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Partly as a result of stock options in European companies, I'm the wealthiest person I know my age. So I feel I'm easily justified in saying this article reads

Partly as a result of stock options in European companies, I'm the wealthiest person I know my age. So I feel I'm easily justified in saying this article reads like a ridiculous whinge and/or propaganda piece. The tax I've payed on stock income is totally inline with what I'd expect for income in general. This article is trying to suggest that equity incentives are somehow especially and unfairly (!) singled out by European tax schemes but I don't see any meaningful argument to support that. If you want to make the arguments made by this article, IMO you have to first make the general argument that taxing wealthy people heavily is a bad thing. In short: this article is a "too much tax" whinge masquerading as a piece of economic/business insight.

Kiro 7y ago
The problem in Sweden at least is that you need to pay this tax before you can even sell your stocks. So basically you have no money to pay the taxes with.
- LunaSea 7y ago
  Same in Belgium.
  - sokoloff 7y ago
    With alternative minimum tax, even an exercise-and-hold of ISOs can have the same issue (on a smaller scale due to the lower rates) in the US.
- hn_throwaway_99 7y ago
  But, to be honest, that's really not that much different than in the US. While you hear a lot about incentive stock options (ISOs) in the US not being taxed until you sell them, in reality most people who exercise ISOs will have to pay alternative minimum tax (AMT, a kind of parallel tax scheme to 'normal' taxes) when they exercise. When I exercised my options I had to pay more in tax than I did for the exercise price of the options themselves.
- jakelazaroff 7y ago
  Isn’t this often true in the US as well? You pay to exercise your stock options, and then pay taxes on them (since they’re income). But if your company is still private, they’re basically illiquid.
- jsjolen 7y ago
  Really? Could you link me to Skatteverket where it says this? The only info I find is that you tax when you sell your stock. I read most of this: https://www.skatteverket.se/privat/skatter/vardepapper/omaktier.4.50a6b4831275a0376d380001915.html https://www.skatteverket.se/privat/skatter/vardepapper/omakt...
  - Kiro 7y ago
    I'm talking about employee stock options. Google "personaloptioner". When you exercise the options and get stocks you need to pay taxes on the difference between the strike price and the market value, even if you have no possibility to sell the stocks (if the company is private for example).
    - danans 7y ago
      > When you exercise the options and get stocks ... even if you have no possibility to sell the stocks Why exercise the options if you have no ability to sell them? The risk of unexercised options is totally on the employer who granted the options. For the employee, holding the option itself is likely a lower risk strategy than exercising and holding the illiquid stock.
      - Kiro 7y ago
        You have an expiration date. I had to exercise or I would lose them.
- tyfon 7y ago
  That's not really true for Norway. When I received my stock options for the company I paid no taxes at all. When I exercised them I got a tax hit, but that had to be paid like six months later so there was no issue selling enough stock to pay the tax. Another funny thing about wealth creation. Norway and Sweden has more dollar billionaires pr capita than the US [1]. [1] https://en.wikipedia.org/wiki/List_of_countries_by_the_number_of_billionaires https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe... (sort the list by Population pr one billionaire).
  - bruun 7y ago
    This works if you are in a position to sell the stock to pay the tax. If the company is not publicly traded you need to find a buyer, and because you really need that money before the tax returns you might have to sell at a lower price than the one you were taxed on, if you can find one at all. This makes it harder for startup employees to exercise their stock options before an exit or the company going public, unless they already have cash at hand. Source: Have exercised stock options in a Norwegian startup. I was lucky enough to have enough cash at hand to pay the tax.
    - dalyons 7y ago
      Same as the US. You pay tax on the valuation difference when you exercise. and AFAIK you have to exercise before you sell on any primary or secondary market.
    - tyfon 7y ago
      I didn't exercise until we did the IPO, but yeah it might be a problem. I wouldn't exercise unless I knew I could sell it of course, then I'd be in a pickle or would have had to borrow until I could sell!
  - cameldrv 7y ago
    The topic though is not really about billionaires, which generally are the founders of the company. It's about the much larger number of multimillionaires that got their money from stock options on IPOed companies. There are far fewer of those in Europe.
Excel_Wizard 7y ago
To me the article reads as a complaint that the legal and tax structures of employee stock and options compensation in Europe make such compensation rare. It doesn't present numerical data on how rare it is though, I'd like to see data on this.
- AdrianB1 7y ago
  You can use existing information, especially that you are on this site you should know where to look. Even ignoring this, how many successful European startups did you hear about? How many from US? Just rough numbers, are they anywhere equal or for each European one you have dozen or more in US?
PunchTornado 7y ago
and given that there are so many countries outside europe who don't tax you as much it is just easier to move there. I have a bunch of German friends who just went to Singapore to start their business there. In the US you also get less taxed. So it is a way of saying, hey I'm healthy, priviledged, why should I fund this massive safety net. I'll come back to Europe when I'm 60 and vulnerable.
- cbg0 7y ago
  > I'll come back to Europe when I'm 60 and vulnerable. Come back to what exactly? If you haven't contributed to the social safety net, you're not going to get much out of it, and by the time you're 60 chances are a lot of things could change, for better or worse.
  - sokoloff 7y ago
    Government paid healthcare is still a big expense that's covered.
    - Frondo 7y ago
      His point is that if people grow up in a country with a strong safety net (and enjoy the benefits of that upbringing), then move away to start businesses or earn money away from that country to avoid paying into the cost of that safety net, there might not be so strong a safety net when they plan to return. Which makes perfect sense; if it happens at scale, how would that safety net survive? Right now, the few who do this are free riders on a system everyone staying behind is supporting. It's not a problem if a thousand people leave Germany to go make money outside the German tax regime and then return in their old age, their system can absorb it. What would happen if a fifth of the population did that? It might be harder to sustain that level of social services with that loss of tax revenue, i.e. payment for those social services.
      - tannhaeuser 7y ago
        What do you mean by safety net? If you haven't paid into pension funds (as required for employees but not eg freelancers), then you aren't receiving anything out of it. The situation for pensioners is actually very different: many can't live on regular pension so they're going to southern EU countries, or eg Thailand for much lower cost of living compared to central EU. Also, Germany's SPD party wants to buy pensioner votes by giving long-time employees additional tax money ("Grundrente"), but not eg freelancers who actually paid these taxes - a corrupt and unconstitutional plan. Their pension story is completely bankrupt anyway; in Berlin they're putting limits on housing rents and all other kinds of unhelpful restrictions on landlords, when renting property is one of the few ways to make a living when retired due to the ECB's zero interest rate policies.
seibelj 7y ago
Europe has none of the largest tech companies. The large ones that do exist were founded a long time ago, like SAP. Their startup pipeline is weak and IMO it’s all because of government policies, as there are huge numbers of highly talented people in Europe. https://en.m.wikipedia.org/wiki/List_of_largest_technology_companies_by_revenue https://en.m.wikipedia.org/wiki/List_of_largest_technology_c...
- Barrin92 7y ago
  it's because Europe is a continent of 20+ different large languages and cultures. In Sweden everybody speaks Swedish and nobody uses cash. In Germany, nobody speaks Swedish and everyone uses cash. There is no homogenous market like in the US or China where you can blow up some product to 300+ million people. That's the reason why there are fewer startups in Europe. Europe has plenty of large technology companies if one stops equating technology with "user facing smartphone application". They just happen to be export oriented, or pharmaceutical or manufacturing and transport companies. Trying to copy the US or China in producing rapidly growing startup companies is in my opinion foolish and we shouldn't buy into the constant hype of just trying to emulate America, but rather aim to increase where European companies advantages lie, in integrating high technology into existing economic sectors that integrate with industrial production. Not only is this much better suited to the economic and social European environment that simply isn't accepting of the "break the rules, worry about the problems later" mentality of internet statups, it's also arguably much more equitable and reaches a larger section of the labour market.
  - swebs 7y ago
    >it's because Europe is a continent of 20+ different large languages and cultures. In Sweden everybody speaks Swedish and nobody uses cash. In Germany, nobody speaks Swedish and everyone uses cash. How much does that matter though? You could just release your app/site/whatever in English and instantly have access to the US market.
    - ben_w 7y ago
      The same things that make it hard to make one app for all of the EU also make it hard to make an app for the USA from outside the USA. Even if you hire a UK or Éire citizen for their English skills, you have all the cultural reasons that means Tesco isn’t a supermarket brand in the USA and Walmart isn’t a supermarket brand in the UK even though both are English speaking nations. The language issues are also substantial, even though the cultural output of Hollywood has made it easier for many EU citizens to learn English than each other’s languages.
yourbandsucks 7y ago
Giveaway: Using the phrase "create wealth" instead of "get rich".
rad_gruchalski 7y ago
The effective tax on stock options depends on the EU country: https://ec.europa.eu/docsroom/documents/2071/attachments/1/translations/en/renditions/native https://ec.europa.eu/docsroom/documents/2071/attachments/1/t...
- kmlx 7y ago
  tldr uk, luxembourg and belgium seem to offer the most competitive rates.
  - hef19898 7y ago
    Germany is appr. 50%. Usually you have the option to cover that tax by selling half of your RSUs, Options whatever and keep the rest or by keeping 100% and pay the tax in cash. Kind of fair, especially since you can get part of that tax back with your income tax declaration.
    - sqldba 7y ago
      In Australia you pay the marginal tax rate which is nearly 50%, both on acquiring the shares, and (usually) any gains between then and when you sell them. The article is real poorly written, I can't work out what it's saying the US or EU equivalents are.
defertoreptar 7y ago
> This article is trying to suggest that equity incentives are somehow especially and unfairly (!) singled out by European tax schemes but I don't see any meaningful argument to support that. From the article, > A few years ago the Dutch capped bonuses for bankers, money managers, and other financial professionals at 20% of their base salaries. Entrepreneurs must navigate onerous tax rates and restrictions that often make equity sharing and options more trouble than they’re worth. When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. [End] > If you want to make the arguments made by this article, IMO you have to first make the general argument that taxing wealthy people heavily is a bad thing. Silicon Valley startups have gotten a reputation for being a way to get stinking filthy rich. What happened as a result? Tons of people, many of which visit this website, are out there everyday foregoing traditional careers, trying to make something new and something people want to buy. The argument is that it takes a big carrot to get people to take big risks and work really hard to make something from nothing.
- techslave 7y ago
  > When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. almost exactly like in the US. hence the GP’s complaint.
  - fragmede 7y ago
    Depends on if they're ISOs or NSOs. Not having to pay income tax on the difference at exercise time makes all the difference.
  - defertoreptar 7y ago
    I didn't want to make my post needlessly long, but the article continues, > In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.
walshemj 7y ago
And ignores the horrible treatment of employee stock options and the sketchy as F^&K dual share classes that the USA allows. In the UK a good 5 year share save can get you as much as the average SV startup that is successful and the employees get something. Also for startups EMI schemes are legal - I know as my employer had to get it double checked for our eu colleagues

Kiro 7y ago

The problem in Sweden at least is that you need to pay this tax before you can even sell your stocks. So basically you have no money to pay the taxes with.

LunaSea 7y ago
Same in Belgium.
- sokoloff 7y ago
  With alternative minimum tax, even an exercise-and-hold of ISOs can have the same issue (on a smaller scale due to the lower rates) in the US.
hn_throwaway_99 7y ago
But, to be honest, that's really not that much different than in the US. While you hear a lot about incentive stock options (ISOs) in the US not being taxed until you sell them, in reality most people who exercise ISOs will have to pay alternative minimum tax (AMT, a kind of parallel tax scheme to 'normal' taxes) when they exercise. When I exercised my options I had to pay more in tax than I did for the exercise price of the options themselves.
jakelazaroff 7y ago
Isn’t this often true in the US as well? You pay to exercise your stock options, and then pay taxes on them (since they’re income). But if your company is still private, they’re basically illiquid.
jsjolen 7y ago
Really? Could you link me to Skatteverket where it says this? The only info I find is that you tax when you sell your stock. I read most of this: https://www.skatteverket.se/privat/skatter/vardepapper/omaktier.4.50a6b4831275a0376d380001915.html https://www.skatteverket.se/privat/skatter/vardepapper/omakt...
- Kiro 7y ago
  I'm talking about employee stock options. Google "personaloptioner". When you exercise the options and get stocks you need to pay taxes on the difference between the strike price and the market value, even if you have no possibility to sell the stocks (if the company is private for example).
  - danans 7y ago
    > When you exercise the options and get stocks ... even if you have no possibility to sell the stocks Why exercise the options if you have no ability to sell them? The risk of unexercised options is totally on the employer who granted the options. For the employee, holding the option itself is likely a lower risk strategy than exercising and holding the illiquid stock.
    - Kiro 7y ago
      You have an expiration date. I had to exercise or I would lose them.
tyfon 7y ago
That's not really true for Norway. When I received my stock options for the company I paid no taxes at all. When I exercised them I got a tax hit, but that had to be paid like six months later so there was no issue selling enough stock to pay the tax. Another funny thing about wealth creation. Norway and Sweden has more dollar billionaires pr capita than the US [1]. [1] https://en.wikipedia.org/wiki/List_of_countries_by_the_number_of_billionaires https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe... (sort the list by Population pr one billionaire).
- bruun 7y ago
  This works if you are in a position to sell the stock to pay the tax. If the company is not publicly traded you need to find a buyer, and because you really need that money before the tax returns you might have to sell at a lower price than the one you were taxed on, if you can find one at all. This makes it harder for startup employees to exercise their stock options before an exit or the company going public, unless they already have cash at hand. Source: Have exercised stock options in a Norwegian startup. I was lucky enough to have enough cash at hand to pay the tax.
  - dalyons 7y ago
    Same as the US. You pay tax on the valuation difference when you exercise. and AFAIK you have to exercise before you sell on any primary or secondary market.
  - tyfon 7y ago
    I didn't exercise until we did the IPO, but yeah it might be a problem. I wouldn't exercise unless I knew I could sell it of course, then I'd be in a pickle or would have had to borrow until I could sell!
- cameldrv 7y ago
  The topic though is not really about billionaires, which generally are the founders of the company. It's about the much larger number of multimillionaires that got their money from stock options on IPOed companies. There are far fewer of those in Europe.

Excel_Wizard 7y ago

To me the article reads as a complaint that the legal and tax structures of employee stock and options compensation in Europe make such compensation rare. It doesn't present numerical data on how rare it is though, I'd like to see data on this.

AdrianB1 7y ago
You can use existing information, especially that you are on this site you should know where to look. Even ignoring this, how many successful European startups did you hear about? How many from US? Just rough numbers, are they anywhere equal or for each European one you have dozen or more in US?

PunchTornado 7y ago

and given that there are so many countries outside europe who don't tax you as much it is just easier to move there. I have a bunch of German friends who just went to Singapore to start their business there. In the US you also get less taxed. So it is a way of saying, hey I'm healthy, priviledged, why should I fund this massive safety net. I'll come back to Europe when I'm 60 and vulnerable.

cbg0 7y ago
> I'll come back to Europe when I'm 60 and vulnerable. Come back to what exactly? If you haven't contributed to the social safety net, you're not going to get much out of it, and by the time you're 60 chances are a lot of things could change, for better or worse.
- sokoloff 7y ago
  Government paid healthcare is still a big expense that's covered.
  - Frondo 7y ago
    His point is that if people grow up in a country with a strong safety net (and enjoy the benefits of that upbringing), then move away to start businesses or earn money away from that country to avoid paying into the cost of that safety net, there might not be so strong a safety net when they plan to return. Which makes perfect sense; if it happens at scale, how would that safety net survive? Right now, the few who do this are free riders on a system everyone staying behind is supporting. It's not a problem if a thousand people leave Germany to go make money outside the German tax regime and then return in their old age, their system can absorb it. What would happen if a fifth of the population did that? It might be harder to sustain that level of social services with that loss of tax revenue, i.e. payment for those social services.
    - tannhaeuser 7y ago
      What do you mean by safety net? If you haven't paid into pension funds (as required for employees but not eg freelancers), then you aren't receiving anything out of it. The situation for pensioners is actually very different: many can't live on regular pension so they're going to southern EU countries, or eg Thailand for much lower cost of living compared to central EU. Also, Germany's SPD party wants to buy pensioner votes by giving long-time employees additional tax money ("Grundrente"), but not eg freelancers who actually paid these taxes - a corrupt and unconstitutional plan. Their pension story is completely bankrupt anyway; in Berlin they're putting limits on housing rents and all other kinds of unhelpful restrictions on landlords, when renting property is one of the few ways to make a living when retired due to the ECB's zero interest rate policies.

seibelj 7y ago

Europe has none of the largest tech companies. The large ones that do exist were founded a long time ago, like SAP. Their startup pipeline is weak and IMO it’s all because of government policies, as there are huge numbers of highly talented people in Europe. https://en.m.wikipedia.org/wiki/List_of_largest_technology_companies_by_revenue https://en.m.wikipedia.org/wiki/List_of_largest_technology_c...

Barrin92 7y ago
it's because Europe is a continent of 20+ different large languages and cultures. In Sweden everybody speaks Swedish and nobody uses cash. In Germany, nobody speaks Swedish and everyone uses cash. There is no homogenous market like in the US or China where you can blow up some product to 300+ million people. That's the reason why there are fewer startups in Europe. Europe has plenty of large technology companies if one stops equating technology with "user facing smartphone application". They just happen to be export oriented, or pharmaceutical or manufacturing and transport companies. Trying to copy the US or China in producing rapidly growing startup companies is in my opinion foolish and we shouldn't buy into the constant hype of just trying to emulate America, but rather aim to increase where European companies advantages lie, in integrating high technology into existing economic sectors that integrate with industrial production. Not only is this much better suited to the economic and social European environment that simply isn't accepting of the "break the rules, worry about the problems later" mentality of internet statups, it's also arguably much more equitable and reaches a larger section of the labour market.
- swebs 7y ago
  >it's because Europe is a continent of 20+ different large languages and cultures. In Sweden everybody speaks Swedish and nobody uses cash. In Germany, nobody speaks Swedish and everyone uses cash. How much does that matter though? You could just release your app/site/whatever in English and instantly have access to the US market.
  - ben_w 7y ago
    The same things that make it hard to make one app for all of the EU also make it hard to make an app for the USA from outside the USA. Even if you hire a UK or Éire citizen for their English skills, you have all the cultural reasons that means Tesco isn’t a supermarket brand in the USA and Walmart isn’t a supermarket brand in the UK even though both are English speaking nations. The language issues are also substantial, even though the cultural output of Hollywood has made it easier for many EU citizens to learn English than each other’s languages.

yourbandsucks 7y ago

Giveaway: Using the phrase "create wealth" instead of "get rich".

rad_gruchalski 7y ago

The effective tax on stock options depends on the EU country: https://ec.europa.eu/docsroom/documents/2071/attachments/1/translations/en/renditions/native https://ec.europa.eu/docsroom/documents/2071/attachments/1/t...

kmlx 7y ago
tldr uk, luxembourg and belgium seem to offer the most competitive rates.
- hef19898 7y ago
  Germany is appr. 50%. Usually you have the option to cover that tax by selling half of your RSUs, Options whatever and keep the rest or by keeping 100% and pay the tax in cash. Kind of fair, especially since you can get part of that tax back with your income tax declaration.
  - sqldba 7y ago
    In Australia you pay the marginal tax rate which is nearly 50%, both on acquiring the shares, and (usually) any gains between then and when you sell them. The article is real poorly written, I can't work out what it's saying the US or EU equivalents are.

defertoreptar 7y ago

> This article is trying to suggest that equity incentives are somehow especially and unfairly (!) singled out by European tax schemes but I don't see any meaningful argument to support that. From the article, > A few years ago the Dutch capped bonuses for bankers, money managers, and other financial professionals at 20% of their base salaries. Entrepreneurs must navigate onerous tax rates and restrictions that often make equity sharing and options more trouble than they’re worth. When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. [End] > If you want to make the arguments made by this article, IMO you have to first make the general argument that taxing wealthy people heavily is a bad thing. Silicon Valley startups have gotten a reputation for being a way to get stinking filthy rich. What happened as a result? Tons of people, many of which visit this website, are out there everyday foregoing traditional careers, trying to make something new and something people want to buy. The argument is that it takes a big carrot to get people to take big risks and work really hard to make something from nothing.

techslave 7y ago
> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. almost exactly like in the US. hence the GP’s complaint.
- fragmede 7y ago
  Depends on if they're ISOs or NSOs. Not having to pay income tax on the difference at exercise time makes all the difference.
- defertoreptar 7y ago
  I didn't want to make my post needlessly long, but the article continues, > In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.

walshemj 7y ago

And ignores the horrible treatment of employee stock options and the sketchy as F^&K dual share classes that the USA allows. In the UK a good 5 year share save can get you as much as the average SV startup that is successful and the employees get something. Also for startups EMI schemes are legal - I know as my employer had to get it double checked for our eu colleagues