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Exit Tax: Leave Germany before your business gets big
- alephnerd 1y agoSomething 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.
- tdullien 1y agoGerman here. I fully agree that German companies tend to be crazy hierarchical.
- lifestyleguru 1y agoalso buy fax machine, dozen ring binders, and paper shredder before you start that business
- isoprophlex 1y agoAnd the right color pen. God forbid you fill in an official form in the wrong color pen.
- lifestyleguru 1y agoI 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.
- petre 1y agoThere's a reason why Kafka wrote his novels in German.
- woodson 1y agoBecause he was German Bohemian? (https://en.wikipedia.org/wiki/Sudeten_Germans#Austria-Hungary https://en.wikipedia.org/wiki/Sudeten_Germans#Austria-Hungar...)
- _zoltan_ 1y agono, because bureaucrazy in Germany is rampart.
- throwawayoldie 1y agoHe didn't live in Germany.
- imp0cat 1y agoHe 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).
- petre 1y agoActually The Trial more closely resembles what the OP went through.
- knallfrosch 1y agoSignatures 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 https://de.wikipedia.org/wiki/Dokumentenechtheit (It hasn't been translated to other languages yet.)
- olieidel 1y agoAlso: - 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)
- djoldman 1y agoGiven that this kind of thing seems to be widely reported, are there any significant efforts to reduce the friction all this causes?
- olieidel 1y agoPretty 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.
- ExoticPearTree 1y ago> Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far. I do not believe that this will be possible in our lifetimes. Germany cannot function without a very high degree of bureaucracy. It's like asking fish to breathe out of water.
- 1y ago
- akersten 1y agoIs 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?
- jansan 1y agoNothing. 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.
- olieidel 1y agoYup, 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 :)
- deleted 1y ago[deleted]
- Scarblac 1y agoThe idea is that leaving the country is taxed as if you sold your shares. So selling them presumably doesn't help.
- wolfgangK 1y agoThe idea is presumably that you would "sell" at an artificially low price.
- 1718627440 1y agoWhich is illegal if you do it for tax evasion.
- randyrand 1y ago
- eqvinox 1y ago> 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?
- jansan 1y agoThey 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.
- olieidel 1y agoExactly. And they, by default, use a very high multiple (13.75) for calculating the value of your shares.
- bluecalm 1y agoThis 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.
- deleted 1y ago[deleted]
- psychoslave 1y ago[flagged]
- wmf 1y agoIn 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.
- ghufran_syed 1y agoPerhaps 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?
- toast0 1y agoI 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.
- neves 1y agoYes. Remember that in Germany you don't pay for University degrees. High education isn't just for a wealthy minority.
- pigeonhole123 1y agoThat doesn't make the degree worthless, surely
- kleiba 1y agoI find this website to be a much clearer resource on the issue: https://www.winheller.com/en/tax-law-tax-advisory/international-tax-planning/exit-taxation.html https://www.winheller.com/en/tax-law-tax-advisory/internatio...
- olieidel 1y agoTrue! 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/ https://eidel.io/notes-and-hacks-on-germanys-exit-tax/
- BoredPositron 1y ago[flagged]
- _zoltan_ 1y agoI don't know why you need to mix that in here. It's irrelevant.
- slater 1y agoLooking at their older posts, many of which are greyed out, best strat is "FAMO" - flag and move on.
- tomhow 1y agoWe detached this comment from https://news.ycombinator.com/item?id= https://news.ycombinator.com/item?id= 44829333 and marked it off topic.
- dismalaf 1y agoCanada also has an exit tax. For individuals as well as businesses.
- lostmsu 1y agoAt least Canada steps us cost basis upon becoming resident AFAIU.
- Joel_Mckay 1y agoThey 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
- dismalaf 1y agoDeparture tax for individuals: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html#toc6 https://www.canada.ca/en/revenue-agency/services/tax/interna... Departure tax for corporations: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/businesses-international-non-resident-taxes/residency-a-corporation.html#dep https://www.canada.ca/en/revenue-agency/services/tax/interna...
- Joel_Mckay 1y agoThat 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
- neves 1y ago[flagged]
- johannesberlin 1y agoAs 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.
- ExpertAdvisor01 1y agoYeah it took me almost 8 months to just get a vat id
- ExpertAdvisor01 1y agoWhat? Germany doesn't waive any taxes for small businesses
- tcfhgj 1y agoyes, they do https://finanzamt-bw.fv-bwl.de/,Lde/Startseite/Service/Was+ist+die+sogenannte+Kleinunternehmerregelung_ https://finanzamt-bw.fv-bwl.de/,Lde/Startseite/Service/Was+i...
- ExpertAdvisor01 1y agoThis is only an exemption from VAT. This means you also loose the ability to claim back VAT. If you engage in b2b it is a net loss
- fersarr 1y agoDoes this apply to non-resident owners/founders (big shareholders that don't live in Germany) of German companies when they sell their shares?
- deleted 1y ago[deleted]
- merek 1y agoThere'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.
- devoutsalsa 1y agoBetter 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.
- FooBarWidget 1y ago> 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.
- tastyfreeze 1y agoDumb American here but that sounds like a few steps too far in employee protections. A business can't even die without government approval?
- da_chicken 1y agoIt'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.
- elephant81 1y agoI 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.
- cm2187 1y agoIANAL, 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.
- redmenace1312 1y ago[flagged]
- dang 1y agoPlease don't use HN for ideological battle and please don't post canned comments or pre-existing talking points. None of that is what the site is for. We want curious conversation. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- WalterBright 1y agoWhen businesses are fleeing, you're doing something very wrong.
- deleted 1y ago[deleted]
- v5v3 1y agoNot 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.
- WalterBright 1y ago> 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.
- v5v3 1y agoGermany 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.
- WalterBright 1y agoGermany has been an enormous economic powerhouse in the past. It can be so again.
- tonyhart7 1y agowhy you acting like its not true now??? it still economic powerhouse (at least best on continent)
- cojo 1y agoOli (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.
- jmyeet 1y agoThe 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.
- Blackarea 1y agoBerlin 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.
- rvz 1y agoI 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 https://news.ycombinator.com/item?id=44134832
- croes 1y agoWealth 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-reveals-strains-in-germanys-labor-market,7026055451396225a https://dailywrap.net/en-gb/unprecedented-unpaid-overtime-re... And then the company owner whine when they habe to pay their share?
- bluecalm 1y agoIf 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.
- johnnyfuego 1y agoFor a less emotional explanation of exit tax see https://www.grantthornton.de/en/insights/exit-tax-topic-hub 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.
- BillyTheKing 1y agoThe reasoning might not sound crazy, but the result is that a founder based in Hong Kong, opening a holding in Singapore, and creates a subsidiary in Germany is much much better off than a founder running the same business out of Germany - and that's before considering personal income taxes or similar
- bluecalm 1y agoYup. That's why the advice is to leave ASAP and it's a good one.
- Barrin92 1y agois this hypothetical Hong Konger real? Someone who wants to set up a company in Germany and is repelled by a theoretical exit tax should they plan to leave a few years later? We're a big country and the world's 3rd largest economy. From our perspective it makes no sense to become a financial haven for foreign founders who just want to benefit from government support which can be quite extensive only to leave after a few years for some tax haven. We need to do do more to encourage people to invest here and build ecosystems and make starting companies easier but an exit tax clearly only matters to the get-rich-quick and relocate to Dubai crowd.
- deleted 1y ago[deleted]
- woodpanel 1y ago> 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)
- croes 1y agoExit Tax: Leaving the USA before you become too rich https://www.greenbacktaxservices.com/knowledge-center/exit-taxes-us/ https://www.greenbacktaxservices.com/knowledge-center/exit-t...
- tonyhart7 1y agoYeah but most people want to do business in US, its all the money goes
- Shorel 1y agoNot worth the hassle anymore.
- thomas_witt 1y agoFrom 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.
- malthaus 1y agoyou could have shortened your advice to: "leave germany"
- kanbara 1y agonot 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.
- xenospn 1y agoAlso: absolutely beautiful, with great people.
- ExpertAdvisor01 1y agoNo it's not . If you are young you are a slave for the elderly. Personal freedom is also very questionable. Good Food haha
- octo888 1y agoWe feel exactly the same in the UK. Except personal freedom isn't questionable, it's in the gutter
- ExpertAdvisor01 1y agoSocial Contributions + taxes are rising and benefits get worse and worse ... Pretty sad what happened/happens to Europe
- saubeidl 1y agoOr... just don't leave the country? You only pay an exit tax if you, y'know, exit.
- procaryote 1y agohttps://en.wikipedia.org/wiki/Serfdom https://en.wikipedia.org/wiki/Serfdom
- saubeidl 1y agohttps://en.wikipedia.org/wiki/Rule_of_law https://en.wikipedia.org/wiki/Rule_of_law
- geff82 1y agoThe 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.
- bmacho 1y agoWhy can't businesses be owned by people that: - 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.
- emsy 1y agoAh yes, the Reichsfluchtsteuer. https://en.wikipedia.org/wiki/Reich_Flight_Tax https://en.wikipedia.org/wiki/Reich_Flight_Tax
- profstasiak 1y agoIsn'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)
- laurencerowe 1y agoDouble taxation treaties negate this somewhat, but there are a bunch of edge cases.
- notTooFarGone 1y agoYou have to file your taxes every year in the US either way. You can't even renounce your citizenship without paying a lump sum.
- laurencerowe 1y agoIt 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.
- philjohn 1y agoAnd because the tax years don't line up, it's more costly than filing just in the US, or just in the EU, plus if you moved with a company and were granted RSU's in the US, or keep property or assets in the US ... it's just a pain to calculate properly. Have friends who regularly spend 10x more than I do my accountant for my tax return because of this.
- dustincoates 1y agoNot 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-the-numbers#:~:text=Of%20the%205-9%20millions,are%20the%20IRS's%20own%20figures. https://www.taxfairnessabroad.org/blog/americans-abroad-by-t...
- xenospn 1y agoDoesn’t every country have an exit tax, tho? Some are worse, some are better, but this is always the case.
- laurencerowe 1y agoThe UK doesn’t.
- procaryote 1y agoLots 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.
- jeofken 1y agoThe 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
- saubeidl 1y agoThe 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?
- cc62cf4a4f20 1y agoI'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/international-non-residents/individuals-leaving-entering-canada-non-residents/dispositions-property.html https://www.canada.ca/en/revenue-agency/services/tax/interna...
- somedude895 1y agoSo 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.
- LadyCailin 1y agoI 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.
- piker 1y agoIt's not that it has punitive taxes for expats, it's just that as a US citizen, the US doesn't care where you live -- you're subject to US tax. It has rules for everyone that prohibit deferring income taxes which implicate non-US tax-opaque entities, but that's not so much of a capital gains concern as a timing issue. It's much simpler in many ways, although it creates its own issues with juggling tax treaties and realization timing. Forcing you to pay a tax on unrealized gains is anathema to the US system, and would definitely burden founders to the extent they'd be well advised not to form in that jurisdiction in the first place.
- LadyCailin 1y ago
- weinzierl 1y ago"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.
- traceroute66 1y ago> 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.
- ExpertAdvisor01 1y agoThere 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..
- chaosprint 1y agoNorway 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.
- enricozb 1y agoHowever 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...
- logicchains 1y ago>However it also prevents hoarding wealth Hoarding wealth isn't a problem if no wealth creation happens in the first place.
- procaryote 1y agoAn 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.
- swexbe 1y agoMost businesses are not as portable as a tech startup.
- procaryote 1y agoOwnership is though.
- shankr 1y ago
- oulipo 1y ago[flagged]
- logicchains 1y ago>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.
- grassen 1y ago[dead]
- derriz 1y agoIt’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.
- dismalaf 1y agoWell 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...
- blitzar 1y agoYou get a credit against future gains. Same as when you sell an asset at a loss, the tax man doesnt pay you tax - your losses are available to offset future losses.
- cdeez 1y agoAustralia 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-australia-or-going-overseas/living-overseas-and-remaining-an-australian-tax-resident 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.
- tempfile 1y ago> 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.
- bluecalm 1y agoEU 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.
- nolverostae 1y agoI 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/reform-der-wegzugsbesteuerung-5-gestaltungen-vermeidung/ 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.
- ExpertAdvisor01 1y agoIt is not so easy as you describe.
- nolverostae 1y agoYou definitely need advice from professionals, yes. All included, I'd expect it to cost 5k€-30k€, but not more.
- BillyTheKing 1y agohow did you do it? My co-founder is in a similar situation, and his tax-lawyer said the only way was via a trust - they also have a German holding. Do you have to declare that somewhere? or how does this work? Thanks!
- ExpertAdvisor01 1y ago
- mytailorisrich 1y agoThe 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.
- octo888 1y agoIt'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
- mytailorisrich 1y agoHere 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.
- ExpertAdvisor01 1y agoExit taxation on corporate level is in every EU country , because of the atad directives .
- ExoticPearTree 1y agoI was not aware of that, but just read through it and it is crazy. It basically makes your company a hostage of the country where you incorporated it. You cannot even move your company between member states without paying the exit tax. It is funny how the EU claims it is a single market but it is actually not. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:02016L1164-20220101 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CEL... ^^^ The Anti-Tax Avoidance Directive. Jeez.
- ExpertAdvisor01 1y agoYou can only defer the exit tax if you move within the eu . There is also atad 2 and atad 3 . The good thing about the us is that you have the concept of domicile . So you can redomicile your company without needing to liquidate it.
- garyclarke27 1y agoOne 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.
- ivankra 1y agoOr, 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.
- FirmwareBurner 1y agoWhen you start to run out of other people's money.
- philjohn 1y ago[flagged]
- deleted 1y ago[deleted]
- oezi 1y agoThis is why this doesn't apply if you move within the EU.
- KaiserPro 1y agoThis 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.
- ralferoo 1y agoAgree 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.
- KaiserPro 1y agoThe mechanics of changing ownership under umbrella corporations is somewhat of a mystery to me, I have seen it done as part of a complex buyout of a small multinational. However that was UK/US and some EU but non-german subsidiaries. I suspect you are right about movement being considered a sale. My assertion was imprecise as I suspect it requires an upfront company layout, rather than post-hock.
- sliq 1y agoSidefact: 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.
- the_wolo 1y ago… or you just pay the frickin tax for once instead of leeching on society without giving back
- exe34 1y agoOr 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.
- nlitened 1y ago> fair share Pretty sure “fair” means both sides agree that it’s fair. You can’t just say “I think it’s fair that I take a half of what you made”. You could say that people know what the conditions are before starting the business, so they implicitly agree that it’s fair if they start. But this article exactly explains what to expect because people don’t know it beforehand, and thus they now can make better informed decisions.
- exe34 1y agoNo, because the rich will always be greedy. They already pay the lowest taxes proportionally to their wealth/income (yes I know in absolute numbers they pay the most, but that's because a billion is about a million times bigger than a thousand - can't believe I have to explain this every time, or somebody will point out the absolute numbers like it negates my point).
- nlitened 1y agoAll people are greedy, not only rich ones, that’s human nature. However high taxes ensure that it’s becoming more difficult to become rich, and only rich can get richer. Personally I think it’s better when more people can become rich, not fewer.
- exe34 1y ago> All people are greedy, not only rich ones, that’s human nature. An yet in the current discussion, only the rich get to profit from it. > However high taxes ensure that it’s becoming more difficult to become rich, and only rich can get richer. > Personally I think it’s better when more people can become rich, not fewer. They won't get rich without food, education and housing. They're barely surviving because the rich keep sucking any chance of building wealth out of them. When inequality is low, more people become rich. When it is as high as it is currently, more people remain poor.
- tomschwiha 1y agoI 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.
- tomschwiha 1y agoIt 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.
- BillyTheKing 1y agoThis means the person has to move to a country with 0% income tax for this to make any economic sense, so that's either Monaco or the UAE then. Very difficult for me to understand why someone is supposed to pay this tax in the first place, the business paid a whole bunch of other taxes in its lifetime. I would understand if they'd tax the sale of the business.
- tomschwiha 1y agoThat is actually the intention: to tax as if you sold the business. But with a payment in 7 yearly rates. The tax intends to tax the value of the company that is not yet taxed (on a personal tax level). It does account for already paid businesses level taxes.
- realityking 1y agoIts purpose is to avoid business owners to move to a low-tax place 12 months before selling their business and then move back to Germany another 12 months later, thus avoiding any tax on the increase in value of the business.
- bluecalm 1y agoJust because it made 200k last few years doesn't mean it will continue to make that much. That is especially true in case of small companies.
- cobbzilla 1y agoThe 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?
- Merovius 1y agoUhm correct me if I'm wrong, but… you can sell your stake and leave at will, with zero exit tax? So really, the only thing that the exit tax prevents is the company leaving the country. And you know, every time someone brings up taxing the rich, people object that this would cause capital flight. Well, capital flight is exactly what the exit tax prevents. The capital stays in the country. And likening that to the Berlin wall, where people literally got shot dead, is honestly pretty disgusting.
- thesuitonym 1y agoThe rich will do anything to appear to be the victims of the world they created.
- Merovius 1y ago> 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. Yes, it is literally an option, you dunce. There is no law requiring you to keep ownership of a business. You might not like that option very well, but it is an option, which is infinitely better than the denizens of the GDR got. Man, this post got my blood boiling with its callous stupidity.
- dewey 1y agoThis also applies to moving abroad and taking your brokerage depot with you. It will only affect you if you hold more than 1% of a single company though, so most people with regular stock holdings and ETFs will not be affected by that.
- deleted 1y ago[deleted]
- HSO 1y ago> (Note on startups (group 2): If your startup raised investment, the financial authorities might take that last investment-round valuation as actual valuation, even if your company is not profitable. So that puts you into group 3 instead as you will be hit by significant exit tax.) this is the money quote here
- HSO 1y agoanyone who knows the situation of how to manage/own a company with seat in switzerland that does business in eu? is this a possibility to get away from this
- zwnow 1y agoGermany is probably the last country on earth you want to found a business in. Bureaucracy Bureaucracy Bureaucracy and these damn workers rights, arrrr those evil Germans!
- oaiey 1y agoI am more and more convinced to found a company with the sole purpose of earning money to pay people. Sound strange but the current climate of being evil to employees no matter what is ripe for disruption.
- zwnow 1y agoWhile I like the idea you'll have to compete with exploitative companies. Won't be easy. But I just see working world as a net negative to my life. Being forced to work makes me hate it, doesn't matter if it's in a job that allows me to do whatever the f i want or if I had a very strict plan. It's still being forced to do shit I dont want to do in the first place. It's still taking away tons of time from my one life, just so I can afford food.
- amai 1y agoDon't underestimate the US bureaucracy. The biggest and best bureaucracy in the world!
- bawana 1y agoNot as bad as greece!
- amai 1y agoThis tax was introduced because in the past some "smart" billionaires moved to Switzerland and by that avoided paying any taxes in Germany at all. https://de.wikipedia.org/wiki/Wegzugsbesteuerung https://de.wikipedia.org/wiki/Wegzugsbesteuerung So thank your greedy ancestors for that. In addition it is mentioned in the article above that it is possible to pay this tax over a time period of seven years. So you don't have to pay it all at once.
- EVa5I7bHFq9mnYK 1y agoWhat does "leave" mean? Go to vacation in Austria? Leave country for more than 183 days? Rescind German citizenship?
- black_13 1y ago[dead]