e., pretend you sold all your assets and then pay the relevant taxes on the net gains you've enjoyed to that point. This includes proposing a value for any companies that are not publicly traded. See: https://www.canada.ca/en/revenue-agency/services/tax/interna...
So if all your money is tied up in your company you have to sell part of your business in order to be allowed to leave the country and by the way thanks for creating all those jobs? Sounds slightly CCP to me.
I know of at least 4 countries that have exit taxes, and while the US doesn’t have an exit tax if you simply move abroad (it does if you renounce citizenship) it has other very punitive taxes for expats. So, it isn’t a unique thing to Germany or, assuming you’re correct, China.
Isn't USA even worse? If you move as US citizen to EU, you would need to pay bot h local EU tax and USA tax right? (I am not a USA citizen, this is legit question)
The US does not have an exit tax for businesses, but has an absolutely horrible tax system in which expats are treated badly.
The reporting requirements for expats are insane: all bank/brokerage/whatever accounts with max levels during the year, FATCA and FBAR forms, and the cherry on top: Form 8858 ("Foreign Disregarded Entities", whatever that is) which is needed for your self-employment and for each of your rental properties. If you think this is easy, look it up — https://www.irs.gov/forms-pubs/about-form-8858
It's pretty much impossible to file your taxes yourself, you will never get it right. You have to pay specialized accountants, some of which will charge you >$1500 to prepare a yearly return with self-employment and rental.
Then come the actual taxes to pay, which are the least of all problems.
Expats are treated this way because they have no lobbying power.
I can confirm this from experience. The instant your situation becomes more complicated than "I work one full time job and have no investments to my name whatsoever" you are in for a brutal time without an accountant by your side.
On the other hand, if you do have an accountant by your side, you potentially expose yourself to some of the most powerful labor arbitrage on the planet as a tech worker. Making $100k remotely from the US might sound like a bad deal until you live in a country where the average wage is $20,000. Like all things US tax wise, you are disproportionately rewarded for being clever and reading a lot.
US totally does: https://www.irs.gov/individuals/international-taxpayers/expa... - long-term (8y+) green card holders may need to pay up.
One big difference is that the clock only start ticking after you get green card, whereas with Germany any residence year counts. Oh, and citizens of course aren't affected - since US continues to tax them wherever, but Germany like almost all other countries practices residence-based taxation.
It is very close to being all other countries. AFAIK the only other country that taxes non resident citizens is Eritrea - and the US has said its unfair they do it!
Not to mention pfic rules making simple index investing impossible.
US-EU transplant here. No, the United States does not have anything even vaguely similar like this. Seriously putting forward the idea of an exit tax on anyone who owns more than 1% of any LLC worldwide would in all likelihood be deeply politically unpopular. It goes against the very name and spirit of a limited liability company, for one. For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun. There is a a much narrower exit tax for US citizens who wish to actually give up their citizenship outright (not just move out) but that generally only comes into play for anyone with $2 million or more in net worth, and exists probably to discourage tax evasion, to my understanding. There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
> For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
I'm sure that a sizeable percentage of Americans own a significant amount of shares via 401k or whatever, but it feels surprising if 1 in 10 own more than 1% of a company, because all of those people holding shares as investments will be buying shares in companies with thousands or millions of other investors.
But maybe it's true - I just googled about the US has 340m people and 32.5m companies - so the majority of them must be small (population/number of companies). And while a lot of companies will be owned by the same people or just administrative divisions of a group of companies, most companies have multiple directors so maybe on average it does balance out to 1 in 10 owning a decent chunk of a company. It just feels like a surprising fact.
This site [1] has some interesting stats on size of businesses, although it's interesting that in 2019 these figures say there were less than 8m businesses, which disagrees with what google told me. Also says over half of US companies have 0-4 employees.
[1] https://paradoxesinc.com/resources/us-business-patterns/
It's a surprising number, but a useful one for calibration. Most people assume that the number is closer to 1 in 100 or even 1 in 1000, but that's because they forget the vast, vast numbers of people who just quietly run their own operations in some form. You don't have to be Apple to make enough money to pay the bills on your own, or even reach the high net worth category.
It's worth noting that the numbers don't vary that much between the US and the EU, which actually weakens my claim that such a tax would be politically unpopular if introduced. About 1 in 20 Germans seem themselves to own enough of a business to fall under their own exit tax, checking just now, but I'm not familiar enough with DACH business practices to know if setting up an actual honest-to-goodness LLC for a one man operation is as common there as it is in the United States.
> There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
To be clear, this is if you move _your company_ out of Germany (which I don't think the article makes very clear). In those terms it seems to make a little more sense. As outlined in this comment.[0]
The double income taxation of their expats that America, Eritrea, and Myanmar do is a bit different, but I think they have double taxation agreements with most countries. So in actuality most Americans don't have to fully pay the double tax (depending on where they live, and how much they earn) though they still have to file and everything.
[0] https://news.ycombinator.com/item?id=44834878
> You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun.
That's certainly what I was thinking of, given I have a few US friends here in the UK. Isn't the way to stop that to simply give up dual citizenship?
From one perspective, yes, you can get around this by simply giving up dual citizenship.
From the perspective of one's whole life, once that US citizenship is gone, it's gone. You can't reinstate it like you can with many other nations. And losing first-class access to the world's greatest economy is a very heavy price to pay. It only makes sense if you are absolutely sure you, and by extension your children and their grandchildren and their grandgrandchildren (because they only get US citizenship at birth if you yourself are a US citizen at their birth), will never want to have anything to do with the US again.
Ultimately I decided against it. The idea that I have a country I can always move to and conservatively 3-5x my take home pay compared to even one of the best paying countries in Europe is one hell of a liberating feeling. Don't discount that kind of optionality lightly.
You won't be double taxed, the US taxes the difference between your local income tax rate and the US federal tax rate. So if you live in London you're not paying any US tax because the UK income tax rate is higher. It helps stop rich people from "totally live in <tax haven>". If only we had that for companies..
I think where people get confused is that it's implemented as a tax credit which is equal to the income tax you pay locally.
On top of that the first $130k earned is also exempt, so it only applies to high earners as well
Another issue is if another country has some tax free benefits (like Roth IRA) America taxes the extra.
Unless you move to a country without a tax treaty to prevent double taxation with the US.
Not "unless". You have to actively review the tax treaty to see whether it actually gives you things superior to the US's own Foreign Earned Income Exemption. Those documents aren't the hardest things in the world to read, but they're not light reading either.
State of California has exit tax.
Exit tax applies to some Green Card holders too.
Not in most cases. According to this estimate, who comes from an organization that is against US citizens abroad having to file[0], 77% have AGI "well below" the cutoff where you would have to pay taxes. For those that are above that threshold, you can deduct the taxes you pay in your home country agains what you would have been charged in the US. For almost everyone in the EU, that is a higher rate than the US taxes, so you don't pay anything on that European income.
_However_, you do still have to pay taxes on your US income if you're abroad. So if you are making money from freelancing with US companies (and, I assume, they aren't paying a European business you have set up), then you'll pay US taxes there, but due to tax treaties you are generally not double taxed.
You do, also, have to file every year.
0: https://www.taxfairnessabroad.org/blog/americans-abroad-by-t...
Double taxation treaties negate this somewhat, but there are a bunch of edge cases.
You have to file your taxes every year in the US either way. You can't even renounce your citizenship without paying a lump sum.
It would be a bureaucratic pain but if I were to move back to Europe (having become a US citizen) I don’t expect I would end up paying any tax to the US after applying the foreign tax credit.
But there could be a whole lot of complexity around stuff like ETFs and mutual funds and whether they were recognized by both countries.
I think the numbers in the article are mixed up. Earnings 200k. Wage 120k. So the profit is 80k for the calculation. 80×13,75=1.100k. 60% of it = 660k. Personal tax at 120k income = 45%. More likely less as for health insurance, etc. 660k×45% = 297k exit tax. Which can be paid in 7 yearly rates. So 42k per year. You still have a company that has earnings of 200k.
It also depends on how the company is valued: If based on balance sheet (retained profits + share capital) e.g. 5×100k retained = 500k value, the exit tax is 18k/year for 7 years. If simplified earnings method with factor 13.75 is used it much higher valuation, the exit tax is at the 42k/year.
The author describes how four classes of people are affected by the tax.
There have been many articles about the struggles of entrepreneurialism in Europe.
Does anyone else see a connection here? One more straw on the camel’s back?
The crazy thing is that as a business owner (GmbH/AG) you can’t even move to another EU country any more since 2022. As the owner of such a company it feels like I have become a slave of the government.
Why can't businesses be owned by people that:
While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.Because it shouldn't come with the same compensation as any other day job.
Let's say you can make $80,000 as a hairdresser. You are seriously proposing that someone who takes all of the risk of
* Renting their own hair salon,
* Building up their own clientele,
* Taking out loans to purchase hair dressing equipment, and
* The thousand other things the business owner has to do in addition to actually dress hair themselves,
should walk away with the same amount we the person who just gets hired to dress hair.
No one would ever start a legal business under such a regime. It's all downside! Which is why you never see people actually owning and running businesses (successful ones at least, and most unsuccessful ones too) with the mindset you describe.
They can and frequently such people are; but they aren't very obvious because they stop while the business is still small. If we don't harness greed into doing something productive then there isn't enough motivation in the world to power a modern industrial society. People like Bezos would just sit around running a local bakery or something instead.
The way the system works is people who create unfathomable amounts of wealth get to keep unreasonable amounts of it. If that link is broken, they'll stop at creating a reasonable amount of wealth and then everything grinds to a halt. If someone is in a situation where they are doing a good thing they should have every incentive to keep going and not stop.
The thing you're describing is an underpaid CEO position without equity. If you're competent enough to get the job in competition with people who want to get paid, I'm sure you can.
Risk. There is nothing to fight against, but "we" might consider educating ourselves so that we understand why the calculation that happens through the price mechanism benefits all, and moreso than any alternative.
>While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.
Ironically some of the biggest european companies are related to luxury items.
Huh?
Why take all that risk, for no additional reward?
If the business fails, is the gov’t going to keep paying them like a hairdresser or whatever?
That's not that bad an idea, with some caveats.
An incentive for entrepreneurs?
It can help kickstart a stagnant economy.
Yeah, that exists. It's called "not having oppressive tax rules".
The State relies on oppressive taxes to fund everything.
Why not just be a hairdresser? Way less stress.
The economy is stagnant for a reason. At some point, the juice isn’t worth the squeeze.
Who would employ you, if nobody was motivated to start the salon?
In this scenario, ‘the dole’ eh?
communism, and with this sentiment, no one will want to run a business. the country will wither and die
Why is that? It has been the case for a very long time for taxation; the decision gravity has to be in the where the company is. But curious if this is something else as 2022 is too recent for this.
You couldn't move it anyways , if you manage and control the company even before 2022.
Norway also has crazy exit tax and wealth tax. I heard lots of complaints that this system makes it almost impossible to build a decent vc-driven tech startup.
Kinda makes it harder to attract foreign talent to Norwegian startups as it could affect their decision moving to Norway. While I think the number of people affected is exaggerated, the most well-known case would be the Dune Analytics founder who had to pay more in tax than his salary and was forced to either take a loan to pay taxes (no guarantee the company would succeed) or move out of the country.
This, and barnevernet has reputation similar to gestapo in East Europe.
You might've mixed up your analogy there, Gestapo was a German 3rd Reich thing… NKVD would be the Soviet one.
However it also prevents hoarding wealth, which in turn prevents special interest groups and some forms of election manipulation.
Balancing taxes for fairness and innovation is quite tricky...
An exit tax in itself does nothing to prevent hoarding of wealth. It might enable you to deploy other taxes that would make rational people leave the country, but it's a bit of a "lock the doors and rob people" strategy.
If you have good advisors as a wealthy person you know this and leave as soon as an exit tax is on the table. If you start new businesses you start them outside of the country
If you're a regular non-wealthy person who happens to become successful you're stuck paying high taxes of course, but you'll probably learn and structure your next venture better.
Most businesses are not as portable as a tech startup.
>However it also prevents hoarding wealth
Hoarding wealth isn't a problem if no wealth creation happens in the first place.
Norway has a high wealth tax (it’s gonna be 1.1% of total wealth per year in normal cases), high capital gains tax, and an exit tax treating moving abroad as a capital gains event.
This means, if you start a not-yet-publicly-listed company, get investment at a high valuation (on paper), you must pay wealth tax as if you had that money liquid in your own name. But you don’t have it liquid, it’s yet just a valuation of a VC, so you are screwed.
This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
Scandinavia is attractive as a destination if you are poor and especially from the 3rd world and could benefit from free government services and welfare, but for anyone entrepreneurial or already wealthy, there are many better alternatives.
> This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
There's nothing stopping them from doing that in Norway, they just have to pay their dues. Which are nowhere near the rate of those in a real communist system that people are so quick to label it as.
I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
> I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
1.1% is deceiving. 1.1% is actually over 20% tax on savings (assuming a common drawdown of wealth at 4% per year). Plus savings are usually money that has already been taxed. If you can invest at a higher return then the numbers improve but the risk increases (and governments don't share the risk or otherwise ameliorate it) and the taxes remain if you win.
1.1% sounds small. Any analytical person analysing the rewards versus the risks of founding a company will decide that it isn't worth it. Even if you win, you lose.
Here in New Zealand no founder can plan for a decade timeframe because there's a high chance a new government will screw you if you make any winnings. Currently our taxation system encourages entrepreneurship a little (no CGT).
A taxation system needs to be designed to incentivise individuals to create businesses. The government wins through income taxes and sales taxes - it doesn't need to kill the golden goose by overtaxation.
Most people have a selection bias: they see the winners and think those "greedy bastards" should pay more. Few people weigh up the invisible costs of the people that tried and failed. Very few people consider the benefits accrued to society from businesses (consumer surplus, tax income through other taxes, etcetera).
What is stopping it is the fact that the "wealth" they are being taxed on doesn't actually exist, so by starting a company and getting investment you create tax liability that is impossible to pay.
Early stage companies have a high valuation on paper as an artifact of selling small amounts of equity for relatively large sums of money. This leaves you with purely theoretical wealth in the form of equity which you have not yet sold, and potentially can't sell.
As a concrete example, let's say your tax rate is 15%. If you start a business, and give an investor a 10% stake in that business in exchange for $1M, your remaining 90% stake in the company is now worth $9M. Congratulations, you're wealthy! Now you need to "pay your dues" of 15% of that $9M... good luck with that. You are now bankrupt and deeply in dept to the government.
It's also an attractive destination for people wanting to live in a society that's not completely broken by inequality and are willing to pay their membership dues for living in such a society.
Not everyone's top priority is building a big ol' dragon pile of gold.
One of the basic principals of the EU is freedom of movement between countries. One could argue that imposing such an onerous tax on moving to another EU country breaks this principal, so maybe worth a legal challenge - for someone with a lot to loose.
Or, alternatively, the bureaucrats in charge would argue that all EU countries need to implement similar exit taxation laws - that's where it seems to be heading lately.
When you start to run out of other people's money.
This is why this doesn't apply if you move within the EU.
It does apply
Depends on what you mean by apply. The taxation is deferred without interest until you leave the EU.
I find this website to be a much clearer resource on the issue: https://www.winheller.com/en/tax-law-tax-advisory/internatio...
True! The purpose of my post was more to zoom in on the very specific case of people with small businesses, and not explain exit tax in general.
I wrote up another post with more generic notes on the exit tax [1] which might be a better post to compare to your link.
The minor benefit of my post is that I don't have an incentive to sell you expensive tax advice, chuckle..
[1] https://eidel.io/notes-and-hacks-on-germanys-exit-tax/
This is one of those cases where you really need to hire a specialist, rather than listen to the internet.
Sure, you can't port your company out of germany, but there is nothing stopping you re-structuring so that you have an umbrella company based in the country of choice.
Agree about a specialist, but probably moving an existing company into an umbrella structure is likely to be considered similarly to a sale for tax purposes.
In the UK, you have to specifically request HMRC to authorise any such plans if you want to avoid paying tax on it, and even then I believe it's only (relatively) simple if you're doing a straight share swap - so the existing company becomes fully owned by a newly created group company and the existing shareholders get the same allocation of shares in the new company. Anything else needs HMRC to assess the values of both companies and decide whether a taxable event has occurred, and what the nominal value to be taxed is. I'm pretty sure if you were trying to move an existing company into an offshore parent company, it'd be treated as a sale.
"not. As soon as your net worth goes beyond ~€2m, you can afford fancy tax advisors which set up a trust in Liechtenstein for you."
Is it really that complicated to go that route? This is an honest question, I have little knowledge about these things, but from the outset: How hard could it be to set up a trust, especially in Liechtenstein, where presumably there are already thousands of them and this kind of business is basically an economic sector of its own.
> How hard could it be to set up a trust
I have little knowledge of these things either, I've only heard second hand because aspects of historical tech $work used to put me in close proximity to professionals who deal with these things. Eventually you get a noob level understanding once you've been in the same room long enough.
TL;DR A trust is not a "simple" legal form like a company is.
You have to consider the three-way "internal" relationship (settlor <-> trustee <-> beneficiaries). Which can be legally structured as you wish (blank sheet when writing the trust deeds). And then for "external" relationships (trust <-> third party), the in-country law will apply and so you need to know how that fits in.
Then you need to know what type of trust you want. Do you want a Fixed Interest Trust ? A Discretionary Trust ? A Charitable Trust ? A Special Purpose Trust ? Something else ?
Then you have things like professional relationships. Your trust will, for example, almost certainly need an in-country bank account. Your professional advisor will almost certainly know some bankers.
So sometimes its easier just to hire an advisor, work through the prep, then fly in for the day for a nice lunch with your advisor to sign a few papers.
There are no trusts in Liechtenstein. They don't have the concept of trusts as they are civil law countries. What they have are foundations e.g family foundations etc..
When businesses are fleeing, you're doing something very wrong.
As a German I couldn't agree more. I am your age and even I consider leaving. If I was still young I wouldn't be here anymore.
I think the combination of capital and skilled labour fleeing is very concerning and a trend that could end up self-reinforcing and hard to stop.
Don’t forget the energy suicide Germany has committed. Cheap energy was the backbone of Germanys rich industrial economy, and that rug has been (allowed and even encouraged) to be pulled by none other than the country now offering them a “very good price” on LNG…
Did you miss the Russo-Ukrainian war? Or are you suggesting that we (Europeans) should have continued pumping cash into Russia for a bunch of gas?
Why do you consider leaving? Where would you rather live?
Lack of confidence in future economic improvement.
A place where I could blend in which rules out the kind of obvious and otherwise excellent choices in Asia.
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US as destination is so unrealistic that I'd never really considered it. Also this was about leaving Germany, not necessarily leaving Europe.
I would rather live/work in the US than Germany . I lived almost my whole life in Germany
maybe better in terms of overall living standards but not in terms of innovation or the state being friendly to someone running a business
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Not necessarily.
As USA is the main destination for IPO, wouldn't many German companies naturally leave?
Also once you are successful you can afford to pay the costs to arrange the companies affairs in a tax efficient manner e.g. utilise low tax regions with the EU such as Luxembourg and wider world.
> As USA is the main destination for IPO
Why do you think that might be? Perhaps the Germans could make their IPOs more business friendly, so they have no reason to flee.
> Why do you think that might be?
This kind of rethorical question is annoying. If you have an opinion, state it.
> Perhaps the Germans could make their IPOs more business friendly
The main reason companies tend to get listed in the US (or, in the case of many large existing companies, to get listed there on top of their existing listing in their home country) is that the US stock market is the largest in the world, and listing there means easier access to more would-be buyers, and therefore better market capitalization.
I suspect your advice to German policymakers wasn't "somehow make Frankfurt the largest trading place in the world", but that's litterally what it would take.
Germany is a smaller country with 70 million people or so. USA has multiples of that at 300million people or so.
Many companies will float in New York but also have secondary listings in their home country.
If they created a single EU wide stock market it would compete much better.
Germany has been an enormous economic powerhouse in the past. It can be so again.
why you acting like its not true now??? it still economic powerhouse (at least best on continent)
All major German companies have been bleeding money and announcing layoffs like crazy in last years.
Keyword: BEPS. Won't work as easily as you describe it.
Or they're doing it right and someone else is doing it wrong, often the wrong thing appeals to business as the wrong thing is quicker and higher profits. Not saying that's the case with Germany, but it sure doesn't feel like you're default doing something 'wrong' if you're scaring people who already seem to hate paying their taxes.
The business owners are doing something very wrong. They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
So when you get money out of this, you pay your fair share of taxes, like everyone.
> their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare
Germany has Europe’s lowest share of entrepreneurs to workforce. So i guess the infrastructure, education and healthcare are not really factors.
> So when you get money out of this, you pay your fair share of taxes, like everyone.
this is already happening. people are paying their taxes. but Germany wants more than it’s fair.
cherry on top: Germany has been in recession for… 3 years now?
> cherry on top: Germany has been in recession for… 3 years now?
no?
>They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
Empirically that seems to be false, given the number of successful businesses created in Europe in the past couple decades is way way less than in the US or China, even though Europe has better infrastructure, education and public healthcare.
> Empirically that seems to be false
Could you tell me on what data you are basing this argument on? I see this sentiment pop up in every related conversation but haven't seen the source of these claims. Could you help me out?
Here's some articles on Europe falling behind the US and China in business creation: https://www.economist.com/briefing/2021/06/05/once-a-corpora... , https://www.weforum.org/stories/2019/03/europe-is-no-longer-... , https://www.wsj.com/tech/europe-big-tech-ai-1f3f862c , https://skaleegenkapital.com/2025/03/11/a-decade-of-startup-... .
Yes, it means you have opened the capital, goods and service market way too much and businesses are now abusing that to avoid their basis civil duties.
The best civic thing a business can do is provide a valuable service and thereby make money. Just look at all the wonderful things we have as a result - airplanes, internet phones, air conditioning, cars, agriculture, movies, AI - the list is endless.
The Internet evolved from Arpanet, a network established by DARPA. Given that was created by a government agency, and therefore funded by the same taxes companies are trying to avoid, I'd argue that it's a great example for why companies should indeed follow their civic duties and pay their taxes.
It's also worth pointing out that many of those "wonderful things" had to be regulated by governments due to how bad their business practices and environmental effects are when pursuing making money. Sure, we have cars, but that's coming from the same industry that brought us leaded fuel and global warming.
I’m pretty sure he was being sarcastic. Nobody’s that jejune.
I'm afraid he's not (that was pretty much Milton Friedman's position as well as all of his UChicago fellow, which is the reason why we're back to the gilded age with robber barons all around)
I dont see how you couldn't structure this with an offshore licensing deal. Ie Irish company picks up 99% of billing, German company sends Irish company license fees etc and reduce profit of German company to zero for three years.
IANAL, but it seems it also applies to foreign companies. Who owns the irish company? Also tax authorities tend to look very carefully at these transfer pricing arrangements as you are also potentially dodging the corporate tax rate.
For a less emotional explanation of exit tax see https://www.grantthornton.de/en/insights/exit-tax-topic-hub.
> The purpose of this rule is to tax the increase in value of these shares that came about in Germany but has not yet been realised before they are able to escape the reach of German taxes by the move abroad.
Doesn't sound all that crazy to me.
Also, the proposed analogy to the Berlin wall feels quite pathetic for those that have actually lived behind it.
> And then your exit tax is calculated by taking the average of the past 3 years of earnings of that company, multiplied by 13.75 (which is crazy), and then taking 60% of that which is taxed at your personal income tax rate (likely 42%; Teileinkünfteverfahren)
This does not match the results from 5 minutes of googling, not for individuals at least. What is being taxed is the shares you're holding, as if you're selling them, which results in a tax on their increase in value compared to when you've bought them. [disclaimer: I just did a quick search on this, I'm not a tax consultant or lawyer.]
I haven't looked for the regulations on companies moving their headquarters away from Germany. It's possible those rules are the above, and the author confused them with the rules for individuals.
Either way, if the author believes they're right, they should dig up some citations. There are none in that article. Is this based on advice they've received? Did they do their own research? Are they a tax consultant or lawyer? 13.75 is a very "spottable" number, how about a link to the law that has that number?
Author here. Sure, here are the sources:
- First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
- The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
- Factor 13.75 is defined in Bewertungsgesetz (BewG), § 203 Kapitalisierungsfaktor [3]
- The tax rate of 42% is the marginal tax rate in Germany (at least below €250k income, beyond that it's 45%) - so the assumption here is that, in the year in which you leave Germany, you've already had some salary income (say, €90k) which bumps you into the marginal tax rate for any additional income on top of that.
[1] https://www.gesetze-im-internet.de/astg/__6.html
[2] https://www.gesetze-im-internet.de/bewg/__11.html
[3] https://www.gesetze-im-internet.de/bewg/__203.html
> - First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
You're misreading that law. It says moving away is equivalent to selling shares and that §17 EStG is applicable. Which in turn says:
(2) Veräußerungsgewinn im Sinne des Absatzes 1 ist der Betrag, um den der Veräußerungspreis nach Abzug der Veräußerungskosten die Anschaffungskosten übersteigt.
> - The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
§199 BewG says "…kann das vereinfachte Ertragswertverfahren (§ 200) angewendet werden, wenn dieses nicht zu offensichtlich unzutreffenden Ergebnissen führt."
Key phrase there being "kann". It doesn't have to. You can probably sue against it getting applied, if they're really insisting on it. And note §11 BewG says:
"…so ist er unter Berücksichtigung der Ertragsaussichten der Kapitalgesellschaft oder einer anderen anerkannten, auch im gewöhnlichen Geschäftsverkehr für nichtsteuerliche Zwecke üblichen Methode zu ermitteln; dabei ist die Methode anzuwenden, die ein Erwerber der Bemessung des Kaufpreises zu Grunde legen würde…"
So, finding a reasonable method that a buyer would use to determine the values of the shares is explicitly pointed out.
Good points!
1. Yeah, valid - I was assuming the default case of "you founded your company in Germany and are moving away at some stage". In that case, you could deduct the initial share capital (often €25k) from the valuation, as that was your "purchase price". In most cases, that doesn't lead to a significantly different outcome.
But yeah, if you actually bought shares of an existing company at a certain (higher) price, than of course the "taxable delta" might change your calculation.
In that respect, I was wrong as I assumed everything would get taxed. This is only roughly the case when you founded the company yourself in Germany, as mentioned above. Thanks for the correction!
2. True! As mentioned in my post, you can also pay someone to assess the value of your shares, which would most likely result in a valuation lower than 13.75x. You will have the additional costs of getting that assessment though, and you'll have to convince the authorities that your assessment is closer to the truth than the default valuation which is based on 13.75x.
While that number seems to be not a general value, the "Wegzugsbesteuerung" still is significant.
https://de.wikipedia.org/wiki/Wegzugsbesteuerung
Essentially, it assumes you sell your assets at market value and taxes the difference to your expenses for it.
That's what I was trying to say ("What is being taxed is the shares you're holding, as if you're selling them,") … did I word that poorly/confusingly?
They basically treat you as if you sold your shares or company when leaving the country. If you run a one man company that is currently making a good profit, this can become really expensive.
Exactly. And they, by default, use a very high multiple (13.75) for calculating the value of your shares.
This multiplier would be ridiculous for an LLC you are just shareholder of but in case of one person company which usually derives most of its value from the work of the founder it's just on another level.
One person shops would rarely get 3-5x multiplier if the founder leaves. It's straight up "you belong to us" type of regulation. Next they will make you fight in the arena to win your freedom.
Exit Tax: Leaving the USA before you become too rich
https://www.greenbacktaxservices.com/knowledge-center/exit-t...
From a startup founders perspective, it might be worth mentioning that if you own the business personally in the US, you likely qualify for so-called the small business exemption (QSBS) - that means from the price for which you sell your company the first $10M (yes, million!) of capital gains are tax free, and after the latest reform $15M. If you're married: x2.
Yeah but most people want to do business in US, its all the money goes
Not worth the hassle anymore.
Exit taxation on corporate level is in every EU country , because of the atad directives .
There's a note at the end
> You could, of course, sell or wind down your company, which would solve all problems outlined here. But this is not an option for most entrepreneurs.
For a software business, you could presumably:
- Incorporate a company in your country of choice
- Transfer subscribers from German company to new foreign company (depending on payments provider, this can be a massive effort, for example, not a simple form field in Stripe).
- If new company incorporated in a country you want to live in, use it to obtain an investor Visa
- German company now has 0 in revenue, wind it down and leave.
Better do it properly. Western countries have tax departments that can make your life a living hell if you do it wrong. If you have enough resources to be subject to an exit tax, I highly recommend paying for proper tax advice.
It applies to any company you own, regardless of where the company is incorporated
This is fraud and you'll end up in jail. Your company is not "you". You are a shareholder but as a CEO, you should do what's best for the "company" and what you described is criminal activity to bankrupt the company.
It's not bankruptcy if the company has no liabilities. You're allowed to wind down a profitable company because you can't be bothered running it any more.
A question of legality might come from German authorities determining if this is solely to avoid tax, which is open-ended. It might be hard for them to make this argument if you can prove you transferred operations to country X to maximize company's growth, access local talent, closer proximity to customers etc.
Regardless, anther commenter pointed out that the exit tax applies to all companies that you own regardless of location. In that case, the approach isn't feasible.
Also it goes without saying, seek your own legal advice rather than trusting random comments on the internet.
> You're allowed to wind down a profitable company
I can't speak for all jurisdiction but on one that I worked in, this is not legal. This might be more defensible if the company really is just you but not if it has employees and can operate with a different CEO than you.
> > You're allowed to wind down a profitable company
> I can't speak for all jurisdiction but on one that I worked in, this is not legal.
which jurisdiction doesn’t allow you to shut down your own company?
I guess if you have a limited liability company but in some countries at least you don't have such duty when running a one person or a small partnership shop.
> German company now has 0 in revenue, wind it down and leave.
You forgot about employees. If German employment law is anything like the Dutch one, then it means you can't wind down the company while you have employees. They may refuse to leave. Firing them may be subject to government approval, who may also refuse.
Dumb American here but that sounds like a few steps too far in employee protections. A business can't even die without government approval?
It's because the government essentially takes over the employees, buy paying non-employment money. You deciding that some people don't work for you anymore creates costs for those people and also for the community.
It's sensible, to prevent… well, exactly this kind of situation: taking away people's livelihoods as part of a tax dodge is an abuse of power. The power of being an employer comes with responsibility.
If the company's dissolving for legitimate reasons (e.g. there's no longer a market for the services), then that's one thing – but "I've had the company send all its customers to a competitor, also owned by me" is an extremely obvious loophole to work around employee protections, and it's correct that it should be closed.
It's not dumb. You're not allowed to close a business in the US until you check a lot of boxes, too. You have to show you don't have outstanding debts and so on. The banks won't let you do that because it's an easy way to escape debt. That's exactly why bankruptcy is an extended legal process.
If an employee is guaranteed X months salary upon notice of layoff in the contract, that's debt you have to resolve before you legally close. If you have a 5 year lease agreement for the property, that's also debt you have to resolve. It's exactly the same idea.
You're confusing "winding a business down" with "bankruptcy" in the US.
As long as you follow the law, there is no government "approval" of a dissolution. You notify shareholders and creditors, then resolve any outstanding payments, then dissolve.
a quick check says it isn't. you only have to consider the notice period which depends on how long people have been working there. which means you can't wind down in a hurry but there is no right to refuse to leave nor any refusal from government.
Sidefact: Bigger corps work around this by building holding structures etc, which is a legal soft-tax-evasion way to do this. But all the smaller businesses get hit hard, so as usual the party is paid by the lower end of the income bracket.
Something I've noticed with German business law is that it is very much structured in such a way that if you aren't an incumbent player, you are essentially incentivized to be absorbed by them.
In the US we do have issues with businesses, but it's not like the Bosch, Thyssen, or Tschira family are any less unethical.
The level of hierarchy I've noticed in German firms and founders is insane to say the least. I'd love to do some quantitative research into this, but I haven't been in academia or policy for years now.
German here. I fully agree that German companies tend to be crazy hierarchical.
Does this apply to non-resident owners/founders (big shareholders that don't live in Germany) of German companies when they sell their shares?
Doesn’t every country have an exit tax, tho? Some are worse, some are better, but this is always the case.
Lots of countries have some level of exit tax on unrealised capital gains, but the devil is in the details. A painful part in the German case is that they have a fixed company valuation method that might make it untenable to leave the country.
It's one thing to tax people on assets they actually have or that are easily realisable like ETFs, as they then pay a portion of money they have ready access to. It's quite a different thing to invent a value for something and tax on that. The company ownership in question might not be realisable at anything close to that amount, especially for a startup, if you don't leave before making a profit
So don't do startups in Germany. The exit tax is just one of many reasons for that, the whole German system is bureocratic and inflexible compared to nearby countries.
The EU forces every member state to implement an exit tax to trap entrepreneurs in a disadvantageous situation (Anti-Tax Avoidance Directive).
Some countries such as Sweden implements this only minimally - making capital gains of Swedish companies you hold realised within 10 years of moving abroad are taxed, so just don’t sell in 10 years but take out credit with those assets as collateral.
Of course outside the EU, such as Switzerland and the UK, these governments are not bound by EU rules and don’t impose exit taxes.
Which is why so many European millionaires are doing their best to live in these countries
Eu ATAD only do exit tax on corp level. Germany does it on personal level
The reframing of anti tax avoidance to be a "trap", a "disadvantageous situation" is egregious.
Like maybe just pay your dues? Contribute back to the society that enabled you to become rich in the first place instead of parasitically extracting value?
If duties are unreasonably bothersome then it's a trap.
Who are you to decide what is reasonable and what is unreasonable over the democratically elected lawmakers? This is a deeply anti-democratic attitude.
Democracy in most EU countries is messed up. People don't get to vote on stuff. There are usually 2-3 major parties that campaign on this or other hot issue. There is nothing that can be done about most issues even if vast majority of citizens support them.
Parliamentary indirect democracy is an illusion. It's just a capture by the political class. Will of the people has very little to do with what is done. I would love to live in actual democracy where we get to vote on stuff and popular policies are implemented while unpopular get struck down. It's even worse than American system where at least you can vote for your representative who has some independence. Here they are just a party official and if they don't vote along the party lines the party will run someone else next time around. Their loyalty is not to the electorate.
Tax avoidance is legal. Everyone has the right to minimise their taxes lawfully, arguably this is only paying your dues but not more...
The UK doesn’t.
Is there a look back period? What stops me from selling my business to my buddy the day I leave and then buying it back the day after?
The idea is that leaving the country is taxed as if you sold your shares.
So selling them presumably doesn't help.
The idea is presumably that you would "sell" at an artificially low price.
Which is illegal if you do it for tax evasion.
Your taxes should work out the same (or worse). Exit tax is akin to you selling all your properties at the point of exit.
Yup, this is possible. It would have to be at some fair market value, and you'd (obviously) have to tax that in Germany. And depending on how much you trust your buddy, you might or might not have to draft up some complicated legal framework that you indeed have the right to buy back your company at some stage :)
Nothing. But you will have to pay taxes on the money you get from your buddy. If he is paying too little, you may get into additional trouble.
> But no, it’s not fine, because the same person was working for a salary of €0 just a few years ago and likely has nowhere close to €700k of random savings stashed away for paying some taxes.
By your own admission, this person earned almost a million euros in the past 3 years.
Ah yes, the Reichsfluchtsteuer. https://en.wikipedia.org/wiki/Reich_Flight_Tax
you could have shortened your advice to: "leave germany"
not sure how useful this is. germany is a great place to live, safe, with great infrastructure and access to europe, good food, lots of personal freedoms, orderly society, few overtouristic’ed cities, and a thoughtful populace for the most part.
No it's not . If you are young you are a slave for the elderly. Personal freedom is also very questionable. Good Food haha
We feel exactly the same in the UK. Except personal freedom isn't questionable, it's in the gutter
Also: absolutely beautiful, with great people.
I wasn't joking at all when I previously said in [0], moves like this is how to lose and now this is another reason why tech founders do not start companies in Europe and when a company gets too big, especially in Germany.
Just don't be surprised to see a decline in tax revenue when countries like Germany chase the wealth creators out of the country with high taxes + exit taxes.
[0] https://news.ycombinator.com/item?id=44134832
Wealth creators?
I would attribute that term to the workers who work 1.3 billion hours overtime, most of them unpaid
https://dailywrap.net/en-gb/unprecedented-unpaid-overtime-re...
And then the company owner whine when they habe to pay their share?
If it was just about workers then we would have comparable tech industry to USA. Yet we don't and that's because hostile culture and regulations.
Abusing workers and but paying overtime is bad and it's a completely separate issue. It's also not a big issue in tech.
> People say Germany is a good country for being an employee, and this is also true for exit tax.
Which proves again that regulatory environment is downstream from culture: In a country like Germany, with Europe’s lowest share of entrepreneurs/workforce, there is very little political emphasis on creating comfortable environments for the out-group.
Most Germans can’t relate to these people at all, and every awareness campaign have to incorporate teaching the target audience (in order to make them understand the problem in the first place). A meticulous, tenacious, undertaking one can imagine that immediately gets stomped once the political gravy train comes around full steam with anti-capitalist or otherwise hyperbolic rhetoric.
(I haven’t looked but would bet that adherents to this rhetoric are already at it even in the comments here, pointing out how deserved the exit tax is etc)
Or you could pay your fair share to contribute back to the country that supported you initially by providing education, labour, infrastructure, etc.
The moment we talk about piracy it's all about how poor billionaires will have to sleep in their cars if you make a digital copy of something you would not have otherwise bought, but when it comes to supporting the society that created you and your wealth, suddenly it's all about finding ways to weasel out of paying.
Canada also has an exit tax. For individuals as well as businesses.
At least Canada steps us cost basis upon becoming resident AFAIU.
It's an exit taxes, but as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That doesn't seem particularly unfair. If you can image a scenario where someone buy Apple at $1, and it's now worth $1,000. They just leave Canada, pay no tax, then sell in a low tax jurisdiction.
However, it can be a massive pain in the ass for illiquid assets or assets you don't intend to sell at that point in time. A good example might be a pension. Getting hit with a tens of thousand dollar tax bill for a pension you won't receive for another 2 decades is painful.
> as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That is also what Germany does. The 13.75 multiplier is the fallback number used if there is no valuation for the company. It's such an irrelevant number that tax advisers writing about the topic don't even bring it up. Get a valuation.
> it simply taxes you on all assets as if you disposed of them the day you leave.
Same thing in the U.S. but I think the first $800 or so is exempt.
They do tax on residency rather than citizenship. If you are a structured embezzler in another country, than expect the CRA auditors after 184 days in Canada.
Also, Canadian laws don't stop at the border as a citizen... so breaking laws in other places still puts you in legal peril for extradition.
Notably, corporate tax rates are often much lower in Canada, and export free trade is available with most trading partners. Note the US taxes on citizenship regardless of where you live (or if you hold multiple citizenship), and failure to file your IRS statement was an $8k fine last I heard. The fine often stays even if you owe the IRS $0, and temporarily live in another region.
The TLDR version: talk with corporate tax accountants in each region before filing, and do not assume the late tax filing fines will magically not apply to your situation. AMCHAM will usually help guide investors on their filing obligations for type C corporations in the US. =3
Departure tax for individuals:
https://www.canada.ca/en/revenue-agency/services/tax/interna...
Departure tax for corporations:
https://www.canada.ca/en/revenue-agency/services/tax/interna...
That is nuts, I always assumed that would fall under the capital gains taxes in the investors T5 filing at the end of the year. (could be dramatically lower rate if you get stuck with cash at the end of the year)
Now I know why the brand trademarks are usually held by an independent entity, and licensed to a domestic number company.
I guess that is why we pay the corporate accountants. lol =3
also buy fax machine, dozen ring binders, and paper shredder before you start that business
Also:
- A printer (the most important equipment of any German startup founder)
- Envelopes for letters
- A stamp with your company name (some companies and agencies you deal with require you to stamp things, because a stamp obviously proves, beyond any doubt, that you are acting on behalf of your company, because obviously no one would be able to create a similar stamp with your company's name on it, right)
- A virtual office address at a coworking space (because you're receiving physical mail, and also there are weird tax reasons not to register your company at your home address)
- A mail-scanning service (because you don't want to walk to the coworking space every few days to pick up your physical mail)
- A mail-forwarding service (so that the mail gets forwarded from your virtual office address, which now has exactly no purpose at all, to your mail-scanning service)
A good one! I remember I needed a stamp when I started a business in Poland as well! I've never used it and never was asked to so I guess the regulations no longer apply.
Poland is pretty good at digitalizing bureaucracy as well. You can do most things online including talking to the tax office and solving problems with your tax declarations.
Taxes are reasonable but I am still bitter about cap gain tax as it's a form of a wealth tax for someone that invest in equities - at some point moving to more tax friendly jurisdiction saves enough that you can fund your comfortable life and save 100% of your income.
I also think tax burden is going to increase significantly there in coming years.
Given that this kind of thing seems to be widely reported, are there any significant efforts to reduce the friction all this causes?
Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far.
That being said, it's probably overly simplistic to blame political parties for this - there's a lot of e.g. county/state-level bureaucracy in Germany which gets in the way of making any sort of constructive changes. It's a bit like blaming the CEO of a bloated company for not making it "agile" in a short period of time. Sure, leadership is important, but the reality is, it's.. complicated.
for comparison in china stamps completely replace the signature. but then, digital signatures that are not cryptograpically signed are no better.
And the right color pen. God forbid you fill in an official form in the wrong color pen.
I would think it's a joke but once literally had an office clerk in Germany scratching with fingernail my signature to check whether it's by pen and in the right color.
Signatures that can be erased easily aren't a great fit for a legally binding document.
For more information, you can check whether the ink complies with DIN ISO 12757-2 and/or read up on "Dokumentenechtheit" [1]
[1] https://de.wikipedia.org/wiki/Dokumentenechtheit (It hasn't been translated to other languages yet.)
There's a reason why Kafka wrote his novels in German.
Because he was German Bohemian? (https://en.wikipedia.org/wiki/Sudeten_Germans#Austria-Hungar...)
no, because bureaucrazy in Germany is rampart.
He didn't live in Germany.
He actually lived in Berlin for a few years before he died. But you're right, he spent most of his life in Prague. However, his native language was German.
Certainly an interesting man. I highly recommend checking some of his work (ie. The Metamorphosis).
The EU is great, we have free movement, we can move anywhere we want without restrictions... wait a minute?
This sort of law is stretching things to the point of utter bad faith.
It's always had restrictions. For example beyond 3 months, you have to demonstrate being economically active or a student or self sufficient etc.
Then there are restrictions due to public health, personal conduct, public security
Here we go, the usual blurb. In practice you need to really cause trouble for anything to happen to you but, anyway, this is quite irrelevant to the point here.
The developed world is increasingly facing a funding crisis brought on by this propaganda that if we tax corporations and the very wealthy then they'll leave.
One of the most farcical examples of this is the decades-long race to the bottom on business taxes and incentives between Kansas City, Missouri and Kansas City, Kansas. For the non-Americans out there, this is basically one city but it sits at the border of two states. So the two states are constantly torching money to lure businesses that play this system and simply go back and forth.
I believe this situation will come to an end and there are several reasons for this:
1. For the EU in particular, reliance on US tech giants is increasingly becoming a security issue. The Eu will increasingly wants homegrown alternatives so the option of leaving will simply not exist because you could leave but then you lose the EU as a customer;
2. For a long time multinational companies used transfer pricing to avoid paying taxes. What's transfer pricing? Let's say you buy a sofa in China for @200, ship it to the US for another $200 and then sell it for $1000. You've made a gross profit of $600. What if instead you have a subsidiary in Vanuatu, which has no corporate income tax (AFAIK), and it buys the sofas for $400 and sell them to the US company for $950? Well, you've booked $550 in profit where there's no tax and only $50 profit where there is.
That's technically illegal. It's often-called transfer pricing manipulation.
So what do tech giants like Google do? They sell their IP to an Irish subsidiary. There's a nominal process to make sure this is done for a "fair" value (according to the IRS). Then they pay royalties to their own Irish subsidiary to shift profits to a lower tax regime. Previously, this created a problem because they couldn't repatriate the money without paying (then) 30%+ corporate taxes but this all changed in 2017 with a tax holiday and a change to how this kind of income was treated. The net result was way lower than 30% net tax however, even with Biden's 15% minimum tax (which was a good thing) that came later.
What's the difference between this kind of profit-shifting with IP and transfer pricing manipulation? Absolutely nothing, except one is illegal and one isn't.
3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK; and
4. While individuals may be able to notionally "leave", assets generally can't. Land can't be moved overseas. Natural resources that are mined or fished or logged can't be moved overseas. So it's really an empty threat.
I'm really sick of this "the businesses will leave" propaganda.
Why are taxes so high though? Like in Sweden I'd pay literally 80% tax on extra sole trader income - 30% employer tax, 30% income tax, 20% high income tax.
But there is no Swedish moon base, or ultra high speed rail, etc. - where does it all go? We have higher taxes but less infrastructure investment than a century ago.
Well, Sweden has the largest wealth inequality in Europe, so I guess it goes to the friends' pockets.
Because we don't tax the people with all the money. It's why someone making $100,000 a year loses probably half of it or more to federal, state and local income taxes, property taxes, sales taxes, etc and Warren Buffett pays 3%.
There is a persistent idea that we cannot or should not tax wealth because it's "unfair". We certainly can. We do it all the time. Property taxes, depending on your jurisdiction, are either taxed based on assessed value or whatever the assessment method is correlates strongly to property value.
I can't speak to the specifics of Sweden and its tax base but in general a key problem in the developed world is the skyrocketing cost of housing. Why is this a problem? Because it's an input into the cost of everything. It makes your labor more expensive, which in turns makes what they do more expensive. I have heard getting an apartment in Sweden is rather difficult. Stories of having to register at birth and waiting 20+ years. I could be wrong.
But everywhere in the developed world has high housing costs (in terms of real income) because we constrain supply, subsidize demand (particularly to the very rich) and allow people to hoard housing.
If "businesses will leave" was propaganda, you wouldn't need an exit tax, would you?
If there is an exit tax because companies would leave otherwise, why would someone rational start a new company in the country rather than leave first?
Governments have extraordinary powers to bring individuals and corporations to heel if necessary. Governments can:
- Charge exit taxes on people who "leave". As someone else pointed out, the US already does this with citizens who renounce citizenship (and it applies to long term permanent residents too);
- A lot of assets simply can't leave. Physical assets, land, etc;
- Assets and corporations can be nationalized;
- You can use tariffs and other legislative methods to punish those companies that "leave";
- You can also just deny access to a market for pretty much any reason you want. For example, Huawei is heavily restricted in use in American telecoms infrastructure for "national security" reasons; and
- You can generally impose cvarious levels of capital controls to limit the inflows and outflows of capital in pretty much any way you want. China does this heavily.
China is often criticized because the companies are an extension of the state. That's true. They are. But what we have instead is governments that are extensions of corporations. Can we really say that's working out better?
The US economy is rapidly becoming Russia. Russia has autocratic rule with oligarchs who pay fealty to Putin. In return they can do whatever they want. Do you really think we're different at this point?
Compare that to China. China isn't afraid to "disappear" their billionaires for awhile to bring them into line aka Jack Ma [1]. Exactly where he went and why and what happened is still unclear. China continues to crack down on tax evasion by so called "yin and yang" contracts (eg [2]). And China executed two for a scandal involing tainted baby formula [3].
What do we get? A world where governments can't punish companies for offshoring because that violates "free trade". Companies can take governments to a WTO court. And have.
[1]: https://www.bbc.com/news/technology-56448688
[2]: https://www.globaltimes.cn/page/202403/1309137.shtml
[3]: https://www.theguardian.com/world/2009/nov/24/china-executes...
It is not 2005 anymore . Stop spreading bs . There are many mechanisms against profit shifting and transfer pricing . BEPS 1.0 and 2.0 and many more.
Clear explanation, thanks. Seems that many companies have moved from California to Texas or Tennessee. Am I wrong?
You're not wrong. The reasons why come down to really one or more of these factors:
1. To lower labor costs. For example, the Big 3 auto makers are unionized. Tesla's manufacturing isn't. Guess who earns more? [1];
2. Deregulation. Some things (eg polluting) are way easier to get away with in Texas than, say, California;
3. To shift the tax burden from the owners to the workers. Texas famously has no state income tax. It does have sky high property taxes though. Property taxes are a super regressive tax;
4. For the politics of the owners; and
5. Other miscellaneous reasons. For example, Texas is about the absolute worst place to get divorced for a spouse who is a parent and isn't the primary income earner. Why? Texas courts won't let you move out of state with the children [2] and child support will be severely capped [3], even if, say, the other parent is a billionaire.
[1]: https://www.businessinsider.com/tesla-pay-vs-ford-gm-uaw-uni...
[2]: https://www.thetxattorneys.com/child-custody/relocation
[3]: https://ondafamilylaw.com/what-is-the-maximum-child-support-...
> I'm really sick of this "the businesses will leave" propaganda.
I don't think anything you've said convinces me it's propaganda.
Businesses are profit-seeking ventures. They will optimize their operations to maximize profits.
So I'm not sure why you'd call it "propaganda" to say that companies will leave. I think the evidence is that they will.
Of course, taxes are not the only variable in a profit-maximizing formula. US companies aren't going to flee in mass if Somalia decides to have zero corporate taxes. But you can't ignore that companies will optimize their operations and structure if they can lower taxes.
The US have something similar just for citizens and greencard holders
https://www.greenbacktaxservices.com/knowledge-center/exit-t...
So should greencard holders flee the US before they become too rich
>3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK;
Wasn’t this only a thing while the UK was in the EU, because the EU expressly allowed it?
Or, you know, just pay your normal taxes like every citizen?
The social contract works because we say that everybody should pay his or her taxes in accordance with their means, so if everybody who gets money suddenly flees, it doesn't work.
That's why you should just appreciate what you have: good infrastructure, good education, democracy, AND PAY YOUR TAX
Otherwise you become a shithole country like the USA
>Otherwise you become a shithole country like the USA
Better than a country that hasn't seen any growth in living standards (GDP per capita) in over a decade, like most of Western Europe.
> any growth in living standards (GDP per capita)
Higher GDP per capita does not automatically equal higher living standards.
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While rather sarcastic, your comment does hit an interesting point: How much does the infrastructure and society of any given state contribute to the "building" of a company?
I'd argue that, for software companies, not very much; at least if you contrast it with a hardware company. If you're, say, forging steel, you're using roads, trains, a lot of electricity, you've got an industrial plant, worker unions, public accident insurance, etc., etc. - a significant chunk of state-associated infrastructure is a part of your business, and was a part of your business when you built it.
But for software companies? I mean, you need a stable internet connection, good mobile phone coverage (tricky in Germany sometimes), rule of law, efficient bureaucracy (e.g. when hiring people), good banks which don't lose your money, electricity, etc. - none of these "infrastructure factors" feel as big as the ones for a hardware business.
On the contrary, for a software business, one could argue that Germany is actively hostile to you: Founding a company takes weeks / months and is expensive (notary), most processes are still paper-based, hiring people (especially internationally) is a huge pain, mobile internet is spotty, residential internet has outages. Charging customer credit cards via Stripe exposes you to a rabbit hole of VAT bureaucracy - all companies I've met so far rolled their own, broken software stack to somehow match up their Stripe + VAT charges with their internal bookkeeping software (e.g. Datev). A huge mess. It doesn't end there.
But I may be wrong.
You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
Someone growing up in a society is strongly an outcome of that society.
> You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
This is a great point.
The flip side is that if a government fails to deliver those, they have failed their side of the social contract. Then ideally, the citizens they've failed should be able to opt out..
What about a software company founded in Germany by someone who grew up in another country, and accordingly got their education elsewhere?
What if that company is a remote company which hires people all over the world, and none of those people benefited from the {education|peace|law enforcement|trust} in Germany?
I do agree with you, in principle, that a company is somewhat coupled to the country it was founded in. The exact nature of that coupling, however, is not that simple, I would say.
Reality is complicated, I suppose :)
Lets drop you into the mid Cretaceous period and see how far your education takes you.
Without the contributions of millions of others on a daily basis you’d have nothing.
In business, you pay for those contributions.
Milton Friedman describes how a pencil is made with the self-coordinated efforts of millions of people around the globe: https://www.youtube.com/watch?v=67tHtpac5ws
For those unaware, the original essay "I, Pencil" was written by Leonard Read:
https://fee.org/ebooks/i-pencil/
Dinosaurs don’t take credit cards
> I'd argue that, for software companies, not very much
If you build any successful business, including a software business, in a lawless and corrupt country you will have local mafias try to extort you for money the moment they hear about it. In especially corrupt countries, corrupt cops/prosecutors etc will be in on it so there will be nothing to protect you. Blackouts will be common due to a poor power grid. Likewise, internet access will be unreliable, slow and expensive due to poor infrastructure.
A country like Germany is absolute godsend compared to, say, Nigeria or Cambodia.
> If you build any successful business … you will have local mafias try to extort you for money the moment they hear about it.
Precisely how is this different from mixed economies, like the US or Germany?
1. Attract software companies
While minimal infrastructure investments would need to be made to entice software companies, their is a political price to pay by allowing young business people into your country who likely will out-earn the average resident (many historical examples of this). This makes the majority of people unhappy, but brings in educated-non-criminal customers and tax dollars. Lets say Germany does (1) great, they attract 1000 smart europeans to found companies, and 10 years later 1 of those companies becomes a megacorp.
2. Keep software companies happy
10 years has passed, new politicians are in charge. Pursuing #1 is a separate strategy to #2. I would hope i live in a country that wants to (1) attract young talent and (2) keep talent happy, but of course thats not necessarily true. The new politicians in charge need to appease the majority of people again as its election season!
I think Germany / USA can't really have an honest conversation about this as Germany + USA already have highly progressive tax systems. A significant % of USA and Germany residents don't pay any reasonable amount of tax, and are drains on the tax system. I assume these %s are likely projected to grow in the future rather than decline.
If the price of bread happens to rise? Then our politicians and voters will support squeezing more tax out of productive sects of society for the short term gains. Then those productive and mobile members of society will slowly move elsewhere.
"If you comply here, you will be compliant in almost all EU countries or even around the world" situation, many qualified students, international talent pool due to attractive cities, quality of life, startup grants/funding, hotspot for B2B fairs...
It looks like education is cheap.
Presumably you paid for that infrastructure in the form of taxes while you did business in the country. Why, then, should the state have additional claims on the money you made? Were the taxes they collected already not enough?
That's not what the exit tax is, though. The German exit tax is effectively just a way to give the existing capital gains tax a way to tax unrealized gains when you leave the country, to prevent you from dodging taxes on capital gains by simply leaving the country.
In other words, it's not an additional claim. It's simply an enforcement mechanism for the money you already hypothetically owe.
Yes, that's true, but the implementation is.. not very elegant.
In theory, the exit tax should ensure that Germany gets the taxes of the sale of your company. So, if you ever sold your company once you're no longer in Germany, Germany wouldn't get those taxes, so it charges you immediately once you leave Germany in a sort-of "virtual" sale.
This, of course, sucks tremendously because you actually haven't sold your company, and "normal" people don't have this sort of cash on hand.
Other countries have "smarter" exit tax implementations and only charge you when you actually sell your company in the future. I think that's pretty fair. It also doesn't hinder people from leaving the country.
As an immigrant to Germany, I've often made the observation that Germany frequently has a really severe implementation problem. So I'm generally very sympathetic to that idea.
That being said, I'm not entirely sure that's the case here, and this is often also brought up in the context of strengthening the inheritance tax in Germany. In both the inheritance tax and the exit tax, the inherent applicability conditions are such that the end result is that there simply aren't that many people in a situation where it actually has a measurable impact. For the exit tax, you'd need to find people who 1. want to leave Germany, 2. already started a company here, 3. that company grew large enough that the Wegzugssteuer would really be a burden, and 4. that don't have enough liquidity, or cannot raise enough liquidity by selling some of their ownership, to cover the tax. That ends up being a really small number of people, which always eases questions about the reasonability (Angemessenheit) of the law. And in the context of inheritance tax, there's the added point that there's a floor to its application.
As another commenter mentioned, even for those situations where the exit tax actually is burdensome, just as with inheritance tax, there are two really simple solutions: first, create a floor for the minimum valuation by which the exit tax is actually assessed, and second, allow you to "sell" shares to the German government as a means of paying the tax, turning the Finanzamt into a silent shareholder in the company. I think both of these would be substantial improvements to both the German exit tax and inheritance tax.
Another reasonable implementation would be for the government to accept payment in the form of shares of your company. Personally I think this is how all taxation of illiquid assets should be done, but I suppose it could get complicated.
Don’t you have to pay capital gains on sale to USA government even if you leave? I thought it was based on where the shares were assigned.
In Germany only 40+% of your income goes to taxes and social security. Plus another meager ~20% on most things you buy. Plus a small tax on many things that are supposedly bad for you, like ~70% on cigarettes. Death is taxed at a discount, only 15-40% depending on how rich you were.
"Free" healthcare though. It's a bargain!
"Free" healthcare always turns out to be the most expensive healthcare.
This take is wildly out of sync with the reality that the U.S., as one of the few developed nations without free healthcare, pays more for their healthcare than all of them while having worse than average outcomes.
The worst healthcare is in reality American healthcare. We pay through the nose for the privilege of getting terrible results.
Switzerland has almost the same system as the US, and it works - when my wife needed an MRI, she got referred at around 11am by a specialist, for a call around 1pm to see if she's available that afternoon. She wasn't so they agreed on the next day.
Is it expensive? Yes. Does it work? Absolutely.
I received a CAT scan a couple years ago, about 4 hours after I wandered into urgent care. Before they stuffed me through the toroid, I asked the operator to set the dials to 1988 so I could advise my former self to buy MSFT with everything I had.
The bill was quite a whopper, though Obamacare paid most of it. Of course, my Obamacare premiums are about 4x what they were before Obamacare.
I call BS on this statement. And German healthcare isn’t even free.
Of course. And historically, US health care costs rose at about the rate of inflation until the late 1960s, where the curve tilted strongly upwards at a much higher rate, and continues today.
What happened in the late 1960s? The advent of "free" healthcare!
Which free health care caused US healthcare to get so expensive?
The idea that a company is "siphoning out" value is fundamentally flawed. The company is creating value, and society enables it. This enablement is ongoing, and should be paid for with ongoing tax. If the actual value creator decides that they can get a better deal somewhere else, then barriers to exit come in because the government is trying to get more out of a company than it provided. (Since if there are superior places to operate, the worth of what the state you are leaving provides must be overvalued, otherwise you wouldn't leave).
I think most people would be okay with an exit tax if it's reasonable. Requiring the owner of a business generating €20k in profit to then pay €70k in taxes is not reasonable.
Canada also has an unreasonable exit tax. Canadian founders are taxed on 50% of the FMV of their shares on departure. So if you own half of a company that is worth $50m, your taxable income for the year of departure is increased by $12.5m.
Agreed. As mentioned in another comment, I think it'd be fair to levy the exit tax when you actually sell your company in the future. Like, if I ever sell my business, I'd be happy to pay my fair share of German taxes on said business, even if I'd no longer be a tax resident of Germany.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
Interesting pointer on Canada - thanks!
You'd have a point if Germany did anything to actually support businesses scaling instead of trying to kneecap them at every turn
Perhaps you would apply the same logic to a family car, or the clothing you bought? Should they tax the value of your medical degree when you leave the country?
Yes.
Remember that in Germany you don't pay for University degrees. High education isn't just for a wealthy minority.
That doesn't make the degree worthless, surely
I would assume that logic is applied.
Exit taxes are generally applied as if the taxpayer sold all capital assets on the day of leaving.
At least in the US taxation regime (I'm unfamiliar with others), family cars don't qualify for a capital loss, and rarely appreciate. Clothing would be similar.
But it doesn't seem unreasonable that a country should want to be paid tax on unrealized gains as you're leaving. It would probably be more fair to wait until the gains were realized and then apportion the gains among the countries of residence, but if you're leaving, it's going to be hard to compel your participation later, so it makes more sense to do it as you're leaving.
In many cases people want to move precisely because Germany doesn't provide as good infrastructure for startups as other countries.
Also, the "you can't leave because you owe society" argument, while not necessarily wrong, is strongly associated with the abuses of Communism.
You talk as if society and the infrastructure society paid for somehow belonged to the state.
Yes globalism is bad :) outside of certain forms of trade. Next up, remittances.
yep, there’s a reason these people start their businesses in stable economied countries, yet certain groups of them do everything to pretend they owe nothing back.
i’d love to see a comprehensive study on how much corporate tax avoidance costs a country vs food stamps so we can get an accurate view on who leeches/gains more. my suspicion is corporate wage theft/tax avoidance/evasion/subsidies are significantly higher, particularly if we add in executives and major stock holders.
In the article it shows that very rich owners can evade the tax (probably they've already planned and left!), while middle class people the tax wipes out their business and probably send them bankrupt. It's more like handcuffs than socialism.
I am sure they could achieve the same goals of fair tax but learn some game theory before doing so.
> State that let you build
Excuse me, why I need state permission for building business?
Man soll den Flüchtlingen aus Deutschland keine Träne nachweinen, eh?
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Germany waives its taxes to encourage small businesses, and when they grow, they go elsewhere.
It seems that capitalists should never be encouraged. They lack any sense of morality.
As someone running a business in germany, they do everything but encourage small businesses. It is extremely painful to run a business in this country, it has archaic systems and the only reason I’m successful is because of surrounding european countries like Netherlands who handle 90% of my products with efficiency.
I do not rely on most suppliers here as they are far behind in their systems (relying on phone calls, hidden prices and slow response times).
The other half of my business is successful is because of America, I use suppliers there to ship directly to my customers for environmental reasons.
Trust me when I say, I run a business despite being here and there’s nothing that they do to “encourage us”. I’m just stubborn.
What? Germany doesn't waive any taxes for small businesses
yes, they do https://finanzamt-bw.fv-bwl.de/,Lde/Startseite/Service/Was+i...
Berlin wall of tax? Seriously? Nobody gets shot trying to cross the border here and it's clear that the ones who can afford a decent financial advisory will get around most of the regulations anyways. I don't see how this business economist whining belongs on hn.
Or... just don't leave the country? You only pay an exit tax if you, y'know, exit.
https://en.wikipedia.org/wiki/Serfdom
https://en.wikipedia.org/wiki/Rule_of_law
EU countries really like turning the screw on small business owners. They come up with all those requirements, taxes and limitations and then when they notice the world is getting ahead their idea to fix it is to raise taxes even more and create "business incubators" where government officials redistribute part of it to their buddies.
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I don't know why you need to mix that in here. It's irrelevant.
Looking at their older posts, many of which are greyed out, best strat is "FAMO" - flag and move on.
Oli (Oliver? Not sure which you prefer, which I realize now I should have asked a long time ago in our first call) -
Just wanted to reiterate that I really appreciate what you have done with both OpenRegulatory and Formwork, as it was a big unlock for one of the companies I helped a few years ago as we navigated our way into the QMS / FDA / med. reg. world.
While reading this as a many-times-over-founder myself, I deeply felt multiple emotions which this would bring upon me if I were in your shoes after all the work I know you’ve put in.
I hope you are able to navigate this to a happy / successful outcome for yourself and any others involved for the relevant compan(y/ies)!
I am grateful for what you have contributed over the years on the software and documentation fronts with OpenRegulatory and Formwork both.
… or you just pay the frickin tax for once instead of leeching on society without giving back