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How I would start my next startup in Germany without a GmbH (2020)
- I_am_tiberius 4y agoI find it a pity that YC requires companies to found a parent company in the US in order to invest in them. That's the only reason I have not applied.
- SkyAndSand 4y agoNot true anymore: > We invest in US, Cayman, Singapore, and Canada corporations. We have founders who apply to YC from all around the world and many have already incorporated in their home countries. https://www.ycombinator.com/deal https://www.ycombinator.com/deal I am currently trying to figure out what the best jurisdiction for an international team actually is: https://news.ycombinator.com/item?id=31620700 https://news.ycombinator.com/item?id=31620700
- I_am_tiberius 4y agoAre you sure? - they still have this in the FAQ section: "What if we incorporated as a non-US corporation? If your company is already incorporated somewhere other than the United States, Canada, Singapore or the Cayman Islands, in order to participate in YC you will need to create a parent company that is in one of those jurisdictions. The existing company will then become a subsidiary of the new United States, Canada, Singapore or Cayman parent company. While lawyers will drive this process, it will require a significant effort on your part." https://www.ycombinator.com/faq https://www.ycombinator.com/faq
- SkyAndSand 4y agoThat doesn't really contradict what I posted? If you have a company in US, Canada, Singapore or Cayman Islands you can use that. If not you need to set up a company in one of these jurisdictions.
- I_am_tiberius 4y agoOk, got it. My point was that you need to found a parent company in general. As I'm Austrian it doesn't matter if it's in the US, Canada, Singapore or Cayman Islands.
- SkyAndSand 4y agoTrue, as Europeans we are basically always disadvantaged and need to set up a new entity to be able to receive an investment from YC (or likely most US investors).
- hef19898 4y agoA lot of US investors have, afaik, EU branches. Plus, you can easily have foreign owners of RU entities. YC is special because they refuse to go throigj the pain of doing so. Fair enough I guess, considering the number of investments they do.
- freemint 4y agoVery, very helpful.
- cloogshicer 4y agoThanks for the post. Reading this made me quite angry - politicians here in Germany always talk out of their asses about improving the situation for startups, but when it comes to removing these ridiculous administrative hurdles, absolutely nothing happens. In Austria, where I live, it's even worse. It's not even possible to start a limited liability company without at least 35k starting capital in the bank.
- woodson 4y agoAgreed, they’ve been talking about introducing an “Austrian limited” with lower capital requirements for I don’t know how long…
- ChuckNorris89 4y agoÖVP has better things to do than make life easier for 'the little guy' when they're so busy catering to their chums in big business.
- keewee7 4y agoAs a Danish software engineer I'm puzzled by how much Germany has convinced the rest world that it is some kind of high-tech powerhouse. Outside the old West German legacy giants the country is stagnant.
- ckastner 4y agoThis issue wasn't about starting a startup in Germany as a GmbH, though. The issue was "flipping" that GmbH into a Delaware C-Corp, by request of YCombinator.
- synu 4y agoWasn’t the whole first part about how annoying it was to create a startup in Germany, and what he learned in the second part made him realise he shouldn’t have even bothered in the first place (regardless of whether or not YC would eventually be involved)? That was how I interpreted it anyway.
- ckastner 4y agoThe first part was annoyance at becoming a company in general. What annoyed the author, like figuring out how to structure ownership, would be annoying anywhere. And all the problems the author ran into sound very much like somebody just winging it, rather than investing a day or so getting informed on the available options and alternatives, and their implications. And if investing a day into informing yourself about (1) incorporating and (2) its implications is too much to ask, then I honestly don't know whether a startup would be the right thing for the author in the first place.
- synu 4y agoWhen I started my company, I founded in the US and it was way more like what he described in the second part than all the hoops he jumped through in the first part.
- tgsovlerkhgsel 4y agoI think this is one of the reasons why Germany doesn't have a startup ecosystem. People who are loosely playing with the idea of running their own tiny company (e.g. as a student side gig, not with the "I'm planning this like a businessperson and here's my plan how to turn it into a unicorn and how to exit" approach) take a look at the system and bureaucracy, and simply give up and forever write off the concept of running your own company as a worthwhile option. Even becoming an independent contractor is fraught with many of the same hurdles. This creates a strong push towards employment vs. doing your own thing.
- rrrrrrrrrrrrr 4y agoAs a student sidegig you can easily just found a small businesses for like 35 EUR and do business. There’s also GbRs that can theoretically be formed on a paper towel. Thought, it will probably not be easy to raise money this way.
- Aulig 4y agoGreat post, fully agree. Also, if you plan on leaving Germany you can save a lot on taxes if you do it before 100k profits/year and as a Personengesellschaft (without limited liability, so no UG/GmbH). Basically because the Wegzugsbesteuerung (moving away tax) only affects limited liability entities and Personengesellschaften are only affected by the Steuerentstrickung, which can be minimized by saying your profits are equivalent to a salary you'd be making elsewhere.
- hef19898 4y agoOr keep the GmbH / UG and create a sperarate entity in an other country that has full or partial ownership. Either way, paying some tax law expert, even if expensive is the best advice. And not having a limited liability entity is actually pretty stupid, for a full catalogue of reasons.
- Aulig 4y agoBecause of personal liability? Looking less legitimate to other businesses? Or what other reasons are you thinking of?
- hef19898 4y agoMainly liability, a UG is liable for whatever amount it was founded with, a GmbH for 25k. A person is liable for, well, an unlimited amount. Which can suck, e.g. you run eCommerce and sales crash. A GmbH is liable for 25k of ooen invoices (or whatever assets the company currently has), a person would owe the full amount. Plus, a GmbH is a professikbal business, the looks cannot be under estimated.
- ant6n 4y agoI keep hearing about the concept of a Lichtenstein Stiftung, some sort of trust that “owns” itself but that you can still control indirectly using a trustee. But it feels like one doesn’t actually “own” whatever is in the trust, and it’s unclear how distributions are taxed in North America.
- joes_hk 4y agoBruh, 2 Euro for a Döner?
- deleted 4y ago[deleted]
- alexcnwy 4y agoGreat post! We just did the flip and it was painful. I’d add that in Germany there are archaic requirements that all documents need to be signed in person on paper in front of a notary. Such a waste of time & money.
- leobg 4y agoThere is also the UK Ltd as an option. Can also be done from home. It’s a possible replacement for a UG or even GmbH. AFAIK SoundCloud initially used this model.
- thesimon 4y agoNot longer useful as with Brexit the Limited will not enjoy Limited protection in Germany.
- leobg 4y agoWhy then would a Delaware Corp?
- solar-ice 4y agoIt won't. Good luck employing people in Germany as a US company too - you really want at least a German subsidiary for that.
- leobg 4y agoSure. These are two different things. Liability protection and, let’s call it social acceptance. OP article suggests a UG as your personal holding company, which then owns the shares in the actual outward facing entity. That UG, I think, could be replaced by an Ltd. it’s easier and cheaper to set up, and insulates you against personal liability just as well as a UG or even a GmbH would.
- SkyAndSand 4y agoCan't you work around this by using https://www.letsdeel.com/ https://www.letsdeel.com/ or https://remote.com/ https://remote.com/?
- solar-ice 4y agoIn theory, you can't employ someone in Germany for longer than 18 months via an employer of record. If you want to employ someone for longer than that, you must have a German legal presence. This is one of the ways that Germany ensures that employee rights are actually enforceable.
- mkl95 4y ago> “In order to start a GmbH in Germany you will need to buy-in. While you can most likely lend the money, it’s a risk you need to keep in mind. If you’re a solo-entrepreneur, that’s a whooping 25.000€ for you.” That sounds pretty uncompetitive when compared to other EU countries such as Spain and the Netherlands, where it's 3000€ and 0.01€ respectively. In Ireland it's also 25.000€, but corporate taxes are much, much lower.
- hkgjjgjfjfjfjf 4y ago
- dividuum 4y agoAlso you „only“ need 12500€ to start. Though you’re still liable for the full 25000€ if things go sideways.
- hef19898 4y agoOr you choose an UG, eith a stagerring capital requirement of 1, one, Euro. Having had both, a GmbH is easier when it comes to the everyday B2B stuff, people simply trust an GmbH more.
- smarx007 4y agoAnd I would assume this trust comes, partly, from a 25k EUR "real business" bar.
- dathinab 4y agoYes, thats also why a UG is at least 1€ and a GmbH at least 25k€ but can be more. Especially given that the money (through not for a UG) can also be non "cash", but e.g. a office you brought or machinery.
- hef19898 4y agoExactly. And to be honest, if you don't have 25k it is going to be hard to start a business anywa. Plus, you don't need that amount in a bank account as a minimum.
- secondcoming 4y agoHere's[0] how you set up a Ltd company in the UK. The hardest part is thinking up the name. [0] https://www.gov.uk/limited-company-formation/register-your-company https://www.gov.uk/limited-company-formation/register-your-c...
- SkyAndSand 4y agoAnd that it actually won’t be recognized as legal entity after Brexit if it is based in Germany: https://www.ihk-krefeld.de/de/international/aktuelles/brexit/brexit-handlungsbedarf-fuer-britische-limited-mit-verwaltungssitz-in-deutschlan.html https://www.ihk-krefeld.de/de/international/aktuelles/brexit...
- wewxjfq 4y agoOh God, this thread will be the usual Germany bashing. There is nothing fundamentally wrong with how Germany handles corporations. The German corporate law is actually pretty good. If I could change two things, I would make IHK membership optional and allow free filings of the financial reports. These are changes that a willing government could implement in a heartbeat. And I think no country should handle corporations like the US does. The US is a tax haven and the corporate system doesn't benefit anyone but the owners.
- robert_foss 4y agoI've started a UG in Germany. It is one of the worst professional experiences I've ever had. It's extremely cumbersome, bureaucracy heavy, slow and expensive. In addition I've never encountered as many scummy companies (GmbH or otherwise) as in Germany. Corporate rules and culture are both complete trash. For reference I've started companies in Sweden, and I can do the full process online in an afternoon. Probably less than 30 minutes. If I ever had to have a business for operating in Germany again, I would create an Estonian business. There's no reason that you corporate entity has to be German itself.
- hef19898 4y agoHow did you do it? My UG was set up in two days, or three including the bank account, and cost, if memory serves well, 200 bucks ir so. Not the lowest anount because I do have a partner and we had some changes to the companies articles.
- robert_foss 4y agoDoing the notary/banking/incorporation/tax-agency dance took a while. But that's only one part of the process. The continuous level of bureaucracy is really high too, and during the years I ran my corporation it never seemed to diminish.
- hef19898 4y agoLike what? Notary and bank, sure, that's a requirement. Tax consultabt? Unless you want to do your own accounting you need one, easy enough to send invoices and bank statements once per month. Every company needs accountants to keep the books. I do it once per quarter now for the basically dead UG, it just exists as an empty shell for now. Regardless of jurisdiction, the bureaucracy will be there. Someone would want you to pay taxes after all.
- jFriedensreich 4y agoi get ptsd reading about this and would rather die than having a gmbh again even though i had a holding ug from the start. what also no one tells you is that to get rid of these companies if it does not work out takes one to 2 years and costs a few thousand euros and many nerves you likely don't have anymore at that point. if i start again i am moving to estonia and start a OÜ.
- hef19898 4y agoAs stated in another commebt, you can merge a GmbH with yourself. Sure, it costs money but is quite simple, fast and straight forward. I have no idea why start-up entrepreneurs fail at stuff your Döner shop or local garage succeed. Or tire change shop is part of a small local chain, every site is it's own GmbH. Just saying...
- cameronh90 4y agoShops have assets, small startups often don't. That makes the thousands of euros you need for reserves kinda pointless.
- hef19898 4y agoOk, my one person start up had assets: My laptop, office gear, etc... Now imagine you have an office to pay. Or you are multiple people. Or you need some fancy hardware. All of that can be assets owned by the corp. And the exoebses, software etc..., can be paid of those 12.5/25 k as well. This discussion proofs one point so, a GmbH shows that someone is serious about it.
- cameronh90 4y agoYeah but in the modern world you often don't have any of that except a laptop or two, and even they are often personal devices in a small start-up. I founded a start-up with a friend and we had zero assets - just Office 365, AWS, managed office and personal devices.
- dathinab 4y ago> Kebab costs 2€ This is a very very outdated price, and as far as I remember it was only possible due to some very doggy things going on. Even a few years back the price was around 3.5€ (in cheaper areas of Germany). Before COVID the price was more around 4-4.5€. Now it's 6€. (Prices based on cheaper areas of Germany).
- rmetzler 4y agoSimilar to what I wanted to comment. 30 years ago I knew some places selling for 2,00DM or 2,50DM. 2 years ago it was 4,50EUR, now it’s 6,00EUR.
- deleted 4y ago[deleted]
- loevborg 4y agoA few days ago I was shocked to pay 5.40€ for a (good) döner in Berlin. Inflation has massively hit the city.
- ketzu 4y agoNot that long ago REWE sold Döner for 2€-2.50€ in 2020 in (not so cheap) southern germany. All the actual Döner shops cost 5€+ though.
- Archelaos 4y agoI think that the concept of the GmbH in general is a good thing, although I share some of the complaints from the article, notably that getting it started still requires a lot of physical paperwork instead of digital processes. But requiring a starting capital of 25,000 Euros in exchange for limited liability is a fair deal. It is quite an effective barrier against a lot of scams (of course, it makes them not impossible). And no one hinders you to start a business without limited liability with zero Euros. Arguments that this is a major obstacle for startups therefore do not seem convincing to me. I worked as an IT freelancer for eight years before I founded my GmbH. Even without a GmbH I could include clauses of limited liability into my contracts. And if one could not in principle raise 25,000 Euros for a startup, it propably is not such a good business idea in the first place. Also note that you only have to pay half of the money into the GmbH at the beginning and only have to top up the amount when the first 12,500 Euros have been used up. In addition, you can use the capital to pay your own wages from the beginning, so in practice you can withdraw a considerable amount of money from the GmbH until it is profitable.
- _Microft 4y ago> The goal of an UG is to have limited liabilities from the start, however you need to convert it into a full GmbH, once you have generated €25.000. It still baffles me, that you need to buy your own shares in Germany, in order to receive the “status” and protection of being a fully incorporated company. I hope I am not too far off the truth, please correct me if I am: "mbH" in "GmbH" means "mit beschränkter Haftung" = limited liability. In case of insolvency, creditors will only be paid from what the company has and that's where this money comes in. To avoid potentially screwing creditors over right from the beginning, (co)founders have to pay in that amount into the company pockets so that there is some money that could be used to pay creditors in case of insolvency (or half of that =12.5k€ and be personally liable for up to another 12.5k€ in case of insolvency, right?). Also: Döner for 2€? Really? Good Döners in my city are 5-6€, I can't (and don't want to) imagine what a 2€-Döner must taste like.
- theobeers 4y agoThis blog post is two years old. In 2019–20, I think I could get a decent Döner for €3,50 in Berlin (depending heavily on the neighborhood, specific location, etc.). Prices have come up a fair bit since then. But yeah, €2 is eyebrow-raisingly low.
- harha 4y agoWait until you need to dissolve a UG, that’s a long painful and expensive process
- SkyAndSand 4y agoAgreed, took about 14 months and multiple visits in person to a notary for me.
- hef19898 4y agoI did it with a GmbH. You can always merge it with you as solo-entrepreneur. You need a balance sheet (don't ask me about the time limits, there was a Covid exception when I did it), a notary for paper work and of you go. Fast, easy and painless. Needs some additional paper work if there a more than one share holders. There are some loss carry forward limits and liability aspects to consider, the act itslef is quite easy so.
- harha 4y agoNot so fast if you’ve already moved on and not in Germany anymore. I’ve tried it, even set up an online fax number in 2021 to communicate with them, but there’s no real resolution. Also German post won’t properly forward mail anyway and to me it’s a foreign country to which I don’t intend to return, so I’ll probably just let it go and treat it as resolved.
- mishaker 4y agogreat post! having been through it I can confirm that it is a really bad idea to start your startup business in Germany with a GmbH. You end up doing more paperwork than your own business. However I have one question in your proposed schema. Germany Holding UG ... it owns the Delaware C-Corp right ? how would you deal with the paperwork and taxes of that Holding UG ? isn't it also time consuming and painful ?
- SkyAndSand 4y agoI am asking myself the same question - how would you actually solve this issue? https://news.ycombinator.com/item?id=31620700 https://news.ycombinator.com/item?id=31620700
- mishaker 4y agoThe thing is: even if your company is abroad, if you live in Germany then that constitutes "Permanent Establishment". So that means that Germany considers that the company is in its own juridiction so german laws would apply. This also should be true about the holding (although I am not sure). You cannot simply have a German holding which contains foreign operating companies and not get involved with German bureaucracy. Logically you should report operations of those foreign companies (thus declaring taxes) in Germany. That would be an even more painful headache ...
- SkyAndSand 4y agoWhile I generally agree I am wondering if this still applies if you have multiple founders in multiple countries. Eg the founders are living in Germany, Australia and the US. The company is a German GmbH. You’d probably not automatically create PEs in Australia and the US just some of the founders living there?
- mishaker 4y agoYeah that would be yet more complicated. I think it depends on the tax treaties between these countries.
- yokaze 4y agoAlso had a (failed) startup in Germany, with a slightly different perspective. Possibly outdated. > It still baffles me, that you need to buy your own shares in Germany, in order to receive the “status” and protection of being a fully incorporated company. It depends on how you read it, but it isn't true that you have to put in 25.000 in cash on the table. A GmbH is a Limited, which needs to have a value of at least 25.000EUR, so anyone trading with you knows, you are at least good for that amount. The easiest way is to put the money in cash into the account of the company. But it can also be done via transferring the ownership of either tangible or intangible assets into the company. The problem here is, especially with software, that the evaluation of assets is not for free and difficult. > Now, you don’t need to convert the UG to a GmbH but if you want to be taken seriously in Germany by customers and investors, it can be a huge factor doing business. For our investor, it was a must-have. The feedback I got from institutional investors was the following: - If you are not willing to put down 25k, while asking for millions, it doesn't send much of signal of confidence in your proposal from your side. Maybe it is a matter of German risk averseness, but I think it is reasonable, especially paired with the next advice: - You will take a top level management position in your new company, your salary should reflect that. You have to strike a balance of not asking too much (you are after all a startup), but also not asking enough (you need to know the market value of your position). But chances are, the increase in your salary by your "promotion" should pay your initial investment in two years time. In Germany, composition is much more salary based. > I don’t know what to tell you, other than this process can take up to 3–4 weeks to get finished. Even most challenger banks (neo banks) are not really faster. > How do I know? We’ve incorporated another holding company UG and wanted to use a Berlin based challenger bank — it took us almost a month to get done. > Choose your bank provider wisely or at least switch early. We went with a 0$/month neo bank and it was horrible. Yeah, we went with a traditional physical bank. Costs a fair bit more than 0€/month, but it took a couple of days, maybe? > A mail popped up along the lines of: “We would like to do a 10 minute interview in Mountain View with you. We compensate your travel expenses” And I think, that is the most striking difference in culture between the US (or at least SV) and Germany. Those guys where trying to safe a couple (granted couple of thousands) Euros, and a couple of Euros per month for the bank, and the investor is paying the travel costs probably coming close to the founding costs for a 10 minute interview.
- SkyAndSand 4y agoAs someone who also has fought a lot with the German bureaucracy, I'd tend to use another jurisdiction in the future as well. I'd be more than interested in hearing your opinions about what the best jurisdiction for internationally distributed teams actually is: https://news.ycombinator.com/item?id=31620700 https://news.ycombinator.com/item?id=31620700
- hef19898 4y agoIf you want to avoid tax problems, and problems around social security, you would need a local legal entity in every country you have employees. At least in Europe. You also need, in cases you move e.g. inventory, local VAT numbers. Those can be had without incorporating. All that is just usuall incorporation and emoloyer stuff so. Solved hundred of thousands of times every day.
- SkyAndSand 4y ago> If you want to avoid tax problems, and problems around social security, you would need a local legal entity in every country you have employees. My understanding is that we could work around this issue by using https://www.letsdeel.com/ https://www.letsdeel.com/ or https://remote.com/ https://remote.com/?
- hef19898 4y agoOr skip the "digital" shit and do it the proper way. If you get VC money we talk millions just do it professionally. If it's not VC money chancesvare you won't need any of it. And if you di, kudos, your business is viable enough to go international. Which brings us back to point one, do it professionally.
- SkyAndSand 4y ago> Or skip the "digital" shit and do it the proper way. What do you mean by that? The employment aspect?
- kpz 4y agoDoes anyone know if having a Gewerbe would be just as difficult to transition to a C-Corp? The whole process of registering a UG or GmbH is ... not so straightforward while registering a Gewerbe (especially if using the Kleingewerberegelung) sounds like a good starting point. Not sure if you can raise money that way though.
- SkyAndSand 4y agoIf you simply register a "Gewerbe" you are personally liable for any damages the business incurs.
- kpz 4y agoYes, but are there many risks for a digital startup? (Serious question, i can't really think of any)
- SkyAndSand 4y agoI'd say that highly depends on what your product actually is :)
- jwmoz 4y agoAnyone have any advice for a similar situation except for UK company instead of Germany?
- cameronh90 4y agoIs there even an equivalent situation in the UK, given that it's extremely easy and cheap to form a company in the UK?
- gyulai 4y agoIt's a clusterfck regardless of which way you do it. There are 3 problems with the structure he describes: (1) In the early days, you might find yourself being a 1-person business, with that 1 person living in Germany and all the business partners you might end up interacting with in real life would be in Germany (especially banks, regulators, etc.) In that situation, it's a bad look if you make your business partners contract with your Delaware C-Corp. It's an even worse look from the angle of money laundering prevention, which is going to be the primary point of view of the bank that you're trying to get an account from, the accountant you're trying to hire, etc. etc. (2) A P.O. box in Delaware will not be enough to convince German tax authorities not to tax your Delaware C-Corp. They will want to see that your Delaware C-Corp has an actual office with actual people in Delaware, before they give any level of credence to the notion that they shouldn't just tax your Delaware C-Corp as a German GmbH/AG-like entity. If you're already at the stage where you have people contracting for you who actually are in the U.S., maybe you can get away with that. If you're just one or two people in Germany and a P.O.-box in Delaware that won't fly. I tried doing that in Austria where the relevant laws are basically the same, and the court wanted to send an emissary fom the chamber of commerce to visit my supposed office in Delaware. Now, even if you do clear that hurdle, Germany will still try to tax profits that your Delware C-Corp generates in Germany. But how do you determine that number? By doing accounting, based on German accounting standards of course. -- So now the clusterfck really starts to unravel, once you have an actual American wanting to invest in that vehicle, when you've never done accounting the way you were supposed to, from their point of view. (3) German law recognizes the "Scheingeschäft" [1] and "Umgehung" which is a situation where two people draw up a legal contract that differs from the way they truly arrange their business in real life. E.g. Buyer buys house from seller. They draw up a sales contract for the house for $1M and a contract wherein buyer gives a gift of $1M to seller. They tax $1M as a sale of a house and $1M as a gift, which might come to less than the sale of a house for $2M. German law says that such an arrangement is null and void, and the contract should be treated as if they had contracted to sell a house for $2M in the first place. -- This same theory applies to more complicated situations involving businesses etc. So German law might look at your Delaware C-corp as basically just concealing what is in real life a German GmbH, and might start treating your Delaware C-corp as if it actually was a German GmbH. -- Now you have German law and Delaware law looking at the same legal structure in entirely different an incompatible ways. That's a total nightmare. SOLUTION: You'd have to add at least a third layer below your Delaware C-Corp, which is a GmbH that actually does business in Germany. You'd need: - Max Mayer GmbH, a holding which serves as Max Mayer's alter ego. - Startup Inc, a Cayman corporation 100% owned by Max Mayer GmbH. - Startup GmbH, a German Gmbh 100% owned by Startup Inc with a provision in the partnership agreement that says something like: Startup GmbH must return 100% of all profits in excess of $1M to Startup Inc. Now, for the early part of your growth curve, Y-Combinator wouldn't be involved, and you wouldn't earn $1M: Startup GmbH is now the only thing that matters. Your business partners won't much care who owns the entity they interact with (except for purposes of money laundering prevention, but the only thing they care about is that Max Mayer ultimately owns the whole thing not about what goes in between). The situation of Startup Inc from the pov of German law would still be precarious but it wouldn't really matter. It would have no revenue, no costs, no bank account, nothing, so it wouldn't be something that tax authorities would much care about. When Y-Combinator comes along, you'd sell them shares in Startup Inc. When Startup GmbH starts making more than 1M, then Startup Inc will start to handle money for the first time. At that point it becomes a relevant entity from the point of view of tax authorities, banks etc. But also: At that point there's a lot of money involved, you might have actual people and a physical presences across the globe, etc. so you'd just be like any other trustworthy multinational. (As opposed to like a hustler with big plans and nothing to show for it). When Startup Inc start generating capital gains, they'd go to Max Mayer GmbH where they're initially tax-free (until they're actually returned by Max Mayer GmbH to Max Mayer). But that's a pretty complicated setup! It may be what you'll wish you had done when your revenue actually takes off and/or investors want to start throwing money at you. But it'll be more expensive and cumbersome in terms of administrative overhead than if you had just done one GmbH and left the complicated bits for later. Remember: Most startups fail. Most Y-Combinator applicants do not get in. So it's not necessarily good advice to broadly give to people to always go for that structure from the outset. [1] https://de.wikipedia.org/wiki/Scheingesch%C3%A4ft https://de.wikipedia.org/wiki/Scheingesch%C3%A4ft
- jokethrowaway 4y agoI'm not sure this would fly well for Germany. Generally, in most European countries, if you're resident in one country and open a company in another one (and start paying corporate tax there) you need to prove there's a valid reason to have the company there. It can be hiring people there, having a director there, having an office, having your board meeting there. Otherwise the company where you reside can argue that your foreign company is actually done to avoid paying taxes in the country you reside and ask you to pay corporate tax rate as you would in your country of residence. Maybe having shareholders (Y-comb) is proof enough you can claim to be a Delaware company - but for small German businesses I don't think it's as simple. Happy to be corrected.
- SkyAndSand 4y agoI am wondering, too - how would you actually solve this issue if you have founders living in multiple countries, inside and outside the EU (created a new topic here https://news.ycombinator.com/item?id=31620700 https://news.ycombinator.com/item?id=31620700)
- jokethrowaway 4y agoI started a company across two countries and it's not a big issue. As long as you have some reason to incorporate in one country (eg. Director and shareholder in the country) you're good even if you have foreign partners. I think there is a way to abuse this by having income of individuals in high tax country be received in low tax countries and held there until the individuals relocate to a low tax country. I believe if you were to accumulate income from different individuals in different high tax countries it would be hard for the tax department to prove the setup is done with the intent to avoid taxes. You could even reallocate shares dynamically to reflect how much money each party brought to the company. You're trading taxes with trust in who is running the low tax company, though.
- geff82 4y agoDo not forget about expatriation tax („Wegzugsbesteuerung“) when sfter a few years move to another countries. The tax is about 350% of your share of the average of last 3 years profits (might be reduced a tad, but will always be extortionate)
- ant6n 4y agoWhat if the company is not profitable? (There are ways to avoid the exit tax: u only pay if u lived in Germany in 7/12 last years, u could move ur shares to a trust early, or maintain residency status) Is there any company structure suitable for a startup that doesn’t require exit tax for founders (gmbh und co kg?)
- davidkuennen 4y agoWouldn't I have to pay 21% US taxes and the German taxes as well if I do it like this?
- jermaustin1 4y agoI'm not an accountant, but I believe you would US taxes on C-Corp profits, and German taxes on wages/dividends. There are also reciprocal tax agreements for earned income. It would probably be best to leave your profits in the c-corp, and wait until you are in America to do a dividend (which if your shares have been held for over a year is long term cap gains).
- sprash 4y agoYou should not start a startup in Germany at all. It has the highest taxes in the world. As a result 200.000 highly qualified people leave Germany every year. Those people are replaced with unqualified immigrants mostly causing additional costs thanks to the generous welfare system which makes sure that the taxes won't be lowered any time soon.
- DOsinga 4y agoThe Germans requiring everything on paper with people witnessing signatures is of course rather silly, but whether it takes 3 weeks to form a company or 3 days is ultimately not going to be a real difference. I think the thing here is more that American companies have trouble handling non American companies and hence the flip. I sold a Dutch B.V. to an American company once except they didn't want to buy the company because they didn't understand it and instead we ended up selling the assets and taking a tax hit. Also if you are in the EU you can just start an Estonian company and run that in Germany
- andi999 4y agoSolution looks problematic if you want to hire a team in germany (since the deel shdnt work with regular staff). If you stay lean it sounds interesting. Waiting for the next article 'why you shd not hire people on a C corp owned by UG'.
- allendoerfer 4y agoI will play devil's advocate and defend some parts of the German system. Although my actual personal opinion of some of those institutions may vary, I will try very hard to keep this simple and just take the opposing side. - IHK: Not bad, see German apprenticeship system - GEZ: Not bad, see American media landscape (e.g. Fox News vs. CNN) - Paying 25.000 € for your own GmbH shares: (1) These are not shares. (2) There are other options. (3) Your company keeps the money, you are not paying anyone. (4) It is only 12500 € up front, you can guarantee for the other 12500 € (5) You get rid of personal liability, so it is fair for everyone to know, there is at least some money within the newly created entitiy. - Notary, having registers with names etc.: Not bad, see tax havens - (Seemlingly) not having to pay taxes when your company is sold by a holding company: It is not the same thing. While a holding company selling shares is taxed a miniscule amount, it is actually taxed as soon as the money is paid out to you personally, making you effectively pay more taxes overall in addition to the operating costs of the holding company. The holding gets the benefit of being able to reinvest the gross amounts.
- ant6n 4y agoThe holding allows you to defer paying the taxes on the sale of the startup as part of an investment round to simply restructure the company. You don’t have to pay taxes now on gains that aren’t liquid, and if the startup goes bust u just count the losses against the gains and u get zero tax burden.
- Animats 4y agoLooks like his real problem was that a US VC wanted the company incorporated in Delaware for their convenience, but wasn't willing to pay the costs of doing that.
- spacetraveler11 4y agoAs a software dev freelancer I was using the Single-Person-Company (Einzelunternehmer) option that Germany offers. Personal liability is a risk of course (that can be mitigated by getting insurance and was never an issue for me) but in terms of upkeep it was very easy thanks to my tax consultant. This option is however not recommended if you want to get investors, especially from abroad.