I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it.
If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a year to sign off on having done the management within Germany.
Of course, if you want to move the company out of the country, you'll need to pay taxes on any value increase the company had. As others have described this is pretty reasonable though - you get taxed exactly as if gains were realized. This is tax you would have had to pay some time in the future anyways, except by moving to a tax-evasion country.
The only unreasonable part of the law is how they can assume your valuation based on earnings, but that only applies if you can't provide a valuation based on German standards.
Exactly, you need to get proper advice on how to structure your business in Germany. Basically, putting your shares in holding companies is both common and not dodgy. Corporate taxes are more friendly than personal income taxes. You can do constructions with salaries, dividend, etc.
Doing this is standard practice if you are founding a company. You need to plan for your startup to be actually successful and being on the receiving end of a big exit. You can't just wing it and hope for the best.
Germany has a large amount of wealthy small investors, business owners, family owned businesses, etc. And many of those might retire in places like Spain, Italy, etc. There are ways. You just need to understand the system.
That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.). But once you know the how this backwards and dysfunctional system works, you can get it to work for you. Because painful as it is, the system does work more or less as advertised. But you do need to familiarize yourself.
BTW. this is a topic where LLMs can be helpful. You can skip a lot of the traditional advisers and other middle men, if you are a bit smart on that front. Using an accountant is actually worth the money for liability reasons. So don't skimp on that. But otherwise, knowing what you are getting into in terms of bureaucratic process can save a lot of time.
That's probably the very last spot where you want to use an LLM, especially not in Germany. One single mistake can cost you a fortune, and you won't be able to spot the mistake because you're not an expert. LLMs could be used to prime you for conversations with an expert (but be prepared to be corrected on points of law and fact) but they are no substitute. Corporate law is a legal minefield, tread with utmost care.
The whole proposition is in a way bizarre: if you have this problem you almost certainly can afford proper guidance and if you need to resort to an LLM for that guidance you almost certainly don't need such complex constructs in the first place!
I would say not with tax law anywhere. It is very complex and has all sorts of interactions between things - e.g. double tax treaties.
That said, a lot more people would probably use complex constructs if they were not so expensive to set up because of the advice needed. I just do not think LLMs help.
RAG are quite good with tax codes. That’s not particularly surprising you have documents telling you exactly what can be done and what is hard is knowing everything inside and putting everything together. That’s pretty much exactly in the sweet spot for LLM queries.
Crazy theory: most posts here are from German Tax office. They give a "free" advice, and send a fat tax penalty 5 years latter! Suprise: you never left!
If the German tax office is actually using HN for such schemes I'd have to give them more credit for using technology effectively than I currently do. It would be funny if they did though.
Those shouldn't be prohibitively expensive; even small businesses in the US can typically afford one.
Having an accountant is one of the hallmarks of a legitimate business.
If you're doing it on your own without a professional to watch out for you, and advise you, and take care of the details so you can do more important things, it isn't a company, it's a hobby.
Even hobbies are sometimes better done with an accountant. if you sell your garden surplus at a farmers market for example. They are not expensive if you only need a little help and can save a lot of trouble.
I'm not saying use it blindly. But it helps going into discussions with experts, advisers, etc. with some preparation and knowledge. Worst case you are wrong and they'll correct you and best case you pre-empt some actual problems. And it's not like advisers, accountants, etc. don't make mistakes, overlook stuff, or sometimes work against your interests. It helps being a bit hands on. And LLMs make that a lot easier.
Also LLMs are great for picking apart complex bureaucratic procedures, figuring out what next needs to be done, what the meaning is of some 10 page pile of crap the tax office dumped in your mail box, etc. Especially if you are not a native German speaker. You can ask your critical questions, get it to explain stuff you don't understand, etc. In the end, you are responsible for your actions. Limited liability in Germany isn't that limited. So, spending some time on figuring out whether you are doing it right is hard work. LLMs help.
But yeah, don't vibe run your private finances and sources of income.
> That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.).
That's where you hire a professional accountant. Which you should be doing anyway at the point where you raise any sort of external funding that's not family members.
I don't get why people are always complaining about German taxes. As long as you're small, you can just wing it. And when you pass the threshold, professionals are cheap.
I'm not complaining about the taxes but the bureaucracy. And the taxes definitely require an accountant here because of the complexity of the tax law and all the intentional loopholes in there for people that can afford an accountant. Accountant lobbies are fierce in this country and they like being necessary. So a lot of sane things that other countries are doing to keep things simple haven't really happened here. I never lived in the US but from what I know of it, it's actually one of the countries that is worse on this front. So, if you move here from there, it might be an upgrade.
Anyway, I call the German attitude to this topic Stockholm syndrome. The thing is, I've lived in four countries in the EU so I know how things can be different, more efficient, etc. When I say Germany is a PITA, that is relative to the Netherlands, Sweden, and Finland and based on my experience with those countries. Which isn't even that recent. Those countries were miles ahead of how things are in Germany today decades ago. And I wouldn't exactly refer to Finland and Sweden as tax havens.
Taxes are quite high here. Fun fact: when I moved to Germany from Finland, it was an internal transfer for Nokia. My salary was compensated up because of the higher tax and insurance cost in Germany. From Finland! Of course, the cost of living is quite a bit lower here. So this was a nice thing for me. But it's not a cheap country.
No reasonable person on the planet can look at that table showing a €700k exit tax on a company making €200k/yr profit and think "yeah that sounds fair."
The article admits that the 700k figure “assumes the worst-case scenario that you take the high valuation of the financial authorities (factor 13.75) as base valuation for your exit tax. Instead, you could also find someone to assess the real value of your company, which is likely lower…”
A reasonable person could absolutely think it’s fair to impose a very high exit tax on someone who doesn’t want their books examined even when it would save them money.
That’s the penalty tax if you refuse to file the paperwork. So it’s literally the worst case.
Plus the article is wrong about not being allowed to move out of Germany. You still can, without paying the tax, you just need to keep a shell UG/GmbH alive inside Germany.
That's because reasonable people don't just look at two numbers and go "That's crazy", there is context and nuance to be understood, so give reading the entire blog post through instead of just skimming tables, and come back and tell us why it's unfair.
It's a math problem - you don't need a ton of context to understand it (although I did read the entire article). This is simply the German government being petulant and punishing successful people for moving a company somewhere that understands how to create proper incentive structures for businesses to grow.
If you as an individual make €100k a year in salary, saved €20k every year, and the German government wanted to charge you €70k just to move out of Germany it'd be grounds for rebellion.
What reason could they possibly have for "punishing successful people"? You seem to still miss almost the entire context, and automatically apply some bad faith arguments because of what, you feel like paying taxes is unfair?
Paying taxes is good, lawful, even patriotic. Also good and lawful is moving a company somewhere where you'll pay less in taxes and can grow faster and hire more people (and is at worst patriotically neutral).
An exit tax is a country saying "oh no that's bad, so instead of looking at our tax structure and seeing why you're leaving and trying to address that, we're going to charge you >3 years of profit as a punishment." It's simply saying that if our taxes are too high for you we're going to charge you even more to try to stop you from leaving.
You can think it's a good thing if you don't understand economics but it's hard to frame it as anything other than Germany punishing corporations for leaving.
> Also good and lawful is moving a company somewhere where you'll pay less in taxes
Agree, to an extent. You (the company) should still pay taxes on profits made within the country, before they can move out the company from the country, anything else would be unfair.
> It's simply saying that if our taxes are too high for you we're going to charge you even more to try to stop you from leaving
You can move company for any reason. If you're moving the company because the taxes are high, it sounds perfectly reasonable that you'd pay taxes before moving the company, otherwise it becomes a tax hole. And I don't think they're adding these taxes to stop them from moving, if that was the goal then they would just make it outright illegal. Instead they're trying to make sure you can't avoid paying taxes you should have paid.
> anything other than Germany punishing corporations for leaving.
Almost right, they're trying to stop companies from leaving the country without first paying their fair share of taxes. Once that's done, they're free to move wherever. Sounds reasonable to me, although I don't agree with the exact rates either.
> You (the company) should still pay taxes on profits made within the country
This is not what exit taxes are. They are punitive taxes above and beyond what you've already paid on revenue earned within the country.
> If you're moving the company because the taxes are high, it sounds perfectly reasonable that you'd pay taxes before moving the company, otherwise it becomes a tax hole.
Again, it seems like you don't actually understand what exit taxes are.
If you earn money in Germany, you're going to pay taxes on that no matter what. Even if you leave, and the exit tax is zero, you still have to pay the income tax on that revenue.
In Switzerland, I would trust the mechanisms put in place for dealing with 'Treuhandlers' (trustees) to deal with this situation correctly. In Germany I would absolutely not if the stakes got high enough.
- Form a German holding company to manage the business
- Deal with any conflicting taxation/regulatory issues when operating a german holding company from your new country of residence (in some countries this is not trivial)
- Visit Germany twice per year and potentially more to deal with German authorities that require things be done on paper and in person (hope you didn't move too far away and hopefully you don't have small children!)
- Hire an abnormally expensive tax advisor, hope he is good
- Sell a large portion of the company to fund a giant exit tax bill (!!!!). For many companies this is likely a 1-2 year minimum process, and that's IF they can find a buyer. Not as many PE funds in Europe. Good luck on valuation when the buyer knows you're in this situation.
- Hope the government gives you a reasonable valuation on your company, and hope their decision is similar to that of your buyer (and the timelines for both line up), which I'm sure is a super easy and not at all complicated process.
Fun! I can't possibly see what people are complaining about.
One of the weirdest things about Europe is the irrational nationalism that arises when you tie a language, ethnic-identity, government and country into one thing. Anecdotal, but it feels like this leads to more of an inability to reflect on and criticize things. Americans have far thicker skin when it comes to criticizing themselves.
Can you not see how this incentivizes entrepreneurs to leave or start their companies outside Germany (not sure if you're aware the EU exists). Is this really how you think things should work in a non-authoritarian regime with democratic freedom of movement?
> Snark aside, this chart makes total sense
> to me now: https://i.redd.it/fxks3skmvt4e1.png
Not that we're doing all that great here in Europe, but this list is somewhat an artifact of strong US financial markets, and skews against European innovation.
E.g. Booking.com isn't there because it's now ... an American company on paper, but it was started in Europe, has most of its operations there, and (last I checked) Europe was its most important market.
But because the US stock market and US capital dominates globally, companies like that tend to be sold to a US company, and become American on paper. But that financial arrangement doesn't really reflect the overall state of European innovation.
Similarly, there's countless European startups that would have probably had a NASDAQ listing if they'd been US-based, but were instead sold to some of the larger European incumbents in their sector.
The overall amount of innovation delivered to consumers etc. might be the same, so that's more of an artifact of how capital flows in the US v.s. the EU generally.
The overall amount of innovation is absolutely not the same, you can easily compare productivity growth in both regions to see the EU is also lagging there.
Also, the chart does include companies that are European headquartered (like Spotify) unless I’m mistaken.
Even if it didn’t though, don’t you think it’s a problem that a group of 600 million people cant form an attractive enough capital market such that its companies wouldn’t need to go abroad to a group of 300 million people to go public?
This is the weak complacency I’m talking about, as someone living in Europe it’s maddening.
I have no idea how you managed to read "this list is somewhat an artifact of" and "skews against" as a claim that the two would be "the same" if not for what I was pointing out.
Germany seems like a great country to be an employee as long as you're happy with making a fraction of what you'd make in any other country and have no designs of doing anything more with your professional life. Provided you can even get a full-time job since they seem to treat keeping your job as a civil right.
> Germany seems like a great country to be an employee as long as you're happy with making a fraction of what you'd make in any other country and have no designs of doing anything more with your professional life
Are you trying to just incite reactions? This is a very unfair take. German salaries are among the highest in Europe, sixth highest according to Wikipedia, and for many Europeans and non-Europeans it still is a land of opportunity. Certainly a better place to be a professional than almost "any other country", as you put it.
They're not exactly building leading-edge stuff, though they sometimes buy from companies that do.
Out of those you could only make an argument for Tesla, because at least they were pushing the envelope for a short while in the past (though more from a business standpoint), rather than merely operating within the possibilities of existing technologies others created.
Generally a high-tech company will have significant research (not development) spending, which T-Mobile and Uber don't.
I would never again found a company in Germany - not because of the super high tax or these arbitrary rules like you need to pay insane amounts to the Chamber of Industry and Commerce (IHK) or the GEZ for radios you don’t have; but: dealing with the bureaucracy and the tax authorities is just insane. Like you are required to pay a registered tax accountant do your books then they have “screenings” where you PAY him again to check his work and explain it to the IRS - only to find you missed paying 13.09 EUR of social security for the artist guild. Spent 5k in tax advisory fees and countless working days dealing with the questions over 13 EUR.
> be in Germany twice a year to sign off on having done the management within Germany.
Pretty stupid. You are signing paper that claims you never left Germany!!!
You are opening up yourself to personal German tax residency, with all pleasures it brings. Payable 10 years back!
And do not believe that 185 days bs. Correctly losing tax residency in state like Germany, Denmark, Norway or Australia is very difficult. You can not keep any assets like company or house there!
Edit: why downvotes? Many states only require 90 days or less to become tax resident. Australia is fine with a house. Norway will tax your income for 3 years after leaving!
Claiming you manage holding company within Germany, is a huge red flag!!!
> You are signing paper that claims you never left Germany!!!
No you aren't. You are signing a paper that says a managerial decision about the shares of the company happened in Germany. Where you live does not matter. You just have to do a board meeting, and be physically present in Germany during the meeting.
In fact, you likely want to keep any proof of your travel from a different country, which makes it obvious to the authorities that you don't spend all your time there.
There's multiple variants though, this is just one of them. You can also pay someone to manage the shares (and of course contractually bind them to not do anything without permission).
Edit: Also, to be clear, you don't need to manage the company from Germany. You only need to manage the holding company from Germany, where the only managerial decision is related to the shares themselves.
If your company bylaws are set up properly, you can do board meetings via video calls just fine.
Very few acts require actual presence in the country. What is required is that you can, at any time, enter Germany to perform those acts - which shouldn’t be a problem if you are German Citizen.
Do you own and manage company in germany? If yes you are tax resident, if not you pay exit tax. Winwin.
This what ifs do not really work in tax laws. The question is, if your current current structure and tax law interpretation will hold in 8 years. After germany had new election, new socialist goverment changed and it is trying to milk everyone.
Some flight ticket from lufthanza are not going to save you!
You could technically do that but then you’d have to keep paying taxes to Germany on your income in the other country. And the other country will consider you a resident too and will want a chunk of that…
Welcome to americans' reality! It's actually more humane than the way US treats its overseas citizens - no onerous PFIC/FATCA, and you have an option to divorce the tax system while still keeping your passport.
Double taxation should be taken care of by tax treaties. Usually you'd pay the maximum of the two tax rates in total, with your current residence country getting first dibs.
> 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.
There's nothing reasonable about it, it's just an extortion. Your gains might never materialize, but your country does not care, they are just punishing you for leaving.
how 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!
I can't give more specific information about my situation, but I would recommend contacting one of the companies that has a public article on the "Wegzugssteuer", for example the one I linked in the first comment. That way you know you get someone that actually knows how to deal with this.
My first tax advisor barely even knew about the Außensteuergesetz and almost got me into larger trouble because of that. I'd guess since this law only affects a tiny portion of the population you really need someone that specializes in it.
If they specialize in it they'll have done this many times before and you can just use their pre-made constructs. Then the main issue is avoiding getting squeezed by them.
It’s because of a fundamental difference between how capital gains tax and income tax are collected.
Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation.
I’m from a country which has no exit tax on capital gains and notoriously a certain wealthy telecoms magnet - having been resident all his life - moved to Portugal just before realizing billions of capital gain. Thus despite earning multiple billions through businesses activities in his native country, he effectively paid zero tax.
I myself have benefited from this lack of capital gain exit tax as I moved to a country with very low capital gains tax. So despite the fact that my modest equity portfolio earned most of its growth while I was living in Ireland, when I sell, the Irish government will get nothing.
The problem, it seems to me is the method of valuation for the deemed disposal and/or the fact that it can cause a “liquidity squeeze“ for the tax payer.
I don’t see a simple solution - maybe other than getting rid of capital gains taxes completely and collecting more consumption taxes, for example, but I’m sure this would just open up a range of other tax evading loopholes.
Capital gain tax is stupid anyway. It's one of the first tax that should be removed.
You can tax business at home by land/revenue/resources usage/ip protection taxes. As it is owners in different jurisdictions pay a different (or sometimes no) tax on selling shares. Selling itself is something you want to encourage, not discourage. It's a pointless tax that penalizes exactly the things you want to encourage.
You think that someone moving to Portugal to avoid it is unfair but then a share holder living in 0 cap gain jurisdiction in the first place would pay 0 anyway.
IMO corporate income tax is the first that should be removed, with a corresponding shift to income taxes. Those can be as progressive as you want, have much lower compliance costs, and don’t distort behavior in the same way. Thought in practice I’m not sure how tax collection from foreign owners would work.
- No PIT on dividend income, which is fair since CIT has already been paid on the money earned by the firm(and paid bt by you as a shareholder in that firm)
- CIT payable only on dividend distribution, not yearly so if a firm keeps on re-investing in the firm paying salaries/suppliers and investing in growth they don't pay any CIT.
Another side effect of 1) is that it would cause companies to distribute dividends rather than doing stock buyback since dividend would have a lower tax rate(0%) than the STCG/LTCG tax rate on stock appreciation.
This is how estonia does it, so we already have some data on effectiveness of this.
It is at least not wildly regressive like consumption taxes are.
It would be better to tax IP protection, inheritance, resource use and land only but realistically if we get rid of capital gains the tax burden will land squarely on wage earners doing all of the actual work who are already taxed more than the people who own their productive output.
There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families. You can tax luxury good at higher rates.
EU countries already realize it's the case with IT services (everyone wants their share with digital tax) and with big supermarket chains (big issue in Poland). It's just painfully slow for them to connect the dots and introduce a general solution.
> There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families
Every one of those "solutions" is just a patch on the basic problem that consumption taxes are fundamentally regressive.
Go tell someone living paycheque to paycheque that it's okay, you'll get a rebate every quarter for the extra tax they paid, or worse, on their annual tax filing, and tell me how that'll make their household budget actually work.
Honestly, when I read ideas like this, I realize just how massive the disconnect is between the lived experiences of the relatively well off and the working poor...
Except consumption correlates with income and wealth, and it's already not uncommon for states to exempt necessities like food and clothing from taxation, which keeps them affordable without a convoluted bureaucratic system. Implemented correctly, consumption taxes are less regressive than property taxes, which prop up rents and constitute a barrier to home ownership for working class people.
There are arguments to be made against heavily taxing consumption to encourage economic activity, but you're oversimplifying this by disregarding the indirect costs of alternatives and looking for problems instead of solutions. Not that I think the one you commented on is a good one.
The attraction of consumption taxes largely IS that they are regressive. That's certainly why people like Bob McNair pushed them.
A billionaire who spends 0.2% of their wealth every year, paying a 100% consumption tax on that would still have a vastly lower relative tax burden than somebody who spends their whole paycheck but only pays 50% consumption tax.
Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell.
If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT.
You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.
I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago.
With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly).
Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).
I believe in the UK it works like this: if you leave the country you are not liable for CGT even if you realise gains, unless you return within 5 years then you have to pay tax on any gains you realised while you were away. With some caveats.
If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax?
That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.
Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?
You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.
> Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it?
In much of the US, you made a loss, since your property taxes will go up the next year.
> I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?
> That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.
We take what the highest bidder is willing to pay, as well as what the lowest seller is willing to sell for. So it's a completely fair way of fixing the value. If you think the price is too high, then why aren't other sellers rushing to sell for the same? If you think the price is too low, then why aren't other buyers rushing to buy?
Because different market participants have different views, risk tolerance and needs. The market argument only works for very high liquidity public stocks. Even then it's unlikely Musk or Zuckerberg can sell their equity at the price of the day. It completely fails for smaller businesses.
The monetary (note: monetary) value of anything and everything is determined by when the minimum value which a seller accepts to sell it for is equal to the maximum value a buyer accepts to buy it for.
If you by some hacker magic know of any way to circumvent this fundamental logic, then you will become the richest man in history within less than a year, since you will then buy for less than anybody is willing to sell for and sell for more than anybody is willing to buy for.
Yes but it assumes the whole thing.
Just because someone is willing to buy a chunk for X doesn't mean there are enough buyers for all chunks at this price.
How can you only see one side of the transaction? Just because somebody is willing to sell a chunk for X doesn't mean there are enough sellers for all chunks at this price.
The agreed price for the last executed sale is the de facto value of anything traded. This has been a fact for hundreds of thousands of years by now.
The whole point is that it isn't.
Liquidity availability is big part of finance.
In your specific example of other side - yes - just because someone who needs to sell a chunk for reasons like an emergency, retirement or consumption needs doesn't mean they are happy to sell the rest of the chunks at that price.
Market based valuations only work in case of very high liquidity publicly traded assets and only if you don't own a significant %.
This makes your argument weaker, not stronger though. If there isn't liquidity market based valuation doesn't work.
>>This has been a fact for hundreds of thousands of years by now.
It isn't and never was. Liquidity was always big part of it.
You still argue like there aren't two sides to every transaction: A buyer and a seller. You're only talking about the sellers perspective as if the buyer side is something abstract and non-human. Do you think anybody would purchase anything for more than they think it's worth because of "liquidity"?
> If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k?
Of course you did! Assuming that "some idiot" is actually representative of the market.
Go sell your house for $1M ASAP, move somewhere else for $100k and keep the $900k profit.
> You simply can't establish value without an actual transaction.
Not perfectly, but you can definitely estimate it pretty decently for tax purposes. And you talk about the highest bidder in a market, but remember it's also the lowest seller. Markets are not generally distorted by "idiots" paying 10x. That's a straw man.
Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing.
How does that work? Mortgaging is selling a portion (in an abstract sense) of a house for cash, with an obligation to buy that portion back in installments.
So parent has mortgaged their 100k house for a million - now what? How do they get out of their obligation to repay the mortgage - that is, buy the house back again for at least a million - without incurring penalties?
If there weren't repercussions for defaulting on mortgage payments, anyone could just trick lenders into buying their house immediately.
The parent is referring to the "buy, borrow, die" strategy of wealth accumulation. Would that work in your parent's specific circumstance? Maybe? Maybe not? But taking a low interest loan against assets as a method of wealth generation and tax avoidance is both a viable strategy and an extremely popular one.
That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains.
I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset.
No, a mortgage is a loan. You don't "make" any money by taking a loan since you obviously have to pay the money back.
Don't worry that if a loan was considered "making money" it would be taxed as income... which would make no sense at all. In fact, disguising transactions as loans while not intending to repay the money is a well-known tax evasion scheme, which tax authorities always keep an eye on.
You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
The money is paid back during the course of decades, when that money will be worth 1/4, 1/3 or half to what it is worth now. And your real estate is ripe to be mortgaged again for another jackpot payout.
Hundreds of millions of people all over the world do it, and tax authorities applaud it. Who do you think writes the tax code?
> You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
That's incorrect on both counts. You did not make money and the loan is not a way to realize the profit since you have to pay it back, as explained before.
I think this illustrates that finance and accounting are very poorly understood topic and are easily used for sensationalism.
There's nothing sensational about it, and I'm disappointed that you cannot see this thing for what it is. Ask people among your relatives who own real estate and you will realize that a lot of them mortgaged their real estate to pay for new cars, vacations, investment in a business, kid's education.
The money is paid back over a long period of time, while the currency depreciates in value and the real estate appreciates in value. The amount of people who have made a fortune through real estate appreciation probably outnumber by a factor of 10 to 1 the amount of people who made a fortune by business or a working career.
If I purchase shares in a company and then sit and do nothing, and the valuation increases by 10 times, then have I made money or not? I can sell the shares or I can mortgage the shares by borrowing against their value. Should that value increase be taxed?
If I purchase real estate and then sit and do nothing, and the valuation increases by 10 times, then have I made money or not? I can sell the real estate or I can mortgage it and borrow against its value. Should that value increase be taxed?
> I can sell the real estate or I can mortgage it and borrow against its value
You make money if you sell. You don't if you use the asset as security for a loan.
This has been explained several times.
A loan is a loan, whether it is a secured loan or not. A mortgage is a secured loan whose security is real property.
You are effectively claiming that getting a loan is making money. Obviously you do not see that this is clearly not the case when thinking about it through a mortgage, but would you make the same claim with credit cards or a personal loan to buy a car, or a secured loan against, say, your car? My guess is that you wouldn't although it is the same thing as getting a mortgage.
Instead of repeating myself, let me hear your side of the argument. If my property increased 9 times in value and I can:
A) Sell it and get that money right now, or
B) Mortgage it and get all or part of that money right now, then pay it back in the future.
By what kind of logic have you not made money from the value increase?
> You are effectively claiming that getting a loan is making money.
No, I said that you made the money when the value increased. Your ability to take a loan against it is the evidence that the value in fact increased. I never said anything else.
If your mortgaged house depreciates while you are still paying off the mortgage, you still need to pay the original, un-depreciated amount. You'll also probably need to pay interest accumulated during the time the property was mortgaged, which means you can't use it to avoid inflation.
What lender do you know of who will voluntarily reduce your mortgage obligation if the property depreciates?
> If your mortgaged house depreciates while you are still paying off the mortgage, you still need to pay the original, un-depreciated amount.
Mistake in logic. The money you received as a loan doesn't depreciate in value if the underlying asset depreciates in value. And vice versa.
As for interest, if your real estate has appreciated by a factor of 9 as in the example we're discussing, then interest rates are of minor concern to get the jackpot payout. As you certainly know, you wouldn't have to take out a loan corresponding to the entire value of your asset, and neither would most banks give it.
After you've paid it back, you still own the property which is 9x the value, or maybe more. So you can cash out instantly, without having to move out. And you get to pay it back in 30 or 50 years time. By that time, the money is worth half or less than half than what it is today. And your interest is much less than inflation. And you can deduct the interest from your taxes.
Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...
You 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.
What did the Irish government do to entitle itself to a chunk of the appreciation of your equity portfolio of presumably non-Irish companies? What did they do to contribute to that equity growth?
Governments collect tax in lots of different ways: income taxes, sales/consumption taxes, import taxes, capital gain taxes, property taxes, inheritance taxes, etc,
What’s so special about capital gains taxes that requires the government to have had some sort of active involvement to be justified?
Capital gains are theoretical. You do not have that as money, but the state does want it as money. They are not what someone paid for your assets, they are what someone THINKS someone else might pay. Most smaller companies cannot be sold easily, and of course, the government is unwilling to take that as the valuation being zero (because what someone is willing to pay right now is in fact zero). And the government is unwilling to take any risk (they take cash only). So they're taxing money you do not have available to spend, and may not have at all.
Think of it as taking a $10k diamond with you. It's worth something, but ... maybe next year artificial diamonds double the size of your diamond start costing $500, and your diamond's value goes to $550. The difficulty is that the government demands "10%", which is $1000 in taxes on the "value" of your diamond now.
So for a big range of company sizes it's effectively a tax on nonexistent assets. This would not be the case for a huge (let's say revenue of 500k or more) company.
But the government chooses not to tax those big companies.
Perhaps the simple solution is to give those small business owners the option of selling their business to the government at whatever price the government feels it is worth.
Any claim of valuation is really only meaningful as a purchase offer.
The problem is that the government is financed by a ponzi scheme based on selling very steep GDP growth, very steep increases in the labor force. In other words, the German government as it functions today is financed by having sold the increased income in labor taxation of the next 10 to 30 years to the banks so they could spend it already. Only ... that income doesn't exist.
The labor force is shrinking (especially if you look at it in terms of how many hours of labor are performed, irrespective of who does it, or when). In other words, the German government has sold the labors of Germans for about the next 15-25 years ... and Germans aren't able to actually do the work that has already been sold. Someone is about to get very badly burnt, and so there is a big fight who takes the loss. The government has the guns, doesn't want to pay, in fact they want big companies to keep delivering their goods. So those government guns will be aimed ... at workers. The only ones they can be aimed at without BIG consequences for the people with the guns.
So, now, under current taxation, the government has to more than triple any increases in taxation, which they need to just maintain current services. Once to pay for what the government needs. Once to pay back the principle of the loans they already made. Once to cover the interest on those loans (because 20 years loans on average at about 3%, let's say total interest coast over the length of the loan is about 100%). And on top of that they have to add what they need to pay extra due to labor force shrinking. In other words, elected representatives are going to find that they both have to do A LOT extra in new taxes for any initiatives and even if they raise taxes the effect of that will not nearly be what they expect.
And taxation on labor is already essentially 50%, so obviously percentage increases are going to be incredibly unpopular. Plus there's the additional difficulty that the problem is not money. It is that the very real assets behind money (ie. work, performed by a human) are becoming scarcer, while the drain on those resources (the welfare state, ie. old people) is increasing.
For the next 20 years, minimum (the time it takes to go from newborn to productive citizen), the government has to shrink the services they provide, at least in terms of labor. And since people aren't about to have another baby boom, it's going to be longer. Oh, and I would much appreciate if the German government managed to do this without putting the Nazis back in power.
And this is a worldwide phenomenon, modified by immigration and modified by a few years depending on the exact country, so you can bet your firstborn quite a few parties are going to get elected on the message "we'll just steal it from our neighbors militarily", like the Palestinians are doing. But this approach is on the cusp of becoming really, really popular worldwide. So it's not really that Trump is causing 100 wars worldwide, it's having a totally unsustainable system: either people need to be accept a lot less than they currently have, or they can go to war and make it FAR worse. Needless to say, it is a certainty they'll want to go to war.
And btw, as I pointed out, this is not a money problem. It is a problem of labor resources. It is about the amount of labor, not the division. So every system has the same problem: nothing can be solved by switching from/to capitalism, socialism, fascism, communism, ... as no system is able to create labor, only redivide who labors and who gets the rewards. None of these systems increase the amount of labor and so the welfare state is doomed under every system.
TLDR: the government has to spend about 50% less per 20 years. Not in terms of money, but in terms of actual people working for government (including hospitals, schools, eldery homes, ...). 50% of government jobs have to disappear for every 20 years this lasts, and at least once.
You would think this would make the government invest a massive amount in AI and robotics, anything required, in the last years they can maintain spending without extreme pain. But, of course, nothing remotely like that is happening.
The real problem is a social contract that was sold to people long ago without any secure funding source.
Now those social services (free healthcare, retirement benefits) are baked into entire populations' expectations and life planning. Give it 20-30 years, then these services can neither be provided nor paid for.
Our only real hope is tech progress unlocks much faster economic growth, even with dwindling numbers of people.
Despite tech and AI being pretty much the only lifeline Europe has to get itself out of the pit it dug (population collapse while simultaneously promising the world to retirees), they are still strangling the nascent tech scene.
In 30 years are we going to have a European economy that is entirely dependent on foreign AI and robots to prop up a society of old people?
So you want to implement taxation by having the government offer money to people? I understand the sentiment "money where your mouth is", but ... seems unlikely to be very useful to keep government spending up.
Capital gains aren't theoretical. A capital gains tax is levied when gains are realized by selling an asset. (e.g. I receive a dividend on a stock, or I sell a stock or my house for more than I paid for it.)
I think you're confusing a capital gains tax with a wealth or asset tax.
If you lived in Ireland in that period, you benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads, bought things in shops, so and on so forth.
Regardless, the idea that the government can only tax you if it directly gave you sufficient benefit, _in your assessment_, is of course nonsense. Taxes are what you owe to the society you live in, not about what society owes to you.
If you are lucky enough to be internationally mobile, this does not exempt you from contributing to the communities you spend time in as you travel around the world. You cannot expect to arrive in a country, earn money from it, and depart again without paying your fair share of taxes.
If you do not like how a country has structured its tax law and what priorities it has as a society, you are of course always free to not move there in the first place.
> benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads
That is a terrible basis for argument: we mostly each get similar usage of services (roads, police, yadda yadda) which should be an argument for a fixed amount of tax per person (a poll tax).
If you wish to argue that we get what we pay for: then rich people pay wayyyyyy more so they should get more government services???
The wealthy surely don't get better policing: instead the wealthy pay heaps for their own insurance and security systems.
Be careful making any argument based on services received for money spent because the well off pay a lot and don't receive a lot for it.
Without society it's pretty hard to be well off in the first place. The entire concept of property becomes pretty meaningless without some very basic concepts of a legal system and territorial integrity. Without that you can only own what you can physically defend.
Wealthy people and large companies do generally employ security, but that is merely supplemental. They enjoy the backdrop of a society where the vast majority of people at least recognize the basic concept of ownership, and where protection from external state actors is provided. More to the point, they live in a system where most people see negative expected return from just killing them and taking their stuff
Abstractions like insurance further require a system where agreements can be made and mostly enforced, and where the need for the insurance is low enough for the premium to be workable.
The small security team at any given company is there to handle the the exceptions that don't conform to the larger society's rules. It doesn't replace that protection entirely. You'd need a standing army for that, and you'd have to work full time just to maintain its loyalty.
Even with no direct services whatsoever, people benefit from society in more or less direct proportion to their wealth -- and arguably the benefit accrues exponentially as wealth increases, given that this enables the exponential growth of capital.
> Without society it's pretty hard to be well off in the first place.
What a pointless argument - you could just as easily chose cause and effect in the other direction: without businesses then society has nothing. Zero businesses, zero tax income.
My main point is that society needs to encourage business owners. If marginal tax is too high, then owners have no incentivise to earn themselves an extra dollar. When owners earn less then society gets less.
There's a balance to incentives.
I'm not working currently because my taxation rate is too high. I'm fine with that since I value my time highly. However financially my country could be getting more from me by lowering my taxes enough to encourage me to work. But voters don't care about what is sensible - they care about optics - and politicians care about voters more than they care about the economy.
I find this softer position much more amenable than your GP comment.
However, you conflate "businesses" with "entities that pay only some minimal poll tax". It turns out that progressive tax does not preclude complex society. Corporate tax does not kill business on touch. All you've argued for is the existence of the Laffer Curve.
Commercial activity predates currency, and is omnipresent across every tax system that has ever been tried. Where money, there trade. Where trade, there value-add. Or at the very least, combing the beach for pretty shells.
There are tribes without the concept of personal property or money, that make things and build value. No tax can extinguish human creativity.
I'm cagey about secondary effects, but I'm cautiously optimistic about debasing the trait of self-enrichment. I see no reason to take on faith that people acting out of self-actualisation would build a lesser technology. You know you're on a site full of nerds, right?
The existence of the internet protocols is a case in point.
Conversely, I prefer a world without facebook and robocalls.
...such as corporate welfare, political influence, favourable prices on public land and institutions, regulatory capture?
The acid test for your frame is whether you would have made as much wealth on a desert island, with no market, no value-added inputs, no communication and no currency. If so, then great, you truly did not depend on society. I admire your self-reliance.
Otherwise, you have benefited from the sum effort of every human, living or dead, in the chain of causality leading up to the circumstances in which you made your pile. I'll leave natural resources aside.
I _love_ that a bunch of libertarians are seasteading. More should go. I am happy to write off tax debt for anybody who goes seasteading for, let's say, five years.
If your raft calls into port for trade, then you pay duty and sales tax, but at that point you've admitted defeat. It's not like they'll accept your raftcoin anyway.
Where I live we have the option to put capital holdings in flat-rate taxed accounts, based on the size of the investment. I thought this was common elsewhere too.
I'm unsure how strange this is. As a Canadian, when I left the country I had to undergo what's termed a deemed disposition - i.e., pretend you sold all your assets and then pay the relevant taxes on the net gains you've enjoyed to that point. This includes proposing a value for any companies that are not publicly traded. See: https://www.canada.ca/en/revenue-agency/services/tax/interna...
So if all your money is tied up in your company you have to sell part of your business in order to be allowed to leave the country and by the way thanks for creating all those jobs? Sounds slightly CCP to me.
I know of at least 4 countries that have exit taxes, and while the US doesn’t have an exit tax if you simply move abroad (it does if you renounce citizenship) it has other very punitive taxes for expats. So, it isn’t a unique thing to Germany or, assuming you’re correct, China.
It'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.
PFIC taxation, of which some pension accounts qualify, as well as all mutual funds and ETFs, is absolutely punitive, and does in fact charge taxes on unrealized gains. Even if you don't have any PFICs, or even owe taxes to the US, the fact that you need to pay an accountant ~$500+, just to file the taxes, is in my opinion punitive as well.
Well there are actual realizations in the ETF and mutual fund context, and the market has simply decided that structure still works for the commingled investments of US taxpayers. PFIC taxation I concede is a head-scratcher, but it's somewhat orthogonal to the capital gains issue. The big take home is that the US wants tax on all of your income, and it doesn't want you hiding any of that offshore. I'm an expat who deals personally with the last issue, and again I agree it's quite frustrating, but that's not what punitive means. That's just the type of frustration that arises when one is required to synchronize one or more complex systems.
China doesn't allow its citizens to send or invest money abroad hardly at all. Yes, this means that most of the Chinese who bought houses in the US and Canada were breaking Chinese law.
One cause of China's real-estate bubble was too much (domestic) savings chasing too few investment vehicles.
To learn more, read up on financial repression in China.
Something I've noticed with German business law is that it is very much structured in such a way that if you aren't an incumbent player, you are essentially incentivized to be absorbed by them.
In the US we do have issues with businesses, but it's not like the Bosch, Thyssen, or Tschira family are any less unethical.
The level of hierarchy I've noticed in German firms and founders is insane to say the least. I'd love to do some quantitative research into this, but I haven't been in academia or policy for years now.
Isn't USA even worse? If you move as US citizen to EU, you would need to pay bot h local EU tax and USA tax right? (I am not a USA citizen, this is legit question)
The US does not have an exit tax for businesses, but has an absolutely horrible tax system in which expats are treated badly.
The reporting requirements for expats are insane: all bank/brokerage/whatever accounts with max levels during the year, FATCA and FBAR forms, and the cherry on top: Form 8858 ("Foreign Disregarded Entities", whatever that is) which is needed for your self-employment and for each of your rental properties. If you think this is easy, look it up — https://www.irs.gov/forms-pubs/about-form-8858
It's pretty much impossible to file your taxes yourself, you will never get it right. You have to pay specialized accountants, some of which will charge you >$1500 to prepare a yearly return with self-employment and rental.
Then come the actual taxes to pay, which are the least of all problems.
Expats are treated this way because they have no lobbying power.
I can confirm this from experience. The instant your situation becomes more complicated than "I work one full time job and have no investments to my name whatsoever" you are in for a brutal time without an accountant by your side.
On the other hand, if you do have an accountant by your side, you potentially expose yourself to some of the most powerful labor arbitrage on the planet as a tech worker. Making $100k remotely from the US might sound like a bad deal until you live in a country where the average wage is $20,000. Like all things US tax wise, you are disproportionately rewarded for being clever and reading a lot.
One big difference is that the clock only start ticking after you get green card, whereas with Germany any residence year counts. Oh, and citizens of course aren't affected - since US continues to tax them wherever, but Germany like almost all other countries practices residence-based taxation.
It is very close to being all other countries. AFAIK the only other country that taxes non resident citizens is Eritrea - and the US has said its unfair they do it!
Does that affect individuals investing in ETFs through a brokerage account? I thought you only needed to provide information on the total value of each brokerage account?
I live in Europe and contemplated writing a tool to analyze ETF holdings and buy the stocks individually with the IBKR API, but it's an expensive and error-prone approach.
There is also an amusing (?) catch-22: you could theoretically sign up with a US-based broker and buy through them, which would make you exempt from these requirements. But most US-based brokers and banks will not want you as a customer if you don't have a US address. And those that do (Charles Schwab International) will not sell you ETFs, because… you are "based" in the EU, which has information requirements for selling financial instruments, and US ETFs cannot be sold to consumers in the EU.
I can't believe how badly the US screws their expats, and nothing is done about this, it only gets worse over the years.
US-EU transplant here. No, the United States does not have anything even vaguely similar like this. Seriously putting forward the idea of an exit tax on anyone who owns more than 1% of any LLC worldwide would in all likelihood be deeply politically unpopular. It goes against the very name and spirit of a limited liability company, for one. For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun. There is a a much narrower exit tax for US citizens who wish to actually give up their citizenship outright (not just move out) but that generally only comes into play for anyone with $2 million or more in net worth, and exists probably to discourage tax evasion, to my understanding. There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
> There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
To be clear, this is if you move _your company_ out of Germany (which I don't think the article makes very clear). In those terms it seems to make a little more sense. As outlined in this comment.[0]
The double income taxation of their expats that America, Eritrea, and Myanmar do is a bit different, but I think they have double taxation agreements with most countries. So in actuality most Americans don't have to fully pay the double tax (depending on where they live, and how much they earn) though they still have to file and everything.
> For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
I'm sure that a sizeable percentage of Americans own a significant amount of shares via 401k or whatever, but it feels surprising if 1 in 10 own more than 1% of a company, because all of those people holding shares as investments will be buying shares in companies with thousands or millions of other investors.
But maybe it's true - I just googled about the US has 340m people and 32.5m companies - so the majority of them must be small (population/number of companies). And while a lot of companies will be owned by the same people or just administrative divisions of a group of companies, most companies have multiple directors so maybe on average it does balance out to 1 in 10 owning a decent chunk of a company. It just feels like a surprising fact.
This site [1] has some interesting stats on size of businesses, although it's interesting that in 2019 these figures say there were less than 8m businesses, which disagrees with what google told me. Also says over half of US companies have 0-4 employees.
It's a surprising number, but a useful one for calibration. Most people assume that the number is closer to 1 in 100 or even 1 in 1000, but that's because they forget the vast, vast numbers of people who just quietly run their own operations in some form. You don't have to be Apple to make enough money to pay the bills on your own, or even reach the high net worth category.
It's worth noting that the numbers don't vary that much between the US and the EU, which actually weakens my claim that such a tax would be politically unpopular if introduced. About 1 in 20 Germans seem themselves to own enough of a business to fall under their own exit tax, checking just now, but I'm not familiar enough with DACH business practices to know if setting up an actual honest-to-goodness LLC for a one man operation is as common there as it is in the United States.
> You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun.
That's certainly what I was thinking of, given I have a few US friends here in the UK. Isn't the way to stop that to simply give up dual citizenship?
From one perspective, yes, you can get around this by simply giving up dual citizenship.
From the perspective of one's whole life, once that US citizenship is gone, it's gone. You can't reinstate it like you can with many other nations. And losing first-class access to the world's greatest economy is a very heavy price to pay. It only makes sense if you are absolutely sure you, and by extension your children and their grandchildren and their grandgrandchildren (because they only get US citizenship at birth if you yourself are a US citizen at their birth), will never want to have anything to do with the US again.
Ultimately I decided against it. The idea that I have a country I can always move to and conservatively 3-5x my take home pay compared to even one of the best paying countries in Europe is one hell of a liberating feeling. Don't discount that kind of optionality lightly.
You won't be double taxed, the US taxes the difference between your local income tax rate and the US federal tax rate. So if you live in London you're not paying any US tax because the UK income tax rate is higher. It helps stop rich people from "totally live in <tax haven>". If only we had that for companies..
I think where people get confused is that it's implemented as a tax credit which is equal to the income tax you pay locally.
On top of that the first $130k earned is also exempt, so it only applies to high earners as well
Not "unless". You have to actively review the tax treaty to see whether it actually gives you things superior to the US's own Foreign Earned Income Exemption. Those documents aren't the hardest things in the world to read, but they're not light reading either.
Not in most cases. According to this estimate, who comes from an organization that is against US citizens abroad having to file[0], 77% have AGI "well below" the cutoff where you would have to pay taxes. For those that are above that threshold, you can deduct the taxes you pay in your home country agains what you would have been charged in the US. For almost everyone in the EU, that is a higher rate than the US taxes, so you don't pay anything on that European income.
_However_, you do still have to pay taxes on your US income if you're abroad. So if you are making money from freelancing with US companies (and, I assume, they aren't paying a European business you have set up), then you'll pay US taxes there, but due to tax treaties you are generally not double taxed.
And 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.
It would be a bureaucratic pain but if I were to move back to Europe (having become a US citizen) I don’t expect I would end up paying any tax to the US after applying the foreign tax credit.
But there could be a whole lot of complexity around stuff like ETFs and mutual funds and whether they were recognized by both countries.
One of the basic principals of the EU is freedom of movement between countries.
One could argue that imposing such an onerous tax on moving to another EU country breaks this principal, so maybe worth a legal challenge - for someone with a lot to loose.
Or, alternatively, the bureaucrats in charge would argue that all EU countries need to implement similar exit taxation laws - that's where it seems to be heading lately.
Norway also has crazy exit tax and wealth tax. I heard lots of complaints that this system makes it almost impossible to build a decent vc-driven tech startup.
Norway has a high wealth tax (it’s gonna be 1.1% of total wealth per year in normal cases), high capital gains tax, and an exit tax treating moving abroad as a capital gains event.
This means, if you start a not-yet-publicly-listed company, get investment at a high valuation (on paper), you must pay wealth tax as if you had that money liquid in your own name. But you don’t have it liquid, it’s yet just a valuation of a VC, so you are screwed.
This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
Scandinavia is attractive as a destination if you are poor and especially from the 3rd world and could benefit from free government services and welfare, but for anyone entrepreneurial or already wealthy, there are many better alternatives.
> This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
There's nothing stopping them from doing that in Norway, they just have to pay their dues. Which are nowhere near the rate of those in a real communist system that people are so quick to label it as.
I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
> I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
1.1% is deceiving. 1.1% is actually over 20% tax on savings (assuming a common drawdown of wealth at 4% per year). Plus savings are usually money that has already been taxed. If you can invest at a higher return then the numbers improve but the risk increases (and governments don't share the risk or otherwise ameliorate it) and the taxes remain if you win.
1.1% sounds small. Any analytical person analysing the rewards versus the risks of founding a company will decide that it isn't worth it. Even if you win, you lose.
Here in New Zealand no founder can plan for a decade timeframe because there's a high chance a new government will screw you if you make any winnings. Currently our taxation system encourages entrepreneurship a little (no CGT).
A taxation system needs to be designed to incentivise individuals to create businesses. The government wins through income taxes and sales taxes - it doesn't need to kill the golden goose by overtaxation.
Most people have a selection bias: they see the winners and think those "greedy bastards" should pay more. Few people weigh up the invisible costs of the people that tried and failed. Very few people consider the benefits accrued to society from businesses (consumer surplus, tax income through other taxes, etcetera).
What is stopping it is the fact that the "wealth" they are being taxed on doesn't actually exist, so by starting a company and getting investment you create tax liability that is impossible to pay.
Early stage companies have a high valuation on paper as an artifact of selling small amounts of equity for relatively large sums of money. This leaves you with purely theoretical wealth in the form of equity which you have not yet sold, and potentially can't sell.
As a concrete example, let's say your tax rate is 15%. If you start a business, and give an investor a 10% stake in that business in exchange for $1M, your remaining 90% stake in the company is now worth $9M. Congratulations, you're wealthy! Now you need to "pay your dues" of 15% of that $9M... good luck with that. You are now bankrupt and deeply in dept to the government.
It's also an attractive destination for people wanting to live in a society that's not completely broken by inequality and are willing to pay their membership dues for living in such a society.
Not everyone's top priority is building a big ol' dragon pile of gold.
I’ve frequently heard this article of faith bandied about.
But if the rich get 10X richer, and the poor get 2X richer, then everybody is better off.
The stagnant, ultraconservative, ultracentralized economic systems tankies like to propose always end up leaving everyone 100X poorer. But at least they’re equal, right!?
Seems like cutting off your nose to spite your face.
Wealth inequality is a good thing, but the cause of it matters. Was wealth inequality caused by theft and corruption, or by merit-based capitalism? If wealth is created and concentrated by capitalism, it doesn't cause social unrest.
These numbers are always given on a "real" basis, accounting for inflation.
Inflation is hard to measure because products get better and houses get bigger over time. But by every measure I've ever seen, purchasing power per hour worked has been going up exponentially or at least geometrically for 200 years now.
If you don't believe this, the World Bank, the IMF, and the US Federal Reserve publish reams of statistics about it.
People get turned around the axle of income disparity, because what actually has happened since WWII is that society has gone from being huddled pretty tightly around an average income ( a bell curve where almost every household made $65k) to a society where this has spread out further to the right ( a similar curve from $0 to $65k but now with a smushed peak a long drawn out tail going up into the 100's of thousands).
There are more wealthy families right now in the US than there has ever been. More people are earning more than ever before. But it creates a lot of societal fracture and strong negative perceptions. When the whole gang is broke, well we're in to together. When the gang ranges from broke, to comfortable, to some splurging, to wealthy, to flat out rich, the cohesion really takes a beating.
Well while celebrating, let's remember that the dream leans massively on the US. 74% of Europe's publicly listed companies depend on US-based technology services like Google and Microsoft for their core operations. And can Europe defend itself? No is the response most analysts give. It's massively under-resourced & dependent on the US. However, if Russia invades (as predicted by some), it invades Europe. So in negotiations such as they are, where are the Europeans leaders dominating (or even putting an appearance at) the discussion to try to call a cease fire to the appalling tragedy of Russia's invasion of the country adjacent to European territory? Isn't it kind of embarrassing?
Overstaying a visa is an offence and if you've gone through the efforts of getting one in the first place, you should read the regulations. Most of us do and act accordingly as I know from own situation this summer.
Kinda makes it harder to attract foreign talent to Norwegian startups as it could affect their decision moving to Norway. While I think the number of people affected is exaggerated, the most well-known case would be the Dune Analytics founder who had to pay more in tax than his salary and was forced to either take a loan to pay taxes (no guarantee the company would succeed) or move out of the country.
That wasn't what I meant, I'm confused why you're associating the Gestapo with Eastern Europe. They were active in all of German controlled Europe with a pretty bad reputation almost everywhere. The nazi mass murders also have more of an association with the SS rather than the Gestapo, especially when it got worse in the later years.
(FYI, the NKVD killed more than 100'000 Poles in a just a few months in 1941. I haven't found a total. But they were also active in all of the CCCP. Not sure what would be an Eastern Europe specific reference here…)
An exit tax in itself does nothing to prevent hoarding of wealth. It might enable you to deploy other taxes that would make rational people leave the country, but it's a bit of a "lock the doors and rob people" strategy.
If you have good advisors as a wealthy person you know this and leave as soon as an exit tax is on the table. If you start new businesses you start them outside of the country
If you're a regular non-wealthy person who happens to become successful you're stuck paying high taxes of course, but you'll probably learn and structure your next venture better.
From a startup founders perspective, it might be worth mentioning that if you own the business personally in the US, you likely qualify for so-called the small business exemption (QSBS) - that means from the price for which you sell your company the first $10M (yes, million!) of capital gains are tax free, and after the latest reform $15M. If you're married: x2.
Don’t forget the energy suicide Germany has committed. Cheap energy was the backbone of Germanys rich industrial economy, and that rug has been (allowed and even encouraged) to be pulled by none other than the country now offering them a “very good price” on LNG…
You still are, and more than you've sent to help Ukraine. I was mostly talking nuclear power shutdowns btw. Meanwhile, vital German heavy industry has already started shutting down.
> I was mostly talking nuclear power shutdowns btw.
There is some confusion here: the issue is not necessarily about pure electrical power alone. You need oil and oil based products for most of the things (plastics, fabrics etc.).
> Lack of confidence in future economic improvement.
Germany is still the 3rd biggest economy worldwide. If you want to stay in Europe (as per your other comment) and future economic improvement is your biggest concern, I don't see a benefit in moving anywhere else.
As USA is the main destination for IPO, wouldn't many German companies naturally leave?
Also once you are successful you can afford to pay the costs to arrange the companies affairs in a tax efficient manner e.g. utilise low tax regions with the EU such as Luxembourg and wider world.
This kind of rethorical question is annoying. If you have an opinion, state it.
> Perhaps the Germans could make their IPOs more business friendly
The main reason companies tend to get listed in the US (or, in the case of many large existing companies, to get listed there on top of their existing listing in their home country) is that the US stock market is the largest in the world, and listing there means easier access to more would-be buyers, and therefore better market capitalization.
I suspect your advice to German policymakers wasn't "somehow make Frankfurt the largest trading place in the world", but that's litterally what it would take.
In the 80s, I traveled in Germany and visited with friends. I was running my own company, and they asked me how hard it was to set up a business. I replied that it required filling out a one page form and sending $30 to the state.
They were shocked at how easy it was.
I'm not terribly familiar with the business environment in Germany, but I hear things like it's really hard to fire someone.
Not just Germany…it’s a worldwide contraction. The real economy is shrinking. The financial economy is the only one growing.1% of the world owns 43% of the assets. All the growth numbers you hear have nothing to do w real people. Here in the USA salaries adjusted for inflation have not risen.
True. The economic/GDP growth politicians love to keep bringing up has little to do with people's actual prosperity as most of that economic growth gets captured in the pockets of the top 1-10% with little trickle down.
That's why working class people are angry and feel broke despite the constant "line goes up" narrative.
German companies are reorganizing themselves to compete in a new world order. Thanks to Trump and Putin. The German industry is build for a peaceful and globalized western world order which was established by the US after WWII and was demolished in the last years. So change is necessary.
Nope, it's thanks to loosing competitiveness in some key sectors.
Trump and Putin are the convenient scapegoats but it's not Trump and Putin's fault the Xiaomi SU7 is faster and cheaper than a Porsche. It's not Trump and Putin's fault that Germany doesn't have a strong software/service industry. Germany's lack of innovation in new tech is finally catching up with them. Also Trump and Putin didn't force Germany to tie it's economy to Russian gas and invest in copper Internet instead of fiber, that was Schröder, a German. Trump was actually warning Germany about this being a risk and they laughed in his face. Who's laughing now?
Germany's economy is built on outdated businesses models around selling expensively manufactured niche products by expensive unionized workers protected by paperwork and bureaucracy that don't work in 2020s anymore when US owns the software industry and China, Korea and Taiwan the hardware industry who aren't bogged down by unions.
They've been outcompeted and now are looking for outsider to blame for their own short sighted mistakes where they chased a quick buck at all cost at the expense of the future.
Or they're doing it right and someone else is doing it wrong, often the wrong thing appeals to business as the wrong thing is quicker and higher profits. Not saying that's the case with Germany, but it sure doesn't feel like you're default doing something 'wrong' if you're scaring people who already seem to hate paying their taxes.
The business owners are doing something very wrong. They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
So when you get money out of this, you pay your fair share of taxes, like everyone.
Idk what world you live in, but Germany has clearly been in recession, unemplyment rose over the last few years and the rest of the Eurozone is in a similar condition
>They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
Empirically that seems to be false, given the number of successful businesses created in Europe in the past couple decades is way way less than in the US or China, even though Europe has better infrastructure, education and public healthcare.
Could you tell me on what data you are basing this argument on? I see this sentiment pop up in every related conversation but haven't seen the source of these claims. Could you help me out?
Yes, it means you have opened the capital, goods and service market way too much and businesses are now abusing that to avoid their basis civil duties.
The best civic thing a business can do is provide a valuable service and thereby make money. Just look at all the wonderful things we have as a result - airplanes, internet phones, air conditioning, cars, agriculture, movies, AI - the list is endless.
The Internet evolved from Arpanet, a network established by DARPA. Given that was created by a government agency, and therefore funded by the same taxes companies are trying to avoid, I'd argue that it's a great example for why companies should indeed follow their civic duties and pay their taxes.
It's also worth pointing out that many of those "wonderful things" had to be regulated by governments due to how bad their business practices and environmental effects are when pursuing making money. Sure, we have cars, but that's coming from the same industry that brought us leaded fuel and global warming.
The internet evolved from the telegraphy network, which was not created by the government.
Besides, I've listed several times a number of other networks that sprang up. If it wasn't Arpanet, one of the others would have become dominant. The reason is simple - anyone with two or more computers tried to connect them together. The notion that we'd still not have any interconnections between them if it wasn't for Arpanet is just silly.
As for bad environmental effects, socialism has a much worse track record. Free markets produce enough surplus that costly mitigations become practical.
> The internet evolved from the telegraphy network, which was not created by the government.
Claining that the internet evolved from telegraph is very much bad faith, but the worse part about this argument is that it's wrong: the first country-scale telegraph network was indeed funded by the French government[1].
> As for bad environmental effects, socialism has a much worse track record
Why are you guys obsessed so much with socialism? There is no mention of socialism anywhere in this thread. Government funding stuff has nothing to do with socialism in the first place, otherwise it would mean that every developed country is a socialist one, with the only non-socialist countries being failed states like Somalia which really isn't the argument you want to make.
> Free markets produce enough surplus that costly mitigations become practical.
“Free market” doesn't exist, it's a propaganda phrase with no basis on reality. The government always and everywhere has a key role to play in the economy, by counteracting all kinds of negative outcomes that arise from markets (mitigating crashes or maintaining consumer trust through regulations to name a few).
Those comments seem to me to be a combination of Dad jokes and “home truths” from someone who has lived long enough, witnessed enough, and whose career achievements are objectively impressive enough, that their perspective should be at least a little food for thought.
Of the “home truths”, of course people can disagree and debate them, but we should ask ourselves what we know that they don't know before dismissing them out of hand.
All that aside, we still don't call people we disagree with trolls on HN; that's a term reserved for consistently-bad actors who should be banned.
I'm afraid he's not (that was pretty much Milton Friedman's position as well as all of his UChicago fellow, which is the reason why we're back to the gilded age with robber barons all around)
Not familiar with any particular book called that way.
The “Robber barons” is a phrase that have been used since the late 19th century, and the fact that the American economy had become toxically concentrated in the hands of a few back then really isn't something contentious.
The crazy thing is that as a business owner (GmbH/AG) you can’t even move to another EU country any more since 2022. As the owner of such a company it feels like I have become a slave of the government.
The ruling has been changed again in 2024. You can delay the tax when moving to the EU until you really sell the company. Because the EU ruled that the German tax rule violated the free travel concept part of the EU contract.
- enjoy owning and managing a business
- do think that owning and managing a business should come with the same compensation as any other dayjob (hairdresser or whatever)
While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.
Because it shouldn't come with the same compensation as any other day job.
Let's say you can make $80,000 as a hairdresser. You are seriously proposing that someone who takes all of the risk of
* Renting their own hair salon,
* Building up their own clientele,
* Taking out loans to purchase hair dressing equipment, and
* The thousand other things the business owner has to do in addition to actually dress hair themselves,
should walk away with the same amount we the person who just gets hired to dress hair.
No one would ever start a legal business under such a regime. It's all downside! Which is why you never see people actually owning and running businesses (successful ones at least, and most unsuccessful ones too) with the mindset you describe.
Do they actually walk out with more, though? Looking at the 'businesses for sale' listings here in the UK, I can see most of the hairdressing salons have an asking price of between 2x and 10x the statutory minimum wage. So even if the hairdresser built the business by themselves in only a few years, has never sold any stock, and has no outstanding loans, they'd probably get no more than twice what they'd have earnt as a non-entrepreneurial hairdresser over the same period. Then that will also be taxed at a higher rate.
I'm not saying that being an entrepreneur isn't a good way of making money in certain circumstances, but I think that starting any brick-and-mortar business is barely viable compared to persuing a white-collar career where one's final salary would dwarf the value of even the most successful hairdressing enterprise.
TLDR; the promise of money alone cannot motivate someone to become an entrepreneur.
This is different to OP's question. OP is specifically asking why it can't be so that the entrepreneurial hairdresser is guaranteed, in some moral sense at least, to get no more than once what they'd have earned as a non-entrepreneurial hairdresser.
They can and frequently such people are; but they aren't very obvious because they stop while the business is still small. If we don't harness greed into doing something productive then there isn't enough motivation in the world to power a modern industrial society. People like Bezos would just sit around running a local bakery or something instead.
The way the system works is people who create unfathomable amounts of wealth get to keep unreasonable amounts of it. If that link is broken, they'll stop at creating a reasonable amount of wealth and then everything grinds to a halt. If someone is in a situation where they are doing a good thing they should have every incentive to keep going and not stop.
> People like Bezos would just sit around running a local bakery or something instead.
And we may be better off as a society? The problem with greed is that it can be very destructive and has high costs for the society and environment. Thus, how much greed is constrained is in the end kind of a social contract.
Risk. There is nothing to fight against, but "we" might consider educating ourselves so that we understand why the calculation that happens through the price mechanism benefits all, and moreso than any alternative.
This has been tried in mother Russia and several other countries and it didn’t work because of math. You need to compensate the risk with an upside otherwise nobody will play the game.
It’s like rolling a 50/50 coin where your payout is 0 or 100%. Why would you play if there is only downside?
>While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.
Ironically some of the biggest european companies are related to luxury items.
The thing you're describing is an underpaid CEO position without equity. If you're competent enough to get the job in competition with people who want to get paid, I'm sure you can.
Why is that? It has been the case for a very long time for taxation; the decision gravity has to be in the where the company is. But curious if this is something else as 2022 is too recent for this.
Germany 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!
I 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.
While 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.
> 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.
> German company now has 0 in revenue, wind it down and leave.
You forgot about employees. If German employment law is anything like the Dutch one, then it means you can't wind down the company while you have employees. They may refuse to leave. Firing them may be subject to government approval, who may also refuse.
It's because the government essentially takes over the employees, buy paying non-employment money. You deciding that some people don't work for you anymore creates costs for those people and also for the community.
It's sensible, to prevent… well, exactly this kind of situation: taking away people's livelihoods as part of a tax dodge is an abuse of power. The power of being an employer comes with responsibility.
If the company's dissolving for legitimate reasons (e.g. there's no longer a market for the services), then that's one thing – but "I've had the company send all its customers to a competitor, also owned by me" is an extremely obvious loophole to work around employee protections, and it's correct that it should be closed.
It's not dumb. You're not allowed to close a business in the US until you check a lot of boxes, too. You have to show you don't have outstanding debts and so on. The banks won't let you do that because it's an easy way to escape debt. That's exactly why bankruptcy is an extended legal process.
If an employee is guaranteed X months salary upon notice of layoff in the contract, that's debt you have to resolve before you legally close. If you have a 5 year lease agreement for the property, that's also debt you have to resolve. It's exactly the same idea.
You're confusing "winding a business down" with "bankruptcy" in the US.
As long as you follow the law, there is no government "approval" of a dissolution. You notify shareholders and creditors, then resolve any outstanding payments, then dissolve.
You haven't said anything new. "As long as you follow the law" is basically what I described. You're taking the requirements of clearing your debts and burying them under a phrase, and then claiming you're saying something different.
In part, "following the law" means "clearing any outstanding debts."
You seem to have ignored the important distinction - there is no government approval needed.
Even if you have outstanding debts, you can still dissolve the LLC. Of course creditors can cause trouble for doing that, but there is no government approval in the process.
In every state in the US I'm aware of, you must file for a certificate of dissolution with the state department. You can't do so unless you're in "good standing". In effect, you're not allowed to complete the dissolution until the state permits it.
a quick check says it isn't. you only have to consider the notice period which depends on how long people have been working there. which means you can't wind down in a hurry but there is no right to refuse to leave nor any refusal from government.
Better do it properly. Western countries have tax departments that can make your life a living hell if you do it wrong. If you have enough resources to be subject to an exit tax, I highly recommend paying for proper tax advice.
This is fraud and you'll end up in jail. Your company is not "you". You are a shareholder but as a CEO, you should do what's best for the "company" and what you described is criminal activity to bankrupt the company.
It's not bankruptcy if the company has no liabilities. You're allowed to wind down a profitable company because you can't be bothered running it any more.
A question of legality might come from German authorities determining if this is solely to avoid tax, which is open-ended. It might be hard for them to make this argument if you can prove you transferred operations to country X to maximize company's growth, access local talent, closer proximity to customers etc.
Regardless, anther commenter pointed out that the exit tax applies to all companies that you own regardless of location. In that case, the approach isn't feasible.
Also it goes without saying, seek your own legal advice rather than trusting random comments on the internet.
> You're allowed to wind down a profitable company
I can't speak for all jurisdiction but on one that I worked in, this is not legal. This might be more defensible if the company really is just you but not if it has employees and can operate with a different CEO than you.
I guess if you have a limited liability company but in some countries at least you don't have such duty when running a one person or a small partnership shop.
I dont see how you couldn't structure this with an offshore licensing deal. Ie Irish company picks up 99% of billing, German company sends Irish company license fees etc and reduce profit of German company to zero for three years.
IANAL, but it seems it also applies to foreign companies. Who owns the irish company? Also tax authorities tend to look very carefully at these transfer pricing arrangements as you are also potentially dodging the corporate tax rate.
> And then your exit tax is calculated by taking the average of the past 3 years of earnings of that company, multiplied by 13.75 (which is crazy), and then taking 60% of that which is taxed at your personal income tax rate (likely 42%; Teileinkünfteverfahren)
This does not match the results from 5 minutes of googling, not for individuals at least. What is being taxed is the shares you're holding, as if you're selling them, which results in a tax on their increase in value compared to when you've bought them. [disclaimer: I just did a quick search on this, I'm not a tax consultant or lawyer.]
I haven't looked for the regulations on companies moving their headquarters away from Germany. It's possible those rules are the above, and the author confused them with the rules for individuals.
Either way, if the author believes they're right, they should dig up some citations. There are none in that article. Is this based on advice they've received? Did they do their own research? Are they a tax consultant or lawyer? 13.75 is a very "spottable" number, how about a link to the law that has that number?
- First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
- The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
- Factor 13.75 is defined in Bewertungsgesetz (BewG), § 203 Kapitalisierungsfaktor [3]
- The tax rate of 42% is the marginal tax rate in Germany (at least below €250k income, beyond that it's 45%) - so the assumption here is that, in the year in which you leave Germany, you've already had some salary income (say, €90k) which bumps you into the marginal tax rate for any additional income on top of that.
> - First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
You're misreading that law. It says moving away is equivalent to selling shares and that §17 EStG is applicable. Which in turn says:
(2) Veräußerungsgewinn im Sinne des Absatzes 1 ist der Betrag, um den der Veräußerungspreis nach Abzug der Veräußerungskosten die Anschaffungskosten übersteigt.
> - The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
§199 BewG says "…kann das vereinfachte Ertragswertverfahren (§ 200) angewendet werden, wenn dieses nicht zu offensichtlich unzutreffenden Ergebnissen führt."
Key phrase there being "kann". It doesn't have to. You can probably sue against it getting applied, if they're really insisting on it. And note §11 BewG says:
"…so ist er unter Berücksichtigung der Ertragsaussichten der Kapitalgesellschaft oder einer anderen anerkannten, auch im gewöhnlichen Geschäftsverkehr für nichtsteuerliche Zwecke üblichen Methode zu ermitteln; dabei ist die Methode anzuwenden, die ein Erwerber der Bemessung des Kaufpreises zu Grunde legen würde…"
So, finding a reasonable method that a buyer would use to determine the values of the shares is explicitly pointed out.
1. Yeah, valid - I was assuming the default case of "you founded your company in Germany and are moving away at some stage". In that case, you could deduct the initial share capital (often €25k) from the valuation, as that was your "purchase price". In most cases, that doesn't lead to a significantly different outcome.
But yeah, if you actually bought shares of an existing company at a certain (higher) price, than of course the "taxable delta" might change your calculation.
In that respect, I was wrong as I assumed everything would get taxed. This is only roughly the case when you founded the company yourself in Germany, as mentioned above. Thanks for the correction!
2. True! As mentioned in my post, you can also pay someone to assess the value of your shares, which would most likely result in a valuation lower than 13.75x. You will have the additional costs of getting that assessment though, and you'll have to convince the authorities that your assessment is closer to the truth than the default valuation which is based on 13.75x.
They basically treat you as if you sold your shares or company when leaving the country. If you run a one man company that is currently making a good profit, this can become really expensive.
This multiplier would be ridiculous for an LLC you are just shareholder of but in case of one person company which usually derives most of its value from the work of the founder it's just on another level.
One person shops would rarely get 3-5x multiplier if the founder leaves. It's straight up "you belong to us" type of regulation. Next they will make you fight in the arena to win your freedom.
If you’re a one person shop you rarely run a limited liability corporation. If you just run your business an individual without a corporate structure this tax is not applicable to you.
This 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.
Sidefact: Bigger corps work around this by building holding structures etc, which is a legal soft-tax-evasion way to do this. But all the smaller businesses get hit hard, so as usual the party is paid by the lower end of the income bracket.
> 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)
"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.
There are no trusts in Liechtenstein.
They don't have the concept of trusts as they are civil law countries.
What they have are foundations e.g family foundations etc..
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.
This is one of those cases where you really need to hire a specialist, rather than listen to the internet.
Sure, you can't port your company out of germany, but there is nothing stopping you re-structuring so that you have an umbrella company based in the country of choice.
Agree about a specialist, but probably moving an existing company into an umbrella structure is likely to be considered similarly to a sale for tax purposes.
In the UK, you have to specifically request HMRC to authorise any such plans if you want to avoid paying tax on it, and even then I believe it's only (relatively) simple if you're doing a straight share swap - so the existing company becomes fully owned by a newly created group company and the existing shareholders get the same allocation of shares in the new company. Anything else needs HMRC to assess the values of both companies and decide whether a taxable event has occurred, and what the nominal value to be taxed is. I'm pretty sure if you were trying to move an existing company into an offshore parent company, it'd be treated as a sale.
The 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.
I 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.
You 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.
> 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.
The 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
is 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.
I wasn't joking at all when I previously said in [0], moves like this is how to lose and now this is another reason why tech founders do not start companies in Europe and when a company gets too big, especially in Germany.
Just don't be surprised to see a decline in tax revenue when countries like Germany chase the wealth creators out of the country with high taxes + exit taxes.
I think the numbers in the article are mixed up.
Earnings 200k. Wage 120k. So the profit is 80k for the calculation. 80×13,75=1.100k. 60% of it = 660k.
Personal tax at 120k income = 45%. More likely less as for health insurance, etc.
660k×45% = 297k exit tax.
Which can be paid in 7 yearly rates. So 42k per year. You still have a company that has earnings of 200k.
This 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.
That 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.
Its 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.
Keep in mind there are two methods for taxation: the simplified earnings value method (13.75 factor) or the actual unrealized profit of the business. If you believe your company will not be profitable in the future because you’re moving away, you could wind it down — but you’d still end up paying the same taxes on the unrealized gain.
Why does it matter if I believe if my company is going to be profitable or not?
I have no idea what happens. It may be more profitable, it might be less profitable, it might go bankrupt. It's impossible to predict.
This is especially true for small companies because outcome depends on what the founder does in the future. Taxing future efforts which are going to be outside of the country is just ridiculous.
It also depends on how the company is valued:
If based on balance sheet (retained profits + share capital) e.g. 5×100k retained = 500k value, the exit tax is 18k/year for 7 years.
If simplified earnings method with factor 13.75 is used it much higher valuation, the exit tax is at the 42k/year.
> (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.)
Yup, this is possible. It would have to be at some fair market value, and you'd (obviously) have to tax that in Germany. And depending on how much you trust your buddy, you might or might not have to draft up some complicated legal framework that you indeed have the right to buy back your company at some stage :)
> But no, it’s not fine, because the same person was working for a salary of €0 just a few years ago and likely has nowhere close to €700k of random savings stashed away for paying some taxes.
By your own admission, this person earned almost a million euros in the past 3 years.
Oli (Oliver? Not sure which you prefer, which I realize now I should have asked a long time ago in our first call) -
Just wanted to reiterate that I really appreciate what you have done with both OpenRegulatory and Formwork, as it was a big unlock for one of the companies I helped a few years ago as we navigated our way into the QMS / FDA / med. reg. world.
While reading this as a many-times-over-founder myself, I deeply felt multiple emotions which this would bring upon me if I were in your shoes after all the work I know you’ve put in.
I hope you are able to navigate this to a happy / successful outcome for yourself and any others involved for the relevant compan(y/ies)!
I am grateful for what you have contributed over the years on the software and documentation fronts with OpenRegulatory and Formwork both.
Lots of countries have some level of exit tax on unrealised capital gains, but the devil is in the details. A painful part in the German case is that they have a fixed company valuation method that might make it untenable to leave the country.
It's one thing to tax people on assets they actually have or that are easily realisable like ETFs, as they then pay a portion of money they have ready access to. It's quite a different thing to invent a value for something and tax on that. The company ownership in question might not be realisable at anything close to that amount, especially for a startup, if you don't leave before making a profit
So don't do startups in Germany. The exit tax is just one of many reasons for that, the whole German system is bureocratic and inflexible compared to nearby countries.
The EU forces every member state to implement an exit tax to trap entrepreneurs in a disadvantageous situation (Anti-Tax Avoidance Directive).
Some countries such as Sweden implements this only minimally - making capital gains of Swedish companies you hold realised within 10 years of moving abroad are taxed, so just don’t sell in 10 years but take out credit with those assets as collateral.
Of course outside the EU, such as Switzerland and the UK, these governments are not bound by EU rules and don’t impose exit taxes.
Which is why so many European millionaires are doing their best to live in these countries
The reframing of anti tax avoidance to be a "trap", a "disadvantageous situation" is egregious.
Like maybe just pay your dues? Contribute back to the society that enabled you to become rich in the first place instead of parasitically extracting value?
Who are you to decide what is reasonable and what is unreasonable over the democratically elected lawmakers? This is a deeply anti-democratic attitude.
Democracy in most EU countries is messed up. People don't get to vote on stuff. There are usually 2-3 major parties that campaign on this or other hot issue. There is nothing that can be done about most issues even if vast majority of citizens support them.
Parliamentary indirect democracy is an illusion. It's just a capture by the political class. Will of the people has very little to do with what is done. I would love to live in actual democracy where we get to vote on stuff and popular policies are implemented while unpopular get struck down. It's even worse than American system where at least you can vote for your representative who has some independence. Here they are just a party official and if they don't vote along the party lines the party will run someone else next time around. Their loyalty is not to the electorate.
- A printer (the most important equipment of any German startup founder)
- Envelopes for letters
- A stamp with your company name (some companies and agencies you deal with require you to stamp things, because a stamp obviously proves, beyond any doubt, that you are acting on behalf of your company, because obviously no one would be able to create a similar stamp with your company's name on it, right)
- A virtual office address at a coworking space (because you're receiving physical mail, and also there are weird tax reasons not to register your company at your home address)
- A mail-scanning service (because you don't want to walk to the coworking space every few days to pick up your physical mail)
- A mail-forwarding service (so that the mail gets forwarded from your virtual office address, which now has exactly no purpose at all, to your mail-scanning service)
A good one! I remember I needed a stamp when I started a business in Poland as well!
I've never used it and never was asked to so I guess the regulations no longer apply.
Poland is pretty good at digitalizing bureaucracy as well. You can do most things online including talking to the tax office and solving problems with your tax declarations.
Taxes are reasonable but
I am still bitter about cap gain tax as it's a form of a wealth tax for someone that invest in equities - at some point moving to more tax friendly jurisdiction saves enough that you can fund your comfortable life and save 100% of your income.
I also think tax burden is going to increase significantly there in coming years.
Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far.
That being said, it's probably overly simplistic to blame political parties for this - there's a lot of e.g. county/state-level bureaucracy in Germany which gets in the way of making any sort of constructive changes. It's a bit like blaming the CEO of a bloated company for not making it "agile" in a short period of time. Sure, leadership is important, but the reality is, it's.. complicated.
> 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.
I would think it's a joke but once literally had an office clerk in Germany scratching with fingernail my signature to check whether it's by pen and in the right color.
He actually lived in Berlin for a few years before he died. But you're right, he spent most of his life in Prague. However, his native language was German.
Certainly an interesting man. I highly recommend checking some of his work (ie. The Metamorphosis).
anyone 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
It's an exit taxes, but as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That doesn't seem particularly unfair. If you can image a scenario where someone buy Apple at $1, and it's now worth $1,000. They just leave Canada, pay no tax, then sell in a low tax jurisdiction.
However, it can be a massive pain in the ass for illiquid assets or assets you don't intend to sell at that point in time. A good example might be a pension. Getting hit with a tens of thousand dollar tax bill for a pension you won't receive for another 2 decades is painful.
> as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That is also what Germany does. The 13.75 multiplier is the fallback number used if there is no valuation for the company. It's such an irrelevant number that tax advisers writing about the topic don't even bring it up. Get a valuation.
They do tax on residency rather than citizenship. If you are a structured embezzler in another country, than expect the CRA auditors after 184 days in Canada.
Also, Canadian laws don't stop at the border as a citizen... so breaking laws in other places still puts you in legal peril for extradition.
Notably, corporate tax rates are often much lower in Canada, and export free trade is available with most trading partners. Note the US taxes on citizenship regardless of where you live (or if you hold multiple citizenship), and failure to file your IRS statement was an $8k fine last I heard. The fine often stays even if you owe the IRS $0, and temporarily live in another region.
The TLDR version: talk with corporate tax accountants in each region before filing, and do not assume the late tax filing fines will magically not apply to your situation. AMCHAM will usually help guide investors on their filing obligations for type C corporations in the US. =3
That is nuts, I always assumed that would fall under the capital gains taxes in the investors T5 filing at the end of the year. (could be dramatically lower rate if you get stuck with cash at the end of the year)
Now I know why the brand trademarks are usually held by an independent entity, and licensed to a domestic number company.
I guess that is why we pay the corporate accountants. lol =3
not sure how useful this is. germany is a great place to live, safe, with great infrastructure and access to europe, good food, lots of personal freedoms, orderly society, few overtouristic’ed cities, and a thoughtful populace for the most part.
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.
Or you could pay your fair share to contribute back to the country that supported you initially by providing education, labour, infrastructure, etc.
The moment we talk about piracy it's all about how poor billionaires will have to sleep in their cars if you make a digital copy of something you would not have otherwise bought, but when it comes to supporting the society that created you and your wealth, suddenly it's all about finding ways to weasel out of paying.
No, 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).
> 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.
> 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.
Actually you can. Nothing motivates you more than the lack of basic necessities. When you're poor, you have only one option: do whatever it takes to not be poor.
The reason many poor people stay poor is because they lack discipline and grit. They would rather stay poor than grind for 8-12-16h a day to get out.
Rich people don't go robbing less rich people at night and that's how they get to be even richer. Stop blaming all the world's problems on "the rich who want to be even richer".
> Actually you can. Nothing motivates you more than the lack of basic necessities. When you're poor, you have only one option: do whatever it takes to not be poor.
I am not rich my any means. In today's definition of classes I guess I'm somewhere middle class with a chance of making it to upper middle class by the time I reach retirement age.
But, I grew up very poor (shoes with holes in them going to school type of poor) and that motivated me to do more, learn more and hopefully achieve more than my predecessors.
And for this reason I abhor all the "only the reach get richer and other's people misery is all their fault" mantra.
Let me guess, you did it all by yourself - you worked nights to pay for your school when you were seven. You grew your own wheat and baked your own bread.
Yes, the single mother working three jobs in America who still can't afford healthcare for her children chooses to be poor. It's like success gets to your head and pride takes the place of empathy.
> An yet in the current discussion, only the rich get to profit from it.
In the current discussion, it’s about people who built their wealth from _zero_ by working overtime for years of sleepless nights, sacrificing their health and personal relationships — bootstrapping entrepreneurs.
You kinda say: yay, fuck this greedy capitalist with taxes, we don’t want this kind who lift themselves from poverty through a lot of work. Instead we want people to stay poor, relying on government handouts, and only allow our usual masters with generational wealth not pay taxes, nobody is allowed to join the upper class through honest work.
> They're barely surviving because the rich keep sucking any chance of building wealth out of them
I have strong impression that you don’t personally know any person actually barely surviving (not only in Germany, but in any other country as well), and you base your opinion on pictures from social networks, where mentally ill working-age people beg for money to buy their next dose of alcohol or drugs.
> When inequality is low, more people become rich.
This literally never happened in the history of humankind when the taxes were this high (~20% VAT, up to 50% personal income tax) — feel free to provide a counterexample. Taxes this high is actual slavery.
It is quite funny how exactly the current amount of taxes being requested by the local government is magically "fair." Although, of course, if taxes were raised, I'm sure you would still call that "fair." And countries where taxes are lower...well, the citizens must be scamming their government, I guess?
> And countries where taxes are lower...well, the citizens must be scamming their government, I guess?
Yes. The happiest countries have the highest taxes because they tax those able to contribute so that everybody has a decent standard of living. Who do you think works in local government? Aliens? It's the people who live there.
Wow. Can't wait for you to win the lottery and pay the government 80% of what you won in taxes and be happy about it.
Do you even know anyone poor? As in living off on less than $2-$5 a day? Or whatever the definition of poor is in your country? And if so, can you share here with the group why they're poor and continue being poor?
Why do I need to know them personally? Is it not enough that they exist? As I wrote above and you dismissed:
> "Yes, the single mother working three jobs in America who still can't afford healthcare for her children chooses to be poor. It's like success gets to your head and pride takes the place of empathy."
Berlin wall of tax? Seriously? Nobody gets shot trying to cross the border here and it's clear that the ones who can afford a decent financial advisory will get around most of the regulations anyways.
I don't see how this business economist whining belongs on hn.
Here we go, the usual blurb. In practice you need to really cause trouble for anything to happen to you but, anyway, this is quite irrelevant to the point here.
Uhm 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.
> 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.
EU countries really like turning the screw on small business owners. They come up with all those requirements, taxes and limitations and then when they notice the world is getting ahead their idea to fix it is to raise taxes even more and create "business incubators" where government officials redistribute part of it to their buddies.
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While rather sarcastic, your comment does hit an interesting point: How much does the infrastructure and society of any given state contribute to the "building" of a company?
I'd argue that, for software companies, not very much; at least if you contrast it with a hardware company. If you're, say, forging steel, you're using roads, trains, a lot of electricity, you've got an industrial plant, worker unions, public accident insurance, etc., etc. - a significant chunk of state-associated infrastructure is a part of your business, and was a part of your business when you built it.
But for software companies? I mean, you need a stable internet connection, good mobile phone coverage (tricky in Germany sometimes), rule of law, efficient bureaucracy (e.g. when hiring people), good banks which don't lose your money, electricity, etc. - none of these "infrastructure factors" feel as big as the ones for a hardware business.
On the contrary, for a software business, one could argue that Germany is actively hostile to you: Founding a company takes weeks / months and is expensive (notary), most processes are still paper-based, hiring people (especially internationally) is a huge pain, mobile internet is spotty, residential internet has outages. Charging customer credit cards via Stripe exposes you to a rabbit hole of VAT bureaucracy - all companies I've met so far rolled their own, broken software stack to somehow match up their Stripe + VAT charges with their internal bookkeeping software (e.g. Datev). A huge mess. It doesn't end there.
> You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
This is a great point.
The flip side is that if a government fails to deliver those, they have failed their side of the social contract. Then ideally, the citizens they've failed should be able to opt out..
What about a software company founded in Germany by someone who grew up in another country, and accordingly got their education elsewhere?
What if that company is a remote company which hires people all over the world, and none of those people benefited from the {education|peace|law enforcement|trust} in Germany?
I do agree with you, in principle, that a company is somewhat coupled to the country it was founded in. The exact nature of that coupling, however, is not that simple, I would say.
> I'd argue that, for software companies, not very much
If you build any successful business, including a software business, in a lawless and corrupt country you will have local mafias try to extort you for money the moment they hear about it. In especially corrupt countries, corrupt cops/prosecutors etc will be in on it so there will be nothing to protect you. Blackouts will be common due to a poor power grid. Likewise, internet access will be unreliable, slow and expensive due to poor infrastructure.
A country like Germany is absolute godsend compared to, say, Nigeria or Cambodia.
While minimal infrastructure investments would need to be made to entice software companies, their is a political price to pay by allowing young business people into your country who likely will out-earn the average resident (many historical examples of this). This makes the majority of people unhappy, but brings in educated-non-criminal customers and tax dollars. Lets say Germany does (1) great, they attract 1000 smart europeans to found companies, and 10 years later 1 of those companies becomes a megacorp.
2. Keep software companies happy
10 years has passed, new politicians are in charge. Pursuing #1 is a separate strategy to #2. I would hope i live in a country that wants to (1) attract young talent and (2) keep talent happy, but of course thats not necessarily true. The new politicians in charge need to appease the majority of people again as its election season!
I think Germany / USA can't really have an honest conversation about this as Germany + USA already have highly progressive tax systems. A significant % of USA and Germany residents don't pay any reasonable amount of tax, and are drains on the tax system. I assume these %s are likely projected to grow in the future rather than decline.
If the price of bread happens to rise? Then our politicians and voters will support squeezing more tax out of productive sects of society for the short term gains. Then those productive and mobile members of society will slowly move elsewhere.
"If you comply here, you will be compliant in almost all EU countries or even around the world" situation, many qualified students, international talent pool due to attractive cities, quality of life, startup grants/funding, hotspot for B2B fairs...
Presumably you paid for that infrastructure in the form of taxes while you did business in the country. Why, then, should the state have additional claims on the money you made? Were the taxes they collected already not enough?
That's not what the exit tax is, though. The German exit tax is effectively just a way to give the existing capital gains tax a way to tax unrealized gains when you leave the country, to prevent you from dodging taxes on capital gains by simply leaving the country.
In other words, it's not an additional claim. It's simply an enforcement mechanism for the money you already hypothetically owe.
Yes, that's true, but the implementation is.. not very elegant.
In theory, the exit tax should ensure that Germany gets the taxes of the sale of your company. So, if you ever sold your company once you're no longer in Germany, Germany wouldn't get those taxes, so it charges you immediately once you leave Germany in a sort-of "virtual" sale.
This, of course, sucks tremendously because you actually haven't sold your company, and "normal" people don't have this sort of cash on hand.
Other countries have "smarter" exit tax implementations and only charge you when you actually sell your company in the future. I think that's pretty fair. It also doesn't hinder people from leaving the country.
Another reasonable implementation would be for the government to accept payment in the form of shares of your company. Personally I think this is how all taxation of illiquid assets should be done, but I suppose it could get complicated.
As an immigrant to Germany, I've often made the observation that Germany frequently has a really severe implementation problem. So I'm generally very sympathetic to that idea.
That being said, I'm not entirely sure that's the case here, and this is often also brought up in the context of strengthening the inheritance tax in Germany. In both the inheritance tax and the exit tax, the inherent applicability conditions are such that the end result is that there simply aren't that many people in a situation where it actually has a measurable impact. For the exit tax, you'd need to find people who 1. want to leave Germany, 2. already started a company here, 3. that company grew large enough that the Wegzugssteuer would really be a burden, and 4. that don't have enough liquidity, or cannot raise enough liquidity by selling some of their ownership, to cover the tax. That ends up being a really small number of people, which always eases questions about the reasonability (Angemessenheit) of the law. And in the context of inheritance tax, there's the added point that there's a floor to its application.
As another commenter mentioned, even for those situations where the exit tax actually is burdensome, just as with inheritance tax, there are two really simple solutions: first, create a floor for the minimum valuation by which the exit tax is actually assessed, and second, allow you to "sell" shares to the German government as a means of paying the tax, turning the Finanzamt into a silent shareholder in the company. I think both of these would be substantial improvements to both the German exit tax and inheritance tax.
In Germany only 40+% of your income goes to taxes and social security. Plus another meager ~20% on most things you buy. Plus a small tax on many things that are supposedly bad for you, like ~70% on cigarettes. Death is taxed at a discount, only 15-40% depending on how rich you were.
This take is wildly out of sync with the reality that the U.S., as one of the few developed nations without free healthcare, pays more for their healthcare than all of them while having worse than average outcomes.
The worst healthcare is in reality American healthcare. We pay through the nose for the privilege of getting terrible results.
Switzerland has almost the same system as the US, and it works - when my wife needed an MRI, she got referred at around 11am by a specialist, for a call around 1pm to see if she's available that afternoon. She wasn't so they agreed on the next day.
I received a CAT scan a couple years ago, about 4 hours after I wandered into urgent care. Before they stuffed me through the toroid, I asked the operator to set the dials to 1988 so I could advise my former self to buy MSFT with everything I had.
The bill was quite a whopper, though Obamacare paid most of it. Of course, my Obamacare premiums are about 4x what they were before Obamacare.
Of course. And historically, US health care costs rose at about the rate of inflation until the late 1960s, where the curve tilted strongly upwards at a much higher rate, and continues today.
What happened in the late 1960s? The advent of "free" healthcare!
I think most people would be okay with an exit tax if it's reasonable. Requiring the owner of a business generating €20k in profit to then pay €70k in taxes is not reasonable.
Canada also has an unreasonable exit tax. Canadian founders are taxed on 50% of the FMV of their shares on departure. So if you own half of a company that is worth $50m, your taxable income for the year of departure is increased by $12.5m.
Agreed. As mentioned in another comment, I think it'd be fair to levy the exit tax when you actually sell your company in the future. Like, if I ever sell my business, I'd be happy to pay my fair share of German taxes on said business, even if I'd no longer be a tax resident of Germany.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
The idea that a company is "siphoning out" value is fundamentally flawed. The company is creating value, and society enables it.
This enablement is ongoing, and should be paid for with ongoing tax.
If the actual value creator decides that they can get a better deal somewhere else, then barriers to exit come in because the government is trying to get more out of a company than it provided. (Since if there are superior places to operate, the worth of what the state you are leaving provides must be overvalued, otherwise you wouldn't leave).
Perhaps you would apply the same logic to a family car, or the clothing you bought? Should they tax the value of your medical degree when you leave the country?
Exit taxes are generally applied as if the taxpayer sold all capital assets on the day of leaving.
At least in the US taxation regime (I'm unfamiliar with others), family cars don't qualify for a capital loss, and rarely appreciate. Clothing would be similar.
But it doesn't seem unreasonable that a country should want to be paid tax on unrealized gains as you're leaving. It would probably be more fair to wait until the gains were realized and then apportion the gains among the countries of residence, but if you're leaving, it's going to be hard to compel your participation later, so it makes more sense to do it as you're leaving.
yep, there’s a reason these people start their businesses in stable economied countries, yet certain groups of them do everything to pretend they owe nothing back.
i’d love to see a comprehensive study on how much corporate tax avoidance costs a country vs food stamps so we can get an accurate view on who leeches/gains more. my suspicion is corporate wage theft/tax avoidance/evasion/subsidies are significantly higher, particularly if we add in executives and major stock holders.
In the article it shows that very rich owners can evade the tax (probably they've already planned and left!), while middle class people the tax wipes out their business and probably send them bankrupt. It's more like handcuffs than socialism.
I am sure they could achieve the same goals of fair tax but learn some game theory before doing so.
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The developed world is increasingly facing a funding crisis brought on by this propaganda that if we tax corporations and the very wealthy then they'll leave.
One of the most farcical examples of this is the decades-long race to the bottom on business taxes and incentives between Kansas City, Missouri and Kansas City, Kansas. For the non-Americans out there, this is basically one city but it sits at the border of two states. So the two states are constantly torching money to lure businesses that play this system and simply go back and forth.
I believe this situation will come to an end and there are several reasons for this:
1. For the EU in particular, reliance on US tech giants is increasingly becoming a security issue. The Eu will increasingly wants homegrown alternatives so the option of leaving will simply not exist because you could leave but then you lose the EU as a customer;
2. For a long time multinational companies used transfer pricing to avoid paying taxes. What's transfer pricing? Let's say you buy a sofa in China for @200, ship it to the US for another $200 and then sell it for $1000. You've made a gross profit of $600. What if instead you have a subsidiary in Vanuatu, which has no corporate income tax (AFAIK), and it buys the sofas for $400 and sell them to the US company for $950? Well, you've booked $550 in profit where there's no tax and only $50 profit where there is.
That's technically illegal. It's often-called transfer pricing manipulation.
So what do tech giants like Google do? They sell their IP to an Irish subsidiary. There's a nominal process to make sure this is done for a "fair" value (according to the IRS). Then they pay royalties to their own Irish subsidiary to shift profits to a lower tax regime. Previously, this created a problem because they couldn't repatriate the money without paying (then) 30%+ corporate taxes but this all changed in 2017 with a tax holiday and a change to how this kind of income was treated. The net result was way lower than 30% net tax however, even with Biden's 15% minimum tax (which was a good thing) that came later.
What's the difference between this kind of profit-shifting with IP and transfer pricing manipulation? Absolutely nothing, except one is illegal and one isn't.
3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK; and
4. While individuals may be able to notionally "leave", assets generally can't. Land can't be moved overseas. Natural resources that are mined or fished or logged can't be moved overseas. So it's really an empty threat.
I'm really sick of this "the businesses will leave" propaganda.
> I'm really sick of this "the businesses will leave" propaganda.
I don't think anything you've said convinces me it's propaganda.
Businesses are profit-seeking ventures. They will optimize their operations to maximize profits.
So I'm not sure why you'd call it "propaganda" to say that companies will leave. I think the evidence is that they will.
Of course, taxes are not the only variable in a profit-maximizing formula. US companies aren't going to flee in mass if Somalia decides to have zero corporate taxes. But you can't ignore that companies will optimize their operations and structure if they can lower taxes.
Why are taxes so high though? Like in Sweden I'd pay literally 80% tax on extra sole trader income - 30% employer tax, 30% income tax, 20% high income tax.
But there is no Swedish moon base, or ultra high speed rail, etc. - where does it all go? We have higher taxes but less infrastructure investment than a century ago.
Because we don't tax the people with all the money. It's why someone making $100,000 a year loses probably half of it or more to federal, state and local income taxes, property taxes, sales taxes, etc and Warren Buffett pays 3%.
There is a persistent idea that we cannot or should not tax wealth because it's "unfair". We certainly can. We do it all the time. Property taxes, depending on your jurisdiction, are either taxed based on assessed value or whatever the assessment method is correlates strongly to property value.
I can't speak to the specifics of Sweden and its tax base but in general a key problem in the developed world is the skyrocketing cost of housing. Why is this a problem? Because it's an input into the cost of everything. It makes your labor more expensive, which in turns makes what they do more expensive. I have heard getting an apartment in Sweden is rather difficult. Stories of having to register at birth and waiting 20+ years. I could be wrong.
But everywhere in the developed world has high housing costs (in terms of real income) because we constrain supply, subsidize demand (particularly to the very rich) and allow people to hoard housing.
You can probably find more detailed breakdowns if you're really interested. But overall, most expenditures are probably in the categories healthcare, transfers to lower-incomes and education, like in most other European countries, and you probably won't find anything nefarious by looking into more detailed splits.
If "businesses will leave" was propaganda, you wouldn't need an exit tax, would you?
If there is an exit tax because companies would leave otherwise, why would someone rational start a new company in the country rather than leave first?
Governments have extraordinary powers to bring individuals and corporations to heel if necessary. Governments can:
- Charge exit taxes on people who "leave". As someone else pointed out, the US already does this with citizens who renounce citizenship (and it applies to long term permanent residents too);
- A lot of assets simply can't leave. Physical assets, land, etc;
- Assets and corporations can be nationalized;
- You can use tariffs and other legislative methods to punish those companies that "leave";
- You can also just deny access to a market for pretty much any reason you want. For example, Huawei is heavily restricted in use in American telecoms infrastructure for "national security" reasons; and
- You can generally impose cvarious levels of capital controls to limit the inflows and outflows of capital in pretty much any way you want. China does this heavily.
China is often criticized because the companies are an extension of the state. That's true. They are. But what we have instead is governments that are extensions of corporations. Can we really say that's working out better?
The US economy is rapidly becoming Russia. Russia has autocratic rule with oligarchs who pay fealty to Putin. In return they can do whatever they want. Do you really think we're different at this point?
Compare that to China. China isn't afraid to "disappear" their billionaires for awhile to bring them into line aka Jack Ma [1]. Exactly where he went and why and what happened is still unclear. China continues to crack down on tax evasion by so called "yin and yang" contracts (eg [2]). And China executed two for a scandal involing tainted baby formula [3].
What do we get? A world where governments can't punish companies for offshoring because that violates "free trade". Companies can take governments to a WTO court. And have.
>3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK;
Wasn’t this only a thing while the UK was in the EU, because the EU expressly allowed it?
You're not wrong. The reasons why come down to really one or more of these factors:
1. To lower labor costs. For example, the Big 3 auto makers are unionized. Tesla's manufacturing isn't. Guess who earns more? [1];
2. Deregulation. Some things (eg polluting) are way easier to get away with in Texas than, say, California;
3. To shift the tax burden from the owners to the workers. Texas famously has no state income tax. It does have sky high property taxes though. Property taxes are a super regressive tax;
4. For the politics of the owners; and
5. Other miscellaneous reasons. For example, Texas is about the absolute worst place to get divorced for a spouse who is a parent and isn't the primary income earner. Why? Texas courts won't let you move out of state with the children [2] and child support will be severely capped [3], even if, say, the other parent is a billionaire.
I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it.
If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a year to sign off on having done the management within Germany.
You do need a bit more expensive tax advisor, but it's not that difficult. There's a description here: https://www.juhn.com/fachwissen/internationales-steuerrecht/... (3.1.)
Of course, if you want to move the company out of the country, you'll need to pay taxes on any value increase the company had. As others have described this is pretty reasonable though - you get taxed exactly as if gains were realized. This is tax you would have had to pay some time in the future anyways, except by moving to a tax-evasion country.
The only unreasonable part of the law is how they can assume your valuation based on earnings, but that only applies if you can't provide a valuation based on German standards.
Exactly, you need to get proper advice on how to structure your business in Germany. Basically, putting your shares in holding companies is both common and not dodgy. Corporate taxes are more friendly than personal income taxes. You can do constructions with salaries, dividend, etc.
Doing this is standard practice if you are founding a company. You need to plan for your startup to be actually successful and being on the receiving end of a big exit. You can't just wing it and hope for the best.
Germany has a large amount of wealthy small investors, business owners, family owned businesses, etc. And many of those might retire in places like Spain, Italy, etc. There are ways. You just need to understand the system.
That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.). But once you know the how this backwards and dysfunctional system works, you can get it to work for you. Because painful as it is, the system does work more or less as advertised. But you do need to familiarize yourself.
BTW. this is a topic where LLMs can be helpful. You can skip a lot of the traditional advisers and other middle men, if you are a bit smart on that front. Using an accountant is actually worth the money for liability reasons. So don't skimp on that. But otherwise, knowing what you are getting into in terms of bureaucratic process can save a lot of time.
> this is a topic where LLMs can be helpful.
That's probably the very last spot where you want to use an LLM, especially not in Germany. One single mistake can cost you a fortune, and you won't be able to spot the mistake because you're not an expert. LLMs could be used to prime you for conversations with an expert (but be prepared to be corrected on points of law and fact) but they are no substitute. Corporate law is a legal minefield, tread with utmost care.
The whole proposition is in a way bizarre: if you have this problem you almost certainly can afford proper guidance and if you need to resort to an LLM for that guidance you almost certainly don't need such complex constructs in the first place!
I would say not with tax law anywhere. It is very complex and has all sorts of interactions between things - e.g. double tax treaties.
That said, a lot more people would probably use complex constructs if they were not so expensive to set up because of the advice needed. I just do not think LLMs help.
RAG are quite good with tax codes. That’s not particularly surprising you have documents telling you exactly what can be done and what is hard is knowing everything inside and putting everything together. That’s pretty much exactly in the sweet spot for LLM queries.
Crazy theory: most posts here are from German Tax office. They give a "free" advice, and send a fat tax penalty 5 years latter! Suprise: you never left!
If the German tax office is actually using HN for such schemes I'd have to give them more credit for using technology effectively than I currently do. It would be funny if they did though.
If you move back to Germany within 7 years, you actually don't have to pay the tax, so this would be a pretty poor use of their time :P
That's a point for that theory, not against ;)
Who's the German equivalent of the American Certified Public Accountant?
Those shouldn't be prohibitively expensive; even small businesses in the US can typically afford one. Just go ask them.
Those shouldn't be prohibitively expensive; even small businesses in the US can typically afford one.
Having an accountant is one of the hallmarks of a legitimate business.
If you're doing it on your own without a professional to watch out for you, and advise you, and take care of the details so you can do more important things, it isn't a company, it's a hobby.
Even hobbies are sometimes better done with an accountant. if you sell your garden surplus at a farmers market for example. They are not expensive if you only need a little help and can save a lot of trouble.
"That's just moving fast and breaking things and disrupting industries." - someone in SV right now reading this, probably.
I'm not saying use it blindly. But it helps going into discussions with experts, advisers, etc. with some preparation and knowledge. Worst case you are wrong and they'll correct you and best case you pre-empt some actual problems. And it's not like advisers, accountants, etc. don't make mistakes, overlook stuff, or sometimes work against your interests. It helps being a bit hands on. And LLMs make that a lot easier.
Also LLMs are great for picking apart complex bureaucratic procedures, figuring out what next needs to be done, what the meaning is of some 10 page pile of crap the tax office dumped in your mail box, etc. Especially if you are not a native German speaker. You can ask your critical questions, get it to explain stuff you don't understand, etc. In the end, you are responsible for your actions. Limited liability in Germany isn't that limited. So, spending some time on figuring out whether you are doing it right is hard work. LLMs help.
But yeah, don't vibe run your private finances and sources of income.
C'mon Jilles, as we say in Germany "no risk, no fun"
> That's not to say that Germany is not a huge PITA when it comes to managing all these constructions, dealing with the bureaucracy, and the maze of silly government agencies that refuse to share even the most basic information with each other so you are stuck in ground hog day providing the same information over and over again (who are you, where do you live, what is your company registration, etc.).
That's where you hire a professional accountant. Which you should be doing anyway at the point where you raise any sort of external funding that's not family members.
I don't get why people are always complaining about German taxes. As long as you're small, you can just wing it. And when you pass the threshold, professionals are cheap.
I'm not complaining about the taxes but the bureaucracy. And the taxes definitely require an accountant here because of the complexity of the tax law and all the intentional loopholes in there for people that can afford an accountant. Accountant lobbies are fierce in this country and they like being necessary. So a lot of sane things that other countries are doing to keep things simple haven't really happened here. I never lived in the US but from what I know of it, it's actually one of the countries that is worse on this front. So, if you move here from there, it might be an upgrade.
Anyway, I call the German attitude to this topic Stockholm syndrome. The thing is, I've lived in four countries in the EU so I know how things can be different, more efficient, etc. When I say Germany is a PITA, that is relative to the Netherlands, Sweden, and Finland and based on my experience with those countries. Which isn't even that recent. Those countries were miles ahead of how things are in Germany today decades ago. And I wouldn't exactly refer to Finland and Sweden as tax havens.
Taxes are quite high here. Fun fact: when I moved to Germany from Finland, it was an internal transfer for Nokia. My salary was compensated up because of the higher tax and insurance cost in Germany. From Finland! Of course, the cost of living is quite a bit lower here. So this was a nice thing for me. But it's not a cheap country.
No reasonable person on the planet can look at that table showing a €700k exit tax on a company making €200k/yr profit and think "yeah that sounds fair."
The article admits that the 700k figure “assumes the worst-case scenario that you take the high valuation of the financial authorities (factor 13.75) as base valuation for your exit tax. Instead, you could also find someone to assess the real value of your company, which is likely lower…”
A reasonable person could absolutely think it’s fair to impose a very high exit tax on someone who doesn’t want their books examined even when it would save them money.
If you ever had to deal with German tax authorities - assume the actual worst case scenario.
That’s the penalty tax if you refuse to file the paperwork. So it’s literally the worst case.
Plus the article is wrong about not being allowed to move out of Germany. You still can, without paying the tax, you just need to keep a shell UG/GmbH alive inside Germany.
That's because reasonable people don't just look at two numbers and go "That's crazy", there is context and nuance to be understood, so give reading the entire blog post through instead of just skimming tables, and come back and tell us why it's unfair.
It's a math problem - you don't need a ton of context to understand it (although I did read the entire article). This is simply the German government being petulant and punishing successful people for moving a company somewhere that understands how to create proper incentive structures for businesses to grow.
If you as an individual make €100k a year in salary, saved €20k every year, and the German government wanted to charge you €70k just to move out of Germany it'd be grounds for rebellion.
> petulant and punishing successful people
What reason could they possibly have for "punishing successful people"? You seem to still miss almost the entire context, and automatically apply some bad faith arguments because of what, you feel like paying taxes is unfair?
Paying taxes is good, lawful, even patriotic. Also good and lawful is moving a company somewhere where you'll pay less in taxes and can grow faster and hire more people (and is at worst patriotically neutral).
An exit tax is a country saying "oh no that's bad, so instead of looking at our tax structure and seeing why you're leaving and trying to address that, we're going to charge you >3 years of profit as a punishment." It's simply saying that if our taxes are too high for you we're going to charge you even more to try to stop you from leaving.
You can think it's a good thing if you don't understand economics but it's hard to frame it as anything other than Germany punishing corporations for leaving.
> Also good and lawful is moving a company somewhere where you'll pay less in taxes
Agree, to an extent. You (the company) should still pay taxes on profits made within the country, before they can move out the company from the country, anything else would be unfair.
> It's simply saying that if our taxes are too high for you we're going to charge you even more to try to stop you from leaving
You can move company for any reason. If you're moving the company because the taxes are high, it sounds perfectly reasonable that you'd pay taxes before moving the company, otherwise it becomes a tax hole. And I don't think they're adding these taxes to stop them from moving, if that was the goal then they would just make it outright illegal. Instead they're trying to make sure you can't avoid paying taxes you should have paid.
> anything other than Germany punishing corporations for leaving.
Almost right, they're trying to stop companies from leaving the country without first paying their fair share of taxes. Once that's done, they're free to move wherever. Sounds reasonable to me, although I don't agree with the exact rates either.
> You (the company) should still pay taxes on profits made within the country
This is not what exit taxes are. They are punitive taxes above and beyond what you've already paid on revenue earned within the country.
> If you're moving the company because the taxes are high, it sounds perfectly reasonable that you'd pay taxes before moving the company, otherwise it becomes a tax hole.
Again, it seems like you don't actually understand what exit taxes are.
If you earn money in Germany, you're going to pay taxes on that no matter what. Even if you leave, and the exit tax is zero, you still have to pay the income tax on that revenue.
I wouldn't say its fair, but it's good for Germany. In the US, I don't like American companies moving to other countries.
Of course it isn't good for Germany. It causes new businesses to be started and operated somewhere else.
In Switzerland, I would trust the mechanisms put in place for dealing with 'Treuhandlers' (trustees) to deal with this situation correctly. In Germany I would absolutely not if the stakes got high enough.
Ah great, not so bad then! So you just need to:
- Form a German holding company to manage the business
- Deal with any conflicting taxation/regulatory issues when operating a german holding company from your new country of residence (in some countries this is not trivial)
- Visit Germany twice per year and potentially more to deal with German authorities that require things be done on paper and in person (hope you didn't move too far away and hopefully you don't have small children!)
- Hire an abnormally expensive tax advisor, hope he is good
- Sell a large portion of the company to fund a giant exit tax bill (!!!!). For many companies this is likely a 1-2 year minimum process, and that's IF they can find a buyer. Not as many PE funds in Europe. Good luck on valuation when the buyer knows you're in this situation.
- Hope the government gives you a reasonable valuation on your company, and hope their decision is similar to that of your buyer (and the timelines for both line up), which I'm sure is a super easy and not at all complicated process.
Fun! I can't possibly see what people are complaining about.
One of the weirdest things about Europe is the irrational nationalism that arises when you tie a language, ethnic-identity, government and country into one thing. Anecdotal, but it feels like this leads to more of an inability to reflect on and criticize things. Americans have far thicker skin when it comes to criticizing themselves.
Can you not see how this incentivizes entrepreneurs to leave or start their companies outside Germany (not sure if you're aware the EU exists). Is this really how you think things should work in a non-authoritarian regime with democratic freedom of movement?
Snark aside, this chart makes total sense to me now: https://i.redd.it/fxks3skmvt4e1.png
Let's be fair here, the GP is comparing this to the complexity of other bureaucracy in Germany. In that context this does sound easy, e.g. here's how you form a GmbH: https://major-grooves.medium.com/just-how-complicated-could-...
Not that we're doing all that great here in Europe, but this list is somewhat an artifact of strong US financial markets, and skews against European innovation.E.g. Booking.com isn't there because it's now ... an American company on paper, but it was started in Europe, has most of its operations there, and (last I checked) Europe was its most important market.
But because the US stock market and US capital dominates globally, companies like that tend to be sold to a US company, and become American on paper. But that financial arrangement doesn't really reflect the overall state of European innovation.
Similarly, there's countless European startups that would have probably had a NASDAQ listing if they'd been US-based, but were instead sold to some of the larger European incumbents in their sector.
The overall amount of innovation delivered to consumers etc. might be the same, so that's more of an artifact of how capital flows in the US v.s. the EU generally.
The overall amount of innovation is absolutely not the same, you can easily compare productivity growth in both regions to see the EU is also lagging there.
Also, the chart does include companies that are European headquartered (like Spotify) unless I’m mistaken.
Even if it didn’t though, don’t you think it’s a problem that a group of 600 million people cant form an attractive enough capital market such that its companies wouldn’t need to go abroad to a group of 300 million people to go public?
This is the weak complacency I’m talking about, as someone living in Europe it’s maddening.
I have no idea how you managed to read "this list is somewhat an artifact of" and "skews against" as a claim that the two would be "the same" if not for what I was pointing out.
Germany seems like a great country to be an employee as long as you're happy with making a fraction of what you'd make in any other country and have no designs of doing anything more with your professional life. Provided you can even get a full-time job since they seem to treat keeping your job as a civil right.
> Germany seems like a great country to be an employee as long as you're happy with making a fraction of what you'd make in any other country and have no designs of doing anything more with your professional life
Are you trying to just incite reactions? This is a very unfair take. German salaries are among the highest in Europe, sixth highest according to Wikipedia, and for many Europeans and non-Europeans it still is a land of opportunity. Certainly a better place to be a professional than almost "any other country", as you put it.
https://en.wikipedia.org/wiki/List_of_European_countries_by_...
How on earth are Tesla, Uber, and T-Mobile not "high-tech"?
They're not exactly building leading-edge stuff, though they sometimes buy from companies that do.
Out of those you could only make an argument for Tesla, because at least they were pushing the envelope for a short while in the past (though more from a business standpoint), rather than merely operating within the possibilities of existing technologies others created.
Generally a high-tech company will have significant research (not development) spending, which T-Mobile and Uber don't.
But that chart is awful either way.
I guess that's fair. What about high-tech burrito? https://www.hightechburrito.com/
I would never again found a company in Germany - not because of the super high tax or these arbitrary rules like you need to pay insane amounts to the Chamber of Industry and Commerce (IHK) or the GEZ for radios you don’t have; but: dealing with the bureaucracy and the tax authorities is just insane. Like you are required to pay a registered tax accountant do your books then they have “screenings” where you PAY him again to check his work and explain it to the IRS - only to find you missed paying 13.09 EUR of social security for the artist guild. Spent 5k in tax advisory fees and countless working days dealing with the questions over 13 EUR.
At some point wouldn’t it just be simpler to set up your company in the first place in some other EU country with less onerous laws?
If you know this in advance, sure. But I guess the author of the article found out about this the hard way.
On the other hand, no one expects to pay "an exit tax from a country".
> be in Germany twice a year to sign off on having done the management within Germany.
Pretty stupid. You are signing paper that claims you never left Germany!!!
You are opening up yourself to personal German tax residency, with all pleasures it brings. Payable 10 years back!
And do not believe that 185 days bs. Correctly losing tax residency in state like Germany, Denmark, Norway or Australia is very difficult. You can not keep any assets like company or house there!
Edit: why downvotes? Many states only require 90 days or less to become tax resident. Australia is fine with a house. Norway will tax your income for 3 years after leaving!
Claiming you manage holding company within Germany, is a huge red flag!!!
> You are signing paper that claims you never left Germany!!!
No you aren't. You are signing a paper that says a managerial decision about the shares of the company happened in Germany. Where you live does not matter. You just have to do a board meeting, and be physically present in Germany during the meeting.
In fact, you likely want to keep any proof of your travel from a different country, which makes it obvious to the authorities that you don't spend all your time there.
There's multiple variants though, this is just one of them. You can also pay someone to manage the shares (and of course contractually bind them to not do anything without permission).
Edit: Also, to be clear, you don't need to manage the company from Germany. You only need to manage the holding company from Germany, where the only managerial decision is related to the shares themselves.
If your company bylaws are set up properly, you can do board meetings via video calls just fine.
Very few acts require actual presence in the country. What is required is that you can, at any time, enter Germany to perform those acts - which shouldn’t be a problem if you are German Citizen.
Someone should tell the German government about the internet. Who cares where you physically are?
Do you own and manage company in germany? If yes you are tax resident, if not you pay exit tax. Winwin.
This what ifs do not really work in tax laws. The question is, if your current current structure and tax law interpretation will hold in 8 years. After germany had new election, new socialist goverment changed and it is trying to milk everyone.
Some flight ticket from lufthanza are not going to save you!
> You can not keep any assets like company or house there!
Alternatively, simply keep both the house and company in Germany. No exit tax since, thanks to that house, you haven't technically exited, right?
You could technically do that but then you’d have to keep paying taxes to Germany on your income in the other country. And the other country will consider you a resident too and will want a chunk of that…
Welcome to americans' reality! It's actually more humane than the way US treats its overseas citizens - no onerous PFIC/FATCA, and you have an option to divorce the tax system while still keeping your passport.
Double taxation should be taken care of by tax treaties. Usually you'd pay the maximum of the two tax rates in total, with your current residence country getting first dibs.
Double win!
Or simply open a business in Luxembourg. Done.
> 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.
There's nothing reasonable about it, it's just an extortion. Your gains might never materialize, but your country does not care, they are just punishing you for leaving.
Nowadays, you can do all of the tax sign-offs purely online with Elster.
It is not so easy as you describe.
You definitely need advice from professionals, yes. All included, I'd expect it to cost 5k€-30k€, but not more.
how 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!
I can't give more specific information about my situation, but I would recommend contacting one of the companies that has a public article on the "Wegzugssteuer", for example the one I linked in the first comment. That way you know you get someone that actually knows how to deal with this.
My first tax advisor barely even knew about the Außensteuergesetz and almost got me into larger trouble because of that. I'd guess since this law only affects a tiny portion of the population you really need someone that specializes in it.
If they specialize in it they'll have done this many times before and you can just use their pre-made constructs. Then the main issue is avoiding getting squeezed by them.
Trusts dont exist in Germany . Did you mean a foundation e.g family foundation ?
It’s not as crazy as it initially seems.
It’s because of a fundamental difference between how capital gains tax and income tax are collected.
Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation.
I’m from a country which has no exit tax on capital gains and notoriously a certain wealthy telecoms magnet - having been resident all his life - moved to Portugal just before realizing billions of capital gain. Thus despite earning multiple billions through businesses activities in his native country, he effectively paid zero tax.
I myself have benefited from this lack of capital gain exit tax as I moved to a country with very low capital gains tax. So despite the fact that my modest equity portfolio earned most of its growth while I was living in Ireland, when I sell, the Irish government will get nothing.
The problem, it seems to me is the method of valuation for the deemed disposal and/or the fact that it can cause a “liquidity squeeze“ for the tax payer.
I don’t see a simple solution - maybe other than getting rid of capital gains taxes completely and collecting more consumption taxes, for example, but I’m sure this would just open up a range of other tax evading loopholes.
Capital gain tax is stupid anyway. It's one of the first tax that should be removed.
You can tax business at home by land/revenue/resources usage/ip protection taxes. As it is owners in different jurisdictions pay a different (or sometimes no) tax on selling shares. Selling itself is something you want to encourage, not discourage. It's a pointless tax that penalizes exactly the things you want to encourage.
You think that someone moving to Portugal to avoid it is unfair but then a share holder living in 0 cap gain jurisdiction in the first place would pay 0 anyway.
IMO corporate income tax is the first that should be removed, with a corresponding shift to income taxes. Those can be as progressive as you want, have much lower compliance costs, and don’t distort behavior in the same way. Thought in practice I’m not sure how tax collection from foreign owners would work.
I would rather argue for the following
- No PIT on dividend income, which is fair since CIT has already been paid on the money earned by the firm(and paid bt by you as a shareholder in that firm)
- CIT payable only on dividend distribution, not yearly so if a firm keeps on re-investing in the firm paying salaries/suppliers and investing in growth they don't pay any CIT.
Another side effect of 1) is that it would cause companies to distribute dividends rather than doing stock buyback since dividend would have a lower tax rate(0%) than the STCG/LTCG tax rate on stock appreciation.
This is how estonia does it, so we already have some data on effectiveness of this.
It is at least not wildly regressive like consumption taxes are.
It would be better to tax IP protection, inheritance, resource use and land only but realistically if we get rid of capital gains the tax burden will land squarely on wage earners doing all of the actual work who are already taxed more than the people who own their productive output.
There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families. You can tax luxury good at higher rates.
EU countries already realize it's the case with IT services (everyone wants their share with digital tax) and with big supermarket chains (big issue in Poland). It's just painfully slow for them to connect the dots and introduce a general solution.
> There are many ways to make consumption taxes not regressive. You can implement refunds up to certain threshold. You can use the revenue to fund services used by lower income families
Every one of those "solutions" is just a patch on the basic problem that consumption taxes are fundamentally regressive.
Go tell someone living paycheque to paycheque that it's okay, you'll get a rebate every quarter for the extra tax they paid, or worse, on their annual tax filing, and tell me how that'll make their household budget actually work.
Honestly, when I read ideas like this, I realize just how massive the disconnect is between the lived experiences of the relatively well off and the working poor...
Except consumption correlates with income and wealth, and it's already not uncommon for states to exempt necessities like food and clothing from taxation, which keeps them affordable without a convoluted bureaucratic system. Implemented correctly, consumption taxes are less regressive than property taxes, which prop up rents and constitute a barrier to home ownership for working class people.
There are arguments to be made against heavily taxing consumption to encourage economic activity, but you're oversimplifying this by disregarding the indirect costs of alternatives and looking for problems instead of solutions. Not that I think the one you commented on is a good one.
The attraction of consumption taxes largely IS that they are regressive. That's certainly why people like Bob McNair pushed them.
A billionaire who spends 0.2% of their wealth every year, paying a 100% consumption tax on that would still have a vastly lower relative tax burden than somebody who spends their whole paycheck but only pays 50% consumption tax.
> It is at least not wildly regressive like consumption taxes are.
Why is it just assumed that regressive taxes are bad?
If you want to make a case that regressive taxes are not bad, feel free.
> who are already taxed more than the people who own their productive output.
Top 5% by income in USA pay 60% of income tax. It is NOT the run-of-the-mill wage earners who may most, not even close.
Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell.
Source -> https://www.ato.gov.au/individuals-and-families/coming-to-au...
If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT.
You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.
Canada does this too. Don’t most countries?
I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago.
With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly).
Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).
I believe in the UK it works like this: if you leave the country you are not liable for CGT even if you realise gains, unless you return within 5 years then you have to pay tax on any gains you realised while you were away. With some caveats.
How will you reconcile with your new jurisdiction though? What if you move to 4-5 countries during that time…
Capital gain is the profit made on the sale of a capital asset.
There is no gain or loss until the asset is sold. Taxation is not deferred, it applies when the gain is made, i.e. upon sale.
This needs to be repeated more often.
If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax?
That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.
Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?
You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.
> Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it?
In much of the US, you made a loss, since your property taxes will go up the next year.
> I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?
Absolutely.
> That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.
We take what the highest bidder is willing to pay, as well as what the lowest seller is willing to sell for. So it's a completely fair way of fixing the value. If you think the price is too high, then why aren't other sellers rushing to sell for the same? If you think the price is too low, then why aren't other buyers rushing to buy?
Because different market participants have different views, risk tolerance and needs. The market argument only works for very high liquidity public stocks. Even then it's unlikely Musk or Zuckerberg can sell their equity at the price of the day. It completely fails for smaller businesses.
The monetary (note: monetary) value of anything and everything is determined by when the minimum value which a seller accepts to sell it for is equal to the maximum value a buyer accepts to buy it for.
If you by some hacker magic know of any way to circumvent this fundamental logic, then you will become the richest man in history within less than a year, since you will then buy for less than anybody is willing to sell for and sell for more than anybody is willing to buy for.
Yes but it assumes the whole thing. Just because someone is willing to buy a chunk for X doesn't mean there are enough buyers for all chunks at this price.
How can you only see one side of the transaction? Just because somebody is willing to sell a chunk for X doesn't mean there are enough sellers for all chunks at this price.
The agreed price for the last executed sale is the de facto value of anything traded. This has been a fact for hundreds of thousands of years by now.
The whole point is that it isn't. Liquidity availability is big part of finance.
In your specific example of other side - yes - just because someone who needs to sell a chunk for reasons like an emergency, retirement or consumption needs doesn't mean they are happy to sell the rest of the chunks at that price.
Market based valuations only work in case of very high liquidity publicly traded assets and only if you don't own a significant %.
This makes your argument weaker, not stronger though. If there isn't liquidity market based valuation doesn't work.
>>This has been a fact for hundreds of thousands of years by now.
It isn't and never was. Liquidity was always big part of it.
You still argue like there aren't two sides to every transaction: A buyer and a seller. You're only talking about the sellers perspective as if the buyer side is something abstract and non-human. Do you think anybody would purchase anything for more than they think it's worth because of "liquidity"?
> If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k?
Of course you did! Assuming that "some idiot" is actually representative of the market.
Go sell your house for $1M ASAP, move somewhere else for $100k and keep the $900k profit.
> You simply can't establish value without an actual transaction.
Not perfectly, but you can definitely estimate it pretty decently for tax purposes. And you talk about the highest bidder in a market, but remember it's also the lowest seller. Markets are not generally distorted by "idiots" paying 10x. That's a straw man.
> did I just magically make $900k?
Yes you did, because now you can mortgage your real estate for that value and live in luxury. This is how most people make a good living, not by working or investing.
How does that work? Mortgaging is selling a portion (in an abstract sense) of a house for cash, with an obligation to buy that portion back in installments.
So parent has mortgaged their 100k house for a million - now what? How do they get out of their obligation to repay the mortgage - that is, buy the house back again for at least a million - without incurring penalties?
If there weren't repercussions for defaulting on mortgage payments, anyone could just trick lenders into buying their house immediately.
The parent is referring to the "buy, borrow, die" strategy of wealth accumulation. Would that work in your parent's specific circumstance? Maybe? Maybe not? But taking a low interest loan against assets as a method of wealth generation and tax avoidance is both a viable strategy and an extremely popular one.
> How do they get out of their obligation to repay the mortgage
After they have repaid the mortgage they will own a million dollar house clear and free. Which they can sell or mortgage again.
I'm stating that the ability to mortgage or sell your house for a million is evidence that it has increased in value by 900 000.
That is a good point -- though perhaps a better solution there would be to simply make the use of an asset as collateral into a taxable event, and treat money borrowed against it in excess of the original value as capital gains.
I know this is a very common technique that people use to effectively liquidate assets without incurring taxes, but I think it can (and should be!) solved without penalizing people who simply hold an asset.
No, a mortgage is a loan. You don't "make" any money by taking a loan since you obviously have to pay the money back.
Don't worry that if a loan was considered "making money" it would be taxed as income... which would make no sense at all. In fact, disguising transactions as loans while not intending to repay the money is a well-known tax evasion scheme, which tax authorities always keep an eye on.
You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
The money is paid back during the course of decades, when that money will be worth 1/4, 1/3 or half to what it is worth now. And your real estate is ripe to be mortgaged again for another jackpot payout.
Hundreds of millions of people all over the world do it, and tax authorities applaud it. Who do you think writes the tax code?
> You made money before taking the loan, as your property increased in value. Taking a loan is a way of realizing the profit, but you can of course also sell your real estate.
That's incorrect on both counts. You did not make money and the loan is not a way to realize the profit since you have to pay it back, as explained before.
I think this illustrates that finance and accounting are very poorly understood topic and are easily used for sensationalism.
There's nothing sensational about it, and I'm disappointed that you cannot see this thing for what it is. Ask people among your relatives who own real estate and you will realize that a lot of them mortgaged their real estate to pay for new cars, vacations, investment in a business, kid's education.
The money is paid back over a long period of time, while the currency depreciates in value and the real estate appreciates in value. The amount of people who have made a fortune through real estate appreciation probably outnumber by a factor of 10 to 1 the amount of people who made a fortune by business or a working career.
If I purchase shares in a company and then sit and do nothing, and the valuation increases by 10 times, then have I made money or not? I can sell the shares or I can mortgage the shares by borrowing against their value. Should that value increase be taxed?
If I purchase real estate and then sit and do nothing, and the valuation increases by 10 times, then have I made money or not? I can sell the real estate or I can mortgage it and borrow against its value. Should that value increase be taxed?
> I can sell the real estate or I can mortgage it and borrow against its value
You make money if you sell. You don't if you use the asset as security for a loan.
This has been explained several times.
A loan is a loan, whether it is a secured loan or not. A mortgage is a secured loan whose security is real property.
You are effectively claiming that getting a loan is making money. Obviously you do not see that this is clearly not the case when thinking about it through a mortgage, but would you make the same claim with credit cards or a personal loan to buy a car, or a secured loan against, say, your car? My guess is that you wouldn't although it is the same thing as getting a mortgage.
Instead of repeating myself, let me hear your side of the argument. If my property increased 9 times in value and I can:
A) Sell it and get that money right now, or
B) Mortgage it and get all or part of that money right now, then pay it back in the future.
By what kind of logic have you not made money from the value increase?
> You are effectively claiming that getting a loan is making money.
No, I said that you made the money when the value increased. Your ability to take a loan against it is the evidence that the value in fact increased. I never said anything else.
If your mortgaged house depreciates while you are still paying off the mortgage, you still need to pay the original, un-depreciated amount. You'll also probably need to pay interest accumulated during the time the property was mortgaged, which means you can't use it to avoid inflation.
What lender do you know of who will voluntarily reduce your mortgage obligation if the property depreciates?
> If your mortgaged house depreciates while you are still paying off the mortgage, you still need to pay the original, un-depreciated amount.
Mistake in logic. The money you received as a loan doesn't depreciate in value if the underlying asset depreciates in value. And vice versa.
As for interest, if your real estate has appreciated by a factor of 9 as in the example we're discussing, then interest rates are of minor concern to get the jackpot payout. As you certainly know, you wouldn't have to take out a loan corresponding to the entire value of your asset, and neither would most banks give it.
OK, 9x the value of your property as liquid wealth is nice, but you'll still need to pay it back eventually, won't you?
After you've paid it back, you still own the property which is 9x the value, or maybe more. So you can cash out instantly, without having to move out. And you get to pay it back in 30 or 50 years time. By that time, the money is worth half or less than half than what it is today. And your interest is much less than inflation. And you can deduct the interest from your taxes.
Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...
You 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.
What did the Irish government do to entitle itself to a chunk of the appreciation of your equity portfolio of presumably non-Irish companies? What did they do to contribute to that equity growth?
I don’t understand the question.
Governments collect tax in lots of different ways: income taxes, sales/consumption taxes, import taxes, capital gain taxes, property taxes, inheritance taxes, etc,
What’s so special about capital gains taxes that requires the government to have had some sort of active involvement to be justified?
Capital gains are theoretical. You do not have that as money, but the state does want it as money. They are not what someone paid for your assets, they are what someone THINKS someone else might pay. Most smaller companies cannot be sold easily, and of course, the government is unwilling to take that as the valuation being zero (because what someone is willing to pay right now is in fact zero). And the government is unwilling to take any risk (they take cash only). So they're taxing money you do not have available to spend, and may not have at all.
Think of it as taking a $10k diamond with you. It's worth something, but ... maybe next year artificial diamonds double the size of your diamond start costing $500, and your diamond's value goes to $550. The difficulty is that the government demands "10%", which is $1000 in taxes on the "value" of your diamond now.
So for a big range of company sizes it's effectively a tax on nonexistent assets. This would not be the case for a huge (let's say revenue of 500k or more) company.
But the government chooses not to tax those big companies.
Perhaps the simple solution is to give those small business owners the option of selling their business to the government at whatever price the government feels it is worth.
Any claim of valuation is really only meaningful as a purchase offer.
Or, and hear me out here, we cut state spending to sustainable levels so the government doesn’t have to regard us as walking dollar signs
The problem is that the government is financed by a ponzi scheme based on selling very steep GDP growth, very steep increases in the labor force. In other words, the German government as it functions today is financed by having sold the increased income in labor taxation of the next 10 to 30 years to the banks so they could spend it already. Only ... that income doesn't exist.
The labor force is shrinking (especially if you look at it in terms of how many hours of labor are performed, irrespective of who does it, or when). In other words, the German government has sold the labors of Germans for about the next 15-25 years ... and Germans aren't able to actually do the work that has already been sold. Someone is about to get very badly burnt, and so there is a big fight who takes the loss. The government has the guns, doesn't want to pay, in fact they want big companies to keep delivering their goods. So those government guns will be aimed ... at workers. The only ones they can be aimed at without BIG consequences for the people with the guns.
So, now, under current taxation, the government has to more than triple any increases in taxation, which they need to just maintain current services. Once to pay for what the government needs. Once to pay back the principle of the loans they already made. Once to cover the interest on those loans (because 20 years loans on average at about 3%, let's say total interest coast over the length of the loan is about 100%). And on top of that they have to add what they need to pay extra due to labor force shrinking. In other words, elected representatives are going to find that they both have to do A LOT extra in new taxes for any initiatives and even if they raise taxes the effect of that will not nearly be what they expect.
And taxation on labor is already essentially 50%, so obviously percentage increases are going to be incredibly unpopular. Plus there's the additional difficulty that the problem is not money. It is that the very real assets behind money (ie. work, performed by a human) are becoming scarcer, while the drain on those resources (the welfare state, ie. old people) is increasing.
For the next 20 years, minimum (the time it takes to go from newborn to productive citizen), the government has to shrink the services they provide, at least in terms of labor. And since people aren't about to have another baby boom, it's going to be longer. Oh, and I would much appreciate if the German government managed to do this without putting the Nazis back in power.
And this is a worldwide phenomenon, modified by immigration and modified by a few years depending on the exact country, so you can bet your firstborn quite a few parties are going to get elected on the message "we'll just steal it from our neighbors militarily", like the Palestinians are doing. But this approach is on the cusp of becoming really, really popular worldwide. So it's not really that Trump is causing 100 wars worldwide, it's having a totally unsustainable system: either people need to be accept a lot less than they currently have, or they can go to war and make it FAR worse. Needless to say, it is a certainty they'll want to go to war.
And btw, as I pointed out, this is not a money problem. It is a problem of labor resources. It is about the amount of labor, not the division. So every system has the same problem: nothing can be solved by switching from/to capitalism, socialism, fascism, communism, ... as no system is able to create labor, only redivide who labors and who gets the rewards. None of these systems increase the amount of labor and so the welfare state is doomed under every system.
TLDR: the government has to spend about 50% less per 20 years. Not in terms of money, but in terms of actual people working for government (including hospitals, schools, eldery homes, ...). 50% of government jobs have to disappear for every 20 years this lasts, and at least once.
You would think this would make the government invest a massive amount in AI and robotics, anything required, in the last years they can maintain spending without extreme pain. But, of course, nothing remotely like that is happening.
The real problem is a social contract that was sold to people long ago without any secure funding source.
Now those social services (free healthcare, retirement benefits) are baked into entire populations' expectations and life planning. Give it 20-30 years, then these services can neither be provided nor paid for.
Our only real hope is tech progress unlocks much faster economic growth, even with dwindling numbers of people.
Despite tech and AI being pretty much the only lifeline Europe has to get itself out of the pit it dug (population collapse while simultaneously promising the world to retirees), they are still strangling the nascent tech scene.
In 30 years are we going to have a European economy that is entirely dependent on foreign AI and robots to prop up a society of old people?
So you want to implement taxation by having the government offer money to people? I understand the sentiment "money where your mouth is", but ... seems unlikely to be very useful to keep government spending up.
Capital gains aren't theoretical. A capital gains tax is levied when gains are realized by selling an asset. (e.g. I receive a dividend on a stock, or I sell a stock or my house for more than I paid for it.)
I think you're confusing a capital gains tax with a wealth or asset tax.
I mean, other than give access the infrastructure, the people and the rule of law... what did the romans ever do for us?
If you lived in Ireland in that period, you benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads, bought things in shops, so and on so forth.
Regardless, the idea that the government can only tax you if it directly gave you sufficient benefit, _in your assessment_, is of course nonsense. Taxes are what you owe to the society you live in, not about what society owes to you.
If you are lucky enough to be internationally mobile, this does not exempt you from contributing to the communities you spend time in as you travel around the world. You cannot expect to arrive in a country, earn money from it, and depart again without paying your fair share of taxes.
If you do not like how a country has structured its tax law and what priorities it has as a society, you are of course always free to not move there in the first place.
> benefitted from Irish government services, schools, police, fire services, etc. You participated in the community (hopefully), used roads
That is a terrible basis for argument: we mostly each get similar usage of services (roads, police, yadda yadda) which should be an argument for a fixed amount of tax per person (a poll tax).
If you wish to argue that we get what we pay for: then rich people pay wayyyyyy more so they should get more government services???
The wealthy surely don't get better policing: instead the wealthy pay heaps for their own insurance and security systems.
Be careful making any argument based on services received for money spent because the well off pay a lot and don't receive a lot for it.
Without society it's pretty hard to be well off in the first place. The entire concept of property becomes pretty meaningless without some very basic concepts of a legal system and territorial integrity. Without that you can only own what you can physically defend.
Wealthy people and large companies do generally employ security, but that is merely supplemental. They enjoy the backdrop of a society where the vast majority of people at least recognize the basic concept of ownership, and where protection from external state actors is provided. More to the point, they live in a system where most people see negative expected return from just killing them and taking their stuff
Abstractions like insurance further require a system where agreements can be made and mostly enforced, and where the need for the insurance is low enough for the premium to be workable.
The small security team at any given company is there to handle the the exceptions that don't conform to the larger society's rules. It doesn't replace that protection entirely. You'd need a standing army for that, and you'd have to work full time just to maintain its loyalty.
Even with no direct services whatsoever, people benefit from society in more or less direct proportion to their wealth -- and arguably the benefit accrues exponentially as wealth increases, given that this enables the exponential growth of capital.
> Without society it's pretty hard to be well off in the first place.
What a pointless argument - you could just as easily chose cause and effect in the other direction: without businesses then society has nothing. Zero businesses, zero tax income.
My main point is that society needs to encourage business owners. If marginal tax is too high, then owners have no incentivise to earn themselves an extra dollar. When owners earn less then society gets less.
There's a balance to incentives.
I'm not working currently because my taxation rate is too high. I'm fine with that since I value my time highly. However financially my country could be getting more from me by lowering my taxes enough to encourage me to work. But voters don't care about what is sensible - they care about optics - and politicians care about voters more than they care about the economy.
I find this softer position much more amenable than your GP comment.
However, you conflate "businesses" with "entities that pay only some minimal poll tax". It turns out that progressive tax does not preclude complex society. Corporate tax does not kill business on touch. All you've argued for is the existence of the Laffer Curve.
Commercial activity predates currency, and is omnipresent across every tax system that has ever been tried. Where money, there trade. Where trade, there value-add. Or at the very least, combing the beach for pretty shells.
There are tribes without the concept of personal property or money, that make things and build value. No tax can extinguish human creativity.
I'm cagey about secondary effects, but I'm cautiously optimistic about debasing the trait of self-enrichment. I see no reason to take on faith that people acting out of self-actualisation would build a lesser technology. You know you're on a site full of nerds, right?
The existence of the internet protocols is a case in point.
Conversely, I prefer a world without facebook and robocalls.
> The wealthy surely don't get better policing
_Surely not._
> rich people pay wayyyyyy more
Citation needed
> so they should get more government services
...such as corporate welfare, political influence, favourable prices on public land and institutions, regulatory capture?
The acid test for your frame is whether you would have made as much wealth on a desert island, with no market, no value-added inputs, no communication and no currency. If so, then great, you truly did not depend on society. I admire your self-reliance.
Otherwise, you have benefited from the sum effort of every human, living or dead, in the chain of causality leading up to the circumstances in which you made your pile. I'll leave natural resources aside.
I _love_ that a bunch of libertarians are seasteading. More should go. I am happy to write off tax debt for anybody who goes seasteading for, let's say, five years.
If your raft calls into port for trade, then you pay duty and sales tax, but at that point you've admitted defeat. It's not like they'll accept your raftcoin anyway.
The obvious solution is for the state to accept illiquid securities as payment for tax.
This would be hilarious. I would support that change for entertainment value alone.
Where I live we have the option to put capital holdings in flat-rate taxed accounts, based on the size of the investment. I thought this was common elsewhere too.
Did the telecom business have profits? Were those taxed?
> a certain wealthy telecoms magnet
It’s okay to name him here you know. [redacted] can’t get you on HN
I'm unsure how strange this is. As a Canadian, when I left the country I had to undergo what's termed a deemed disposition - i.e., pretend you sold all your assets and then pay the relevant taxes on the net gains you've enjoyed to that point. This includes proposing a value for any companies that are not publicly traded. See: https://www.canada.ca/en/revenue-agency/services/tax/interna...
So if all your money is tied up in your company you have to sell part of your business in order to be allowed to leave the country and by the way thanks for creating all those jobs? Sounds slightly CCP to me.
I know of at least 4 countries that have exit taxes, and while the US doesn’t have an exit tax if you simply move abroad (it does if you renounce citizenship) it has other very punitive taxes for expats. So, it isn’t a unique thing to Germany or, assuming you’re correct, China.
> US doesn’t have an exit tax if you simply move abroad
The US doesnt have an exit tax because, for the purpose of taxation, you can't leave.
It should be added that the US taxes you worldwide even after you leave, so I would file the US as even worse in this regard.
In that they tax you when you stop being tax "resident", just like the others.
It'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.
PFIC taxation, of which some pension accounts qualify, as well as all mutual funds and ETFs, is absolutely punitive, and does in fact charge taxes on unrealized gains. Even if you don't have any PFICs, or even owe taxes to the US, the fact that you need to pay an accountant ~$500+, just to file the taxes, is in my opinion punitive as well.
Well there are actual realizations in the ETF and mutual fund context, and the market has simply decided that structure still works for the commingled investments of US taxpayers. PFIC taxation I concede is a head-scratcher, but it's somewhat orthogonal to the capital gains issue. The big take home is that the US wants tax on all of your income, and it doesn't want you hiding any of that offshore. I'm an expat who deals personally with the last issue, and again I agree it's quite frustrating, but that's not what punitive means. That's just the type of frustration that arises when one is required to synchronize one or more complex systems.
China doesn’t have an exit tax.
China doesn't allow its citizens to send or invest money abroad hardly at all. Yes, this means that most of the Chinese who bought houses in the US and Canada were breaking Chinese law.
One cause of China's real-estate bubble was too much (domestic) savings chasing too few investment vehicles.
To learn more, read up on financial repression in China.
Something I've noticed with German business law is that it is very much structured in such a way that if you aren't an incumbent player, you are essentially incentivized to be absorbed by them.
In the US we do have issues with businesses, but it's not like the Bosch, Thyssen, or Tschira family are any less unethical.
The level of hierarchy I've noticed in German firms and founders is insane to say the least. I'd love to do some quantitative research into this, but I haven't been in academia or policy for years now.
German here. I fully agree that German companies tend to be crazy hierarchical.
Isn't USA even worse? If you move as US citizen to EU, you would need to pay bot h local EU tax and USA tax right? (I am not a USA citizen, this is legit question)
The US does not have an exit tax for businesses, but has an absolutely horrible tax system in which expats are treated badly.
The reporting requirements for expats are insane: all bank/brokerage/whatever accounts with max levels during the year, FATCA and FBAR forms, and the cherry on top: Form 8858 ("Foreign Disregarded Entities", whatever that is) which is needed for your self-employment and for each of your rental properties. If you think this is easy, look it up — https://www.irs.gov/forms-pubs/about-form-8858
It's pretty much impossible to file your taxes yourself, you will never get it right. You have to pay specialized accountants, some of which will charge you >$1500 to prepare a yearly return with self-employment and rental.
Then come the actual taxes to pay, which are the least of all problems.
Expats are treated this way because they have no lobbying power.
I can confirm this from experience. The instant your situation becomes more complicated than "I work one full time job and have no investments to my name whatsoever" you are in for a brutal time without an accountant by your side.
On the other hand, if you do have an accountant by your side, you potentially expose yourself to some of the most powerful labor arbitrage on the planet as a tech worker. Making $100k remotely from the US might sound like a bad deal until you live in a country where the average wage is $20,000. Like all things US tax wise, you are disproportionately rewarded for being clever and reading a lot.
US totally does: https://www.irs.gov/individuals/international-taxpayers/expa... - long-term (8y+) green card holders may need to pay up.
One big difference is that the clock only start ticking after you get green card, whereas with Germany any residence year counts. Oh, and citizens of course aren't affected - since US continues to tax them wherever, but Germany like almost all other countries practices residence-based taxation.
It is very close to being all other countries. AFAIK the only other country that taxes non resident citizens is Eritrea - and the US has said its unfair they do it!
Not to mention pfic rules making simple index investing impossible.
Does that affect individuals investing in ETFs through a brokerage account? I thought you only needed to provide information on the total value of each brokerage account?
Yes it does, basically all foreign etf’s are PFICs.
Oh this is even more terrible than I thought :-/
This means lots of additional reporting work plus 49€ per ETF yearly for tax preparers.
US really hates expats.
It's not just the filing, the tax burden is heavy and complicated. You need to opt for one of three regimes, etc.
https://accountinginsights.org/how-does-pfic-taxation-work-f...
I live in Europe and contemplated writing a tool to analyze ETF holdings and buy the stocks individually with the IBKR API, but it's an expensive and error-prone approach.
There is also an amusing (?) catch-22: you could theoretically sign up with a US-based broker and buy through them, which would make you exempt from these requirements. But most US-based brokers and banks will not want you as a customer if you don't have a US address. And those that do (Charles Schwab International) will not sell you ETFs, because… you are "based" in the EU, which has information requirements for selling financial instruments, and US ETFs cannot be sold to consumers in the EU.
I can't believe how badly the US screws their expats, and nothing is done about this, it only gets worse over the years.
The shocked pikachu face at increases in people renouncing (despite them charging you $2300 for it) is really something.
US-EU transplant here. No, the United States does not have anything even vaguely similar like this. Seriously putting forward the idea of an exit tax on anyone who owns more than 1% of any LLC worldwide would in all likelihood be deeply politically unpopular. It goes against the very name and spirit of a limited liability company, for one. For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun. There is a a much narrower exit tax for US citizens who wish to actually give up their citizenship outright (not just move out) but that generally only comes into play for anyone with $2 million or more in net worth, and exists probably to discourage tax evasion, to my understanding. There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
> There is truly nothing remotely like the "you have to pay us if you own 1% of any LLC anywhere and move out" approach Germany has.
To be clear, this is if you move _your company_ out of Germany (which I don't think the article makes very clear). In those terms it seems to make a little more sense. As outlined in this comment.[0]
The double income taxation of their expats that America, Eritrea, and Myanmar do is a bit different, but I think they have double taxation agreements with most countries. So in actuality most Americans don't have to fully pay the double tax (depending on where they live, and how much they earn) though they still have to file and everything.
[0] https://news.ycombinator.com/item?id=44834878
> For two (real ballpark number here) about 1 in 10 Americans would actively be subject to a German style exit tax like this, concentrated among working adults.
I'm sure that a sizeable percentage of Americans own a significant amount of shares via 401k or whatever, but it feels surprising if 1 in 10 own more than 1% of a company, because all of those people holding shares as investments will be buying shares in companies with thousands or millions of other investors.
But maybe it's true - I just googled about the US has 340m people and 32.5m companies - so the majority of them must be small (population/number of companies). And while a lot of companies will be owned by the same people or just administrative divisions of a group of companies, most companies have multiple directors so maybe on average it does balance out to 1 in 10 owning a decent chunk of a company. It just feels like a surprising fact.
This site [1] has some interesting stats on size of businesses, although it's interesting that in 2019 these figures say there were less than 8m businesses, which disagrees with what google told me. Also says over half of US companies have 0-4 employees.
[1] https://paradoxesinc.com/resources/us-business-patterns/
It's a surprising number, but a useful one for calibration. Most people assume that the number is closer to 1 in 100 or even 1 in 1000, but that's because they forget the vast, vast numbers of people who just quietly run their own operations in some form. You don't have to be Apple to make enough money to pay the bills on your own, or even reach the high net worth category.
It's worth noting that the numbers don't vary that much between the US and the EU, which actually weakens my claim that such a tax would be politically unpopular if introduced. About 1 in 20 Germans seem themselves to own enough of a business to fall under their own exit tax, checking just now, but I'm not familiar enough with DACH business practices to know if setting up an actual honest-to-goodness LLC for a one man operation is as common there as it is in the United States.
> You're probably instead thinking of income tax, which the US does levy worldwide contrary to virtually every other nation on Earth and is, I can tell you from personal experience, not fun.
That's certainly what I was thinking of, given I have a few US friends here in the UK. Isn't the way to stop that to simply give up dual citizenship?
From one perspective, yes, you can get around this by simply giving up dual citizenship.
From the perspective of one's whole life, once that US citizenship is gone, it's gone. You can't reinstate it like you can with many other nations. And losing first-class access to the world's greatest economy is a very heavy price to pay. It only makes sense if you are absolutely sure you, and by extension your children and their grandchildren and their grandgrandchildren (because they only get US citizenship at birth if you yourself are a US citizen at their birth), will never want to have anything to do with the US again.
Ultimately I decided against it. The idea that I have a country I can always move to and conservatively 3-5x my take home pay compared to even one of the best paying countries in Europe is one hell of a liberating feeling. Don't discount that kind of optionality lightly.
You won't be double taxed, the US taxes the difference between your local income tax rate and the US federal tax rate. So if you live in London you're not paying any US tax because the UK income tax rate is higher. It helps stop rich people from "totally live in <tax haven>". If only we had that for companies..
I think where people get confused is that it's implemented as a tax credit which is equal to the income tax you pay locally.
On top of that the first $130k earned is also exempt, so it only applies to high earners as well
Unless you move to a country without a tax treaty to prevent double taxation with the US.
Not "unless". You have to actively review the tax treaty to see whether it actually gives you things superior to the US's own Foreign Earned Income Exemption. Those documents aren't the hardest things in the world to read, but they're not light reading either.
Another issue is if another country has some tax free benefits (like Roth IRA) America taxes the extra.
State of California has exit tax.
Exit tax applies to some Green Card holders too.
Not in most cases. According to this estimate, who comes from an organization that is against US citizens abroad having to file[0], 77% have AGI "well below" the cutoff where you would have to pay taxes. For those that are above that threshold, you can deduct the taxes you pay in your home country agains what you would have been charged in the US. For almost everyone in the EU, that is a higher rate than the US taxes, so you don't pay anything on that European income.
_However_, you do still have to pay taxes on your US income if you're abroad. So if you are making money from freelancing with US companies (and, I assume, they aren't paying a European business you have set up), then you'll pay US taxes there, but due to tax treaties you are generally not double taxed.
You do, also, have to file every year.
0: https://www.taxfairnessabroad.org/blog/americans-abroad-by-t...
Double taxation treaties negate this somewhat, but there are a bunch of edge cases.
You have to file your taxes every year in the US either way. You can't even renounce your citizenship without paying a lump sum.
And 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.
It would be a bureaucratic pain but if I were to move back to Europe (having become a US citizen) I don’t expect I would end up paying any tax to the US after applying the foreign tax credit.
But there could be a whole lot of complexity around stuff like ETFs and mutual funds and whether they were recognized by both countries.
I find this website to be a much clearer resource on the issue: https://www.winheller.com/en/tax-law-tax-advisory/internatio...
True! The purpose of my post was more to zoom in on the very specific case of people with small businesses, and not explain exit tax in general.
I wrote up another post with more generic notes on the exit tax [1] which might be a better post to compare to your link.
The minor benefit of my post is that I don't have an incentive to sell you expensive tax advice, chuckle..
[1] https://eidel.io/notes-and-hacks-on-germanys-exit-tax/
One of the basic principals of the EU is freedom of movement between countries. One could argue that imposing such an onerous tax on moving to another EU country breaks this principal, so maybe worth a legal challenge - for someone with a lot to loose.
Or, alternatively, the bureaucrats in charge would argue that all EU countries need to implement similar exit taxation laws - that's where it seems to be heading lately.
When you start to run out of other people's money.
This is why this doesn't apply if you move within the EU.
It does apply
Depends on what you mean by apply. The taxation is deferred without interest until you leave the EU.
Norway also has crazy exit tax and wealth tax. I heard lots of complaints that this system makes it almost impossible to build a decent vc-driven tech startup.
Norway has a high wealth tax (it’s gonna be 1.1% of total wealth per year in normal cases), high capital gains tax, and an exit tax treating moving abroad as a capital gains event.
This means, if you start a not-yet-publicly-listed company, get investment at a high valuation (on paper), you must pay wealth tax as if you had that money liquid in your own name. But you don’t have it liquid, it’s yet just a valuation of a VC, so you are screwed.
This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
Scandinavia is attractive as a destination if you are poor and especially from the 3rd world and could benefit from free government services and welfare, but for anyone entrepreneurial or already wealthy, there are many better alternatives.
> This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.
There's nothing stopping them from doing that in Norway, they just have to pay their dues. Which are nowhere near the rate of those in a real communist system that people are so quick to label it as.
I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
> I find it very selfish to think that we should optimize everything to squeeze out the remaining 1.1% of the wealth, given that Scandinavia wouldn't have such a high living standard had it not been for the welfare system.
1.1% is deceiving. 1.1% is actually over 20% tax on savings (assuming a common drawdown of wealth at 4% per year). Plus savings are usually money that has already been taxed. If you can invest at a higher return then the numbers improve but the risk increases (and governments don't share the risk or otherwise ameliorate it) and the taxes remain if you win.
1.1% sounds small. Any analytical person analysing the rewards versus the risks of founding a company will decide that it isn't worth it. Even if you win, you lose.
Here in New Zealand no founder can plan for a decade timeframe because there's a high chance a new government will screw you if you make any winnings. Currently our taxation system encourages entrepreneurship a little (no CGT).
A taxation system needs to be designed to incentivise individuals to create businesses. The government wins through income taxes and sales taxes - it doesn't need to kill the golden goose by overtaxation.
Most people have a selection bias: they see the winners and think those "greedy bastards" should pay more. Few people weigh up the invisible costs of the people that tried and failed. Very few people consider the benefits accrued to society from businesses (consumer surplus, tax income through other taxes, etcetera).
What is stopping it is the fact that the "wealth" they are being taxed on doesn't actually exist, so by starting a company and getting investment you create tax liability that is impossible to pay.
Early stage companies have a high valuation on paper as an artifact of selling small amounts of equity for relatively large sums of money. This leaves you with purely theoretical wealth in the form of equity which you have not yet sold, and potentially can't sell.
As a concrete example, let's say your tax rate is 15%. If you start a business, and give an investor a 10% stake in that business in exchange for $1M, your remaining 90% stake in the company is now worth $9M. Congratulations, you're wealthy! Now you need to "pay your dues" of 15% of that $9M... good luck with that. You are now bankrupt and deeply in dept to the government.
It's also an attractive destination for people wanting to live in a society that's not completely broken by inequality and are willing to pay their membership dues for living in such a society.
Not everyone's top priority is building a big ol' dragon pile of gold.
In what way does inequality break society?
I’ve frequently heard this article of faith bandied about.
But if the rich get 10X richer, and the poor get 2X richer, then everybody is better off.
The stagnant, ultraconservative, ultracentralized economic systems tankies like to propose always end up leaving everyone 100X poorer. But at least they’re equal, right!?
Seems like cutting off your nose to spite your face.
Wealth inequality is a good thing, but the cause of it matters. Was wealth inequality caused by theft and corruption, or by merit-based capitalism? If wealth is created and concentrated by capitalism, it doesn't cause social unrest.
> But if the rich get 10X richer, and the poor get 2X richer, then everybody is better off.
If the rich get 10x richer, prices will rise by more than 2x, leaving everybody but the rich worse off.
These numbers are always given on a "real" basis, accounting for inflation.
Inflation is hard to measure because products get better and houses get bigger over time. But by every measure I've ever seen, purchasing power per hour worked has been going up exponentially or at least geometrically for 200 years now.
If you don't believe this, the World Bank, the IMF, and the US Federal Reserve publish reams of statistics about it.
People get turned around the axle of income disparity, because what actually has happened since WWII is that society has gone from being huddled pretty tightly around an average income ( a bell curve where almost every household made $65k) to a society where this has spread out further to the right ( a similar curve from $0 to $65k but now with a smushed peak a long drawn out tail going up into the 100's of thousands).
There are more wealthy families right now in the US than there has ever been. More people are earning more than ever before. But it creates a lot of societal fracture and strong negative perceptions. When the whole gang is broke, well we're in to together. When the gang ranges from broke, to comfortable, to some splurging, to wealthy, to flat out rich, the cohesion really takes a beating.
Well while celebrating, let's remember that the dream leans massively on the US. 74% of Europe's publicly listed companies depend on US-based technology services like Google and Microsoft for their core operations. And can Europe defend itself? No is the response most analysts give. It's massively under-resourced & dependent on the US. However, if Russia invades (as predicted by some), it invades Europe. So in negotiations such as they are, where are the Europeans leaders dominating (or even putting an appearance at) the discussion to try to call a cease fire to the appalling tragedy of Russia's invasion of the country adjacent to European territory? Isn't it kind of embarrassing?
Overstaying a visa is an offence and if you've gone through the efforts of getting one in the first place, you should read the regulations. Most of us do and act accordingly as I know from own situation this summer.
Kinda makes it harder to attract foreign talent to Norwegian startups as it could affect their decision moving to Norway. While I think the number of people affected is exaggerated, the most well-known case would be the Dune Analytics founder who had to pay more in tax than his salary and was forced to either take a loan to pay taxes (no guarantee the company would succeed) or move out of the country.
This, and barnevernet has reputation similar to gestapo in East Europe.
You might've mixed up your analogy there, Gestapo was a German 3rd Reich thing… NKVD would be the Soviet one.
Germans (including gestapo) gassed a few million people here. Soviets (including NKVD) liberated survivors.
But maybe I read wrong history books.
That wasn't what I meant, I'm confused why you're associating the Gestapo with Eastern Europe. They were active in all of German controlled Europe with a pretty bad reputation almost everywhere. The nazi mass murders also have more of an association with the SS rather than the Gestapo, especially when it got worse in the later years.
(FYI, the NKVD killed more than 100'000 Poles in a just a few months in 1941. I haven't found a total. But they were also active in all of the CCCP. Not sure what would be an Eastern Europe specific reference here…)
Or the Stasi (Staatssicherheit) for the DDR.
However it also prevents hoarding wealth, which in turn prevents special interest groups and some forms of election manipulation.
Balancing taxes for fairness and innovation is quite tricky...
Most of Scandinavia is rife with old money. It's just that new entrants aren't allowed to build wealth.
https://www.euronews.com/business/2024/04/01/wealth-inequali...
This article seems to argue that the cause of the inequality is the lack of taxes
An exit tax in itself does nothing to prevent hoarding of wealth. It might enable you to deploy other taxes that would make rational people leave the country, but it's a bit of a "lock the doors and rob people" strategy.
If you have good advisors as a wealthy person you know this and leave as soon as an exit tax is on the table. If you start new businesses you start them outside of the country
If you're a regular non-wealthy person who happens to become successful you're stuck paying high taxes of course, but you'll probably learn and structure your next venture better.
Most businesses are not as portable as a tech startup.
Ownership is though.
>However it also prevents hoarding wealth
Hoarding wealth isn't a problem if no wealth creation happens in the first place.
Exit Tax: Leaving the USA before you become too rich
https://www.greenbacktaxservices.com/knowledge-center/exit-t...
From a startup founders perspective, it might be worth mentioning that if you own the business personally in the US, you likely qualify for so-called the small business exemption (QSBS) - that means from the price for which you sell your company the first $10M (yes, million!) of capital gains are tax free, and after the latest reform $15M. If you're married: x2.
Yeah but most people want to do business in US, its all the money goes
Not worth the hassle anymore.
When businesses are fleeing, you're doing something very wrong.
As a German I couldn't agree more. I am your age and even I consider leaving. If I was still young I wouldn't be here anymore.
I think the combination of capital and skilled labour fleeing is very concerning and a trend that could end up self-reinforcing and hard to stop.
Don’t forget the energy suicide Germany has committed. Cheap energy was the backbone of Germanys rich industrial economy, and that rug has been (allowed and even encouraged) to be pulled by none other than the country now offering them a “very good price” on LNG…
Did you miss the Russo-Ukrainian war? Or are you suggesting that we (Europeans) should have continued pumping cash into Russia for a bunch of gas?
You still are, and more than you've sent to help Ukraine. I was mostly talking nuclear power shutdowns btw. Meanwhile, vital German heavy industry has already started shutting down.
> I was mostly talking nuclear power shutdowns btw.
There is some confusion here: the issue is not necessarily about pure electrical power alone. You need oil and oil based products for most of the things (plastics, fabrics etc.).
No, but I think that diplomacy layer did a horrible job in stopping that conflict early. They signed the Minsk agreements just to ignore them later
I think what they were referring to Germany phasing out nuclear power.
In 2011 Germany had 17 active nuclear power plants. They closed their last one in 2023.
> Or are you suggesting that we (Europeans) should have continued pumping cash into Russia for a bunch of gas?
Unpopular opinion these days, but yes. A government's duty is first and foremost to its citizens. Anyone else comes last.
Why do you consider leaving? Where would you rather live?
Lack of confidence in future economic improvement.
A place where I could blend in which rules out the kind of obvious and otherwise excellent choices in Asia.
> Lack of confidence in future economic improvement.
Germany is still the 3rd biggest economy worldwide. If you want to stay in Europe (as per your other comment) and future economic improvement is your biggest concern, I don't see a benefit in moving anywhere else.
Europe currently runs on inertia. The EC is killing pretty much everything with over-regulation.
We don't have AI in Europe (don't get me started about Mistral) but we have AI regulation.
"still" is the keyword. No intention to walk into disaster with eyes wide open.
How do you intend to avoid this disaster you see on the horizon?
Not necessarily.
As USA is the main destination for IPO, wouldn't many German companies naturally leave?
Also once you are successful you can afford to pay the costs to arrange the companies affairs in a tax efficient manner e.g. utilise low tax regions with the EU such as Luxembourg and wider world.
> As USA is the main destination for IPO
Why do you think that might be? Perhaps the Germans could make their IPOs more business friendly, so they have no reason to flee.
> Why do you think that might be?
This kind of rethorical question is annoying. If you have an opinion, state it.
> Perhaps the Germans could make their IPOs more business friendly
The main reason companies tend to get listed in the US (or, in the case of many large existing companies, to get listed there on top of their existing listing in their home country) is that the US stock market is the largest in the world, and listing there means easier access to more would-be buyers, and therefore better market capitalization.
I suspect your advice to German policymakers wasn't "somehow make Frankfurt the largest trading place in the world", but that's litterally what it would take.
> If you have an opinion, state it.
My opinion is obvious. Not as business friendly as the US. Make Germany a more attractive place for business than the US.
Germany is a smaller country with 70 million people or so. USA has multiples of that at 300million people or so.
Many companies will float in New York but also have secondary listings in their home country.
If they created a single EU wide stock market it would compete much better.
Germany has been an enormous economic powerhouse in the past. It can be so again.
why you acting like its not true now??? it still economic powerhouse (at least best on continent)
In the 80s, I traveled in Germany and visited with friends. I was running my own company, and they asked me how hard it was to set up a business. I replied that it required filling out a one page form and sending $30 to the state.
They were shocked at how easy it was.
I'm not terribly familiar with the business environment in Germany, but I hear things like it's really hard to fire someone.
All major German companies have been bleeding money and announcing layoffs like crazy in last years.
Not just Germany…it’s a worldwide contraction. The real economy is shrinking. The financial economy is the only one growing.1% of the world owns 43% of the assets. All the growth numbers you hear have nothing to do w real people. Here in the USA salaries adjusted for inflation have not risen.
True. The economic/GDP growth politicians love to keep bringing up has little to do with people's actual prosperity as most of that economic growth gets captured in the pockets of the top 1-10% with little trickle down.
That's why working class people are angry and feel broke despite the constant "line goes up" narrative.
German companies are reorganizing themselves to compete in a new world order. Thanks to Trump and Putin. The German industry is build for a peaceful and globalized western world order which was established by the US after WWII and was demolished in the last years. So change is necessary.
This will cost for a while and then work again.
>Thanks to Trump and Putin.
Nope, it's thanks to loosing competitiveness in some key sectors.
Trump and Putin are the convenient scapegoats but it's not Trump and Putin's fault the Xiaomi SU7 is faster and cheaper than a Porsche. It's not Trump and Putin's fault that Germany doesn't have a strong software/service industry. Germany's lack of innovation in new tech is finally catching up with them. Also Trump and Putin didn't force Germany to tie it's economy to Russian gas and invest in copper Internet instead of fiber, that was Schröder, a German. Trump was actually warning Germany about this being a risk and they laughed in his face. Who's laughing now?
Germany's economy is built on outdated businesses models around selling expensively manufactured niche products by expensive unionized workers protected by paperwork and bureaucracy that don't work in 2020s anymore when US owns the software industry and China, Korea and Taiwan the hardware industry who aren't bogged down by unions.
They've been outcompeted and now are looking for outsider to blame for their own short sighted mistakes where they chased a quick buck at all cost at the expense of the future.
Keyword: BEPS. Won't work as easily as you describe it.
Or they're doing it right and someone else is doing it wrong, often the wrong thing appeals to business as the wrong thing is quicker and higher profits. Not saying that's the case with Germany, but it sure doesn't feel like you're default doing something 'wrong' if you're scaring people who already seem to hate paying their taxes.
The business owners are doing something very wrong. They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
So when you get money out of this, you pay your fair share of taxes, like everyone.
> their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare
Germany has Europe’s lowest share of entrepreneurs to workforce. So i guess the infrastructure, education and healthcare are not really factors.
> So when you get money out of this, you pay your fair share of taxes, like everyone.
this is already happening. people are paying their taxes. but Germany wants more than it’s fair.
cherry on top: Germany has been in recession for… 3 years now?
> cherry on top: Germany has been in recession for… 3 years now?
no?
Idk what world you live in, but Germany has clearly been in recession, unemplyment rose over the last few years and the rest of the Eurozone is in a similar condition
stagnation != recession
Contraction in 2023, 2024 and stagnation in this year. It is still has the effects of a recession even if the official data doesnt reflect it.
>They are failing to recognize that their business is successful in large part because of the infrastructure in their country, the educated people they can hire, the healthcare, etc
Empirically that seems to be false, given the number of successful businesses created in Europe in the past couple decades is way way less than in the US or China, even though Europe has better infrastructure, education and public healthcare.
> Empirically that seems to be false
Could you tell me on what data you are basing this argument on? I see this sentiment pop up in every related conversation but haven't seen the source of these claims. Could you help me out?
Here's some articles on Europe falling behind the US and China in business creation: https://www.economist.com/briefing/2021/06/05/once-a-corpora... , https://www.weforum.org/stories/2019/03/europe-is-no-longer-... , https://www.wsj.com/tech/europe-big-tech-ai-1f3f862c , https://skaleegenkapital.com/2025/03/11/a-decade-of-startup-... .
Thank you
Many business are just fleeing to avoid paying taxes.
Then the taxes are too high.
Businesses are also fleeing California, New York, etc., because of high taxes.
Yes, it means you have opened the capital, goods and service market way too much and businesses are now abusing that to avoid their basis civil duties.
The best civic thing a business can do is provide a valuable service and thereby make money. Just look at all the wonderful things we have as a result - airplanes, internet phones, air conditioning, cars, agriculture, movies, AI - the list is endless.
The Internet evolved from Arpanet, a network established by DARPA. Given that was created by a government agency, and therefore funded by the same taxes companies are trying to avoid, I'd argue that it's a great example for why companies should indeed follow their civic duties and pay their taxes.
It's also worth pointing out that many of those "wonderful things" had to be regulated by governments due to how bad their business practices and environmental effects are when pursuing making money. Sure, we have cars, but that's coming from the same industry that brought us leaded fuel and global warming.
The internet evolved from the telegraphy network, which was not created by the government.
Besides, I've listed several times a number of other networks that sprang up. If it wasn't Arpanet, one of the others would have become dominant. The reason is simple - anyone with two or more computers tried to connect them together. The notion that we'd still not have any interconnections between them if it wasn't for Arpanet is just silly.
As for bad environmental effects, socialism has a much worse track record. Free markets produce enough surplus that costly mitigations become practical.
> The internet evolved from the telegraphy network, which was not created by the government.
Claining that the internet evolved from telegraph is very much bad faith, but the worse part about this argument is that it's wrong: the first country-scale telegraph network was indeed funded by the French government[1].
> As for bad environmental effects, socialism has a much worse track record
Why are you guys obsessed so much with socialism? There is no mention of socialism anywhere in this thread. Government funding stuff has nothing to do with socialism in the first place, otherwise it would mean that every developed country is a socialist one, with the only non-socialist countries being failed states like Somalia which really isn't the argument you want to make.
> Free markets produce enough surplus that costly mitigations become practical.
“Free market” doesn't exist, it's a propaganda phrase with no basis on reality. The government always and everywhere has a key role to play in the economy, by counteracting all kinds of negative outcomes that arise from markets (mitigating crashes or maintaining consumer trust through regulations to name a few).
[1] https://en.m.wikipedia.org/wiki/Chappe_telegraph
[flagged]
> Nobody’s that jejune.
Edit out swipes like this from comments on HN please, no matter what you're referring to.
https://news.ycombinator.com/newsguidelines.html
I don't think there's a way for me to edit old posts, but I swear and/or affirm I will not feed the trolls moving forward.
I think this is also a swipe isn't it?
I'm not sure I'm seeing what you see (but then, you stare into the mod abyss)
It seems to characterize WalterBright as a troll.
Recent comment history supports this characterization (44849578 44849563 44849504 44847469)
Those comments seem to me to be a combination of Dad jokes and “home truths” from someone who has lived long enough, witnessed enough, and whose career achievements are objectively impressive enough, that their perspective should be at least a little food for thought.
Of the “home truths”, of course people can disagree and debate them, but we should ask ourselves what we know that they don't know before dismissing them out of hand.
All that aside, we still don't call people we disagree with trolls on HN; that's a term reserved for consistently-bad actors who should be banned.
I'm afraid he's not (that was pretty much Milton Friedman's position as well as all of his UChicago fellow, which is the reason why we're back to the gilded age with robber barons all around)
I actually read the book "The Robber Barons". The author's conclusions do not match the facts he presents.
Not familiar with any particular book called that way.
The “Robber barons” is a phrase that have been used since the late 19th century, and the fact that the American economy had become toxically concentrated in the hands of a few back then really isn't something contentious.
The crazy thing is that as a business owner (GmbH/AG) you can’t even move to another EU country any more since 2022. As the owner of such a company it feels like I have become a slave of the government.
The ruling has been changed again in 2024. You can delay the tax when moving to the EU until you really sell the company. Because the EU ruled that the German tax rule violated the free travel concept part of the EU contract.
You should probably look up what the word "slave" is about, and you'll probably realize that it refers to a situation very different from yours.
Why can't businesses be owned by people that:
While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.Because it shouldn't come with the same compensation as any other day job.
Let's say you can make $80,000 as a hairdresser. You are seriously proposing that someone who takes all of the risk of
* Renting their own hair salon,
* Building up their own clientele,
* Taking out loans to purchase hair dressing equipment, and
* The thousand other things the business owner has to do in addition to actually dress hair themselves,
should walk away with the same amount we the person who just gets hired to dress hair.
No one would ever start a legal business under such a regime. It's all downside! Which is why you never see people actually owning and running businesses (successful ones at least, and most unsuccessful ones too) with the mindset you describe.
Do they actually walk out with more, though? Looking at the 'businesses for sale' listings here in the UK, I can see most of the hairdressing salons have an asking price of between 2x and 10x the statutory minimum wage. So even if the hairdresser built the business by themselves in only a few years, has never sold any stock, and has no outstanding loans, they'd probably get no more than twice what they'd have earnt as a non-entrepreneurial hairdresser over the same period. Then that will also be taxed at a higher rate.
I'm not saying that being an entrepreneur isn't a good way of making money in certain circumstances, but I think that starting any brick-and-mortar business is barely viable compared to persuing a white-collar career where one's final salary would dwarf the value of even the most successful hairdressing enterprise.
TLDR; the promise of money alone cannot motivate someone to become an entrepreneur.
This is different to OP's question. OP is specifically asking why it can't be so that the entrepreneurial hairdresser is guaranteed, in some moral sense at least, to get no more than once what they'd have earned as a non-entrepreneurial hairdresser.
They can and frequently such people are; but they aren't very obvious because they stop while the business is still small. If we don't harness greed into doing something productive then there isn't enough motivation in the world to power a modern industrial society. People like Bezos would just sit around running a local bakery or something instead.
The way the system works is people who create unfathomable amounts of wealth get to keep unreasonable amounts of it. If that link is broken, they'll stop at creating a reasonable amount of wealth and then everything grinds to a halt. If someone is in a situation where they are doing a good thing they should have every incentive to keep going and not stop.
> People like Bezos would just sit around running a local bakery or something instead.
And we may be better off as a society? The problem with greed is that it can be very destructive and has high costs for the society and environment. Thus, how much greed is constrained is in the end kind of a social contract.
Risk. There is nothing to fight against, but "we" might consider educating ourselves so that we understand why the calculation that happens through the price mechanism benefits all, and moreso than any alternative.
This has been tried in mother Russia and several other countries and it didn’t work because of math. You need to compensate the risk with an upside otherwise nobody will play the game.
It’s like rolling a 50/50 coin where your payout is 0 or 100%. Why would you play if there is only downside?
>While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.
Ironically some of the biggest european companies are related to luxury items.
The thing you're describing is an underpaid CEO position without equity. If you're competent enough to get the job in competition with people who want to get paid, I'm sure you can.
Huh?
Why take all that risk, for no additional reward?
If the business fails, is the gov’t going to keep paying them like a hairdresser or whatever?
That's not that bad an idea, with some caveats.
An incentive for entrepreneurs?
It can help kickstart a stagnant economy.
Yeah, that exists. It's called "not having oppressive tax rules".
The State relies on oppressive taxes to fund everything.
Why not just be a hairdresser? Way less stress.
The economy is stagnant for a reason. At some point, the juice isn’t worth the squeeze.
Who would employ you, if nobody was motivated to start the salon?
In this scenario, ‘the dole’ eh?
communism, and with this sentiment, no one will want to run a business. the country will wither and die
Yeah, I'm appalled a line of thinking this naive (because let's face it, it's not just idealistic) is making it to HN.
Why is that? It has been the case for a very long time for taxation; the decision gravity has to be in the where the company is. But curious if this is something else as 2022 is too recent for this.
You couldn't move it anyways , if you manage and control the company even before 2022.
Germany 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!
I 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.
While 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.
Don't underestimate the US bureaucracy. The biggest and best bureaucracy in the world!
Not as bad as greece!
There's a note at the end
> You could, of course, sell or wind down your company, which would solve all problems outlined here. But this is not an option for most entrepreneurs.
For a software business, you could presumably:
- Incorporate a company in your country of choice
- Transfer subscribers from German company to new foreign company (depending on payments provider, this can be a massive effort, for example, not a simple form field in Stripe).
- If new company incorporated in a country you want to live in, use it to obtain an investor Visa
- German company now has 0 in revenue, wind it down and leave.
> German company now has 0 in revenue, wind it down and leave.
You forgot about employees. If German employment law is anything like the Dutch one, then it means you can't wind down the company while you have employees. They may refuse to leave. Firing them may be subject to government approval, who may also refuse.
Dumb American here but that sounds like a few steps too far in employee protections. A business can't even die without government approval?
It's because the government essentially takes over the employees, buy paying non-employment money. You deciding that some people don't work for you anymore creates costs for those people and also for the community.
It's sensible, to prevent… well, exactly this kind of situation: taking away people's livelihoods as part of a tax dodge is an abuse of power. The power of being an employer comes with responsibility.
If the company's dissolving for legitimate reasons (e.g. there's no longer a market for the services), then that's one thing – but "I've had the company send all its customers to a competitor, also owned by me" is an extremely obvious loophole to work around employee protections, and it's correct that it should be closed.
It's not dumb. You're not allowed to close a business in the US until you check a lot of boxes, too. You have to show you don't have outstanding debts and so on. The banks won't let you do that because it's an easy way to escape debt. That's exactly why bankruptcy is an extended legal process.
If an employee is guaranteed X months salary upon notice of layoff in the contract, that's debt you have to resolve before you legally close. If you have a 5 year lease agreement for the property, that's also debt you have to resolve. It's exactly the same idea.
You're confusing "winding a business down" with "bankruptcy" in the US.
As long as you follow the law, there is no government "approval" of a dissolution. You notify shareholders and creditors, then resolve any outstanding payments, then dissolve.
You haven't said anything new. "As long as you follow the law" is basically what I described. You're taking the requirements of clearing your debts and burying them under a phrase, and then claiming you're saying something different.
In part, "following the law" means "clearing any outstanding debts."
You seem to have ignored the important distinction - there is no government approval needed.
Even if you have outstanding debts, you can still dissolve the LLC. Of course creditors can cause trouble for doing that, but there is no government approval in the process.
In every state in the US I'm aware of, you must file for a certificate of dissolution with the state department. You can't do so unless you're in "good standing". In effect, you're not allowed to complete the dissolution until the state permits it.
a quick check says it isn't. you only have to consider the notice period which depends on how long people have been working there. which means you can't wind down in a hurry but there is no right to refuse to leave nor any refusal from government.
Better do it properly. Western countries have tax departments that can make your life a living hell if you do it wrong. If you have enough resources to be subject to an exit tax, I highly recommend paying for proper tax advice.
It applies to any company you own, regardless of where the company is incorporated
This is fraud and you'll end up in jail. Your company is not "you". You are a shareholder but as a CEO, you should do what's best for the "company" and what you described is criminal activity to bankrupt the company.
It's not bankruptcy if the company has no liabilities. You're allowed to wind down a profitable company because you can't be bothered running it any more.
A question of legality might come from German authorities determining if this is solely to avoid tax, which is open-ended. It might be hard for them to make this argument if you can prove you transferred operations to country X to maximize company's growth, access local talent, closer proximity to customers etc.
Regardless, anther commenter pointed out that the exit tax applies to all companies that you own regardless of location. In that case, the approach isn't feasible.
Also it goes without saying, seek your own legal advice rather than trusting random comments on the internet.
> You're allowed to wind down a profitable company
I can't speak for all jurisdiction but on one that I worked in, this is not legal. This might be more defensible if the company really is just you but not if it has employees and can operate with a different CEO than you.
> > You're allowed to wind down a profitable company
> I can't speak for all jurisdiction but on one that I worked in, this is not legal.
which jurisdiction doesn’t allow you to shut down your own company?
I guess if you have a limited liability company but in some countries at least you don't have such duty when running a one person or a small partnership shop.
I dont see how you couldn't structure this with an offshore licensing deal. Ie Irish company picks up 99% of billing, German company sends Irish company license fees etc and reduce profit of German company to zero for three years.
IANAL, but it seems it also applies to foreign companies. Who owns the irish company? Also tax authorities tend to look very carefully at these transfer pricing arrangements as you are also potentially dodging the corporate tax rate.
> And then your exit tax is calculated by taking the average of the past 3 years of earnings of that company, multiplied by 13.75 (which is crazy), and then taking 60% of that which is taxed at your personal income tax rate (likely 42%; Teileinkünfteverfahren)
This does not match the results from 5 minutes of googling, not for individuals at least. What is being taxed is the shares you're holding, as if you're selling them, which results in a tax on their increase in value compared to when you've bought them. [disclaimer: I just did a quick search on this, I'm not a tax consultant or lawyer.]
I haven't looked for the regulations on companies moving their headquarters away from Germany. It's possible those rules are the above, and the author confused them with the rules for individuals.
Either way, if the author believes they're right, they should dig up some citations. There are none in that article. Is this based on advice they've received? Did they do their own research? Are they a tax consultant or lawyer? 13.75 is a very "spottable" number, how about a link to the law that has that number?
Author here. Sure, here are the sources:
- First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
- The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
- Factor 13.75 is defined in Bewertungsgesetz (BewG), § 203 Kapitalisierungsfaktor [3]
- The tax rate of 42% is the marginal tax rate in Germany (at least below €250k income, beyond that it's 45%) - so the assumption here is that, in the year in which you leave Germany, you've already had some salary income (say, €90k) which bumps you into the marginal tax rate for any additional income on top of that.
[1] https://www.gesetze-im-internet.de/astg/__6.html
[2] https://www.gesetze-im-internet.de/bewg/__11.html
[3] https://www.gesetze-im-internet.de/bewg/__203.html
> - First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
You're misreading that law. It says moving away is equivalent to selling shares and that §17 EStG is applicable. Which in turn says:
(2) Veräußerungsgewinn im Sinne des Absatzes 1 ist der Betrag, um den der Veräußerungspreis nach Abzug der Veräußerungskosten die Anschaffungskosten übersteigt.
> - The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
§199 BewG says "…kann das vereinfachte Ertragswertverfahren (§ 200) angewendet werden, wenn dieses nicht zu offensichtlich unzutreffenden Ergebnissen führt."
Key phrase there being "kann". It doesn't have to. You can probably sue against it getting applied, if they're really insisting on it. And note §11 BewG says:
"…so ist er unter Berücksichtigung der Ertragsaussichten der Kapitalgesellschaft oder einer anderen anerkannten, auch im gewöhnlichen Geschäftsverkehr für nichtsteuerliche Zwecke üblichen Methode zu ermitteln; dabei ist die Methode anzuwenden, die ein Erwerber der Bemessung des Kaufpreises zu Grunde legen würde…"
So, finding a reasonable method that a buyer would use to determine the values of the shares is explicitly pointed out.
Good points!
1. Yeah, valid - I was assuming the default case of "you founded your company in Germany and are moving away at some stage". In that case, you could deduct the initial share capital (often €25k) from the valuation, as that was your "purchase price". In most cases, that doesn't lead to a significantly different outcome.
But yeah, if you actually bought shares of an existing company at a certain (higher) price, than of course the "taxable delta" might change your calculation.
In that respect, I was wrong as I assumed everything would get taxed. This is only roughly the case when you founded the company yourself in Germany, as mentioned above. Thanks for the correction!
2. True! As mentioned in my post, you can also pay someone to assess the value of your shares, which would most likely result in a valuation lower than 13.75x. You will have the additional costs of getting that assessment though, and you'll have to convince the authorities that your assessment is closer to the truth than the default valuation which is based on 13.75x.
They basically treat you as if you sold your shares or company when leaving the country. If you run a one man company that is currently making a good profit, this can become really expensive.
Exactly. And they, by default, use a very high multiple (13.75) for calculating the value of your shares.
This multiplier would be ridiculous for an LLC you are just shareholder of but in case of one person company which usually derives most of its value from the work of the founder it's just on another level.
One person shops would rarely get 3-5x multiplier if the founder leaves. It's straight up "you belong to us" type of regulation. Next they will make you fight in the arena to win your freedom.
If you’re a one person shop you rarely run a limited liability corporation. If you just run your business an individual without a corporate structure this tax is not applicable to you.
While that number seems to be not a general value, the "Wegzugsbesteuerung" still is significant.
https://de.wikipedia.org/wiki/Wegzugsbesteuerung
Essentially, it assumes you sell your assets at market value and taxes the difference to your expenses for it.
That's what I was trying to say ("What is being taxed is the shares you're holding, as if you're selling them,") … did I word that poorly/confusingly?
This 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.
Sidefact: Bigger corps work around this by building holding structures etc, which is a legal soft-tax-evasion way to do this. But all the smaller businesses get hit hard, so as usual the party is paid by the lower end of the income bracket.
> 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)
"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.
There are no trusts in Liechtenstein. They don't have the concept of trusts as they are civil law countries. What they have are foundations e.g family foundations etc..
> 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.
This is one of those cases where you really need to hire a specialist, rather than listen to the internet.
Sure, you can't port your company out of germany, but there is nothing stopping you re-structuring so that you have an umbrella company based in the country of choice.
Agree about a specialist, but probably moving an existing company into an umbrella structure is likely to be considered similarly to a sale for tax purposes.
In the UK, you have to specifically request HMRC to authorise any such plans if you want to avoid paying tax on it, and even then I believe it's only (relatively) simple if you're doing a straight share swap - so the existing company becomes fully owned by a newly created group company and the existing shareholders get the same allocation of shares in the new company. Anything else needs HMRC to assess the values of both companies and decide whether a taxable event has occurred, and what the nominal value to be taxed is. I'm pretty sure if you were trying to move an existing company into an offshore parent company, it'd be treated as a sale.
The 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.
Exit taxation on corporate level is in every EU country , because of the atad directives .
I 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=CEL...
^^^ The Anti-Tax Avoidance Directive.
Jeez.
You 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.
For a less emotional explanation of exit tax see https://www.grantthornton.de/en/insights/exit-tax-topic-hub.
> The purpose of this rule is to tax the increase in value of these shares that came about in Germany but has not yet been realised before they are able to escape the reach of German taxes by the move abroad.
Doesn't sound all that crazy to me.
Also, the proposed analogy to the Berlin wall feels quite pathetic for those that have actually lived behind it.
The 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
is 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.
Yup. That's why the advice is to leave ASAP and it's a good one.
The author describes how four classes of people are affected by the tax.
There have been many articles about the struggles of entrepreneurialism in Europe.
Does anyone else see a connection here? One more straw on the camel’s back?
I wasn't joking at all when I previously said in [0], moves like this is how to lose and now this is another reason why tech founders do not start companies in Europe and when a company gets too big, especially in Germany.
Just don't be surprised to see a decline in tax revenue when countries like Germany chase the wealth creators out of the country with high taxes + exit taxes.
[0] https://news.ycombinator.com/item?id=44134832
Wealth creators?
I would attribute that term to the workers who work 1.3 billion hours overtime, most of them unpaid
https://dailywrap.net/en-gb/unprecedented-unpaid-overtime-re...
And then the company owner whine when they habe to pay their share?
If it was just about workers then we would have comparable tech industry to USA. Yet we don't and that's because hostile culture and regulations.
Abusing workers and but paying overtime is bad and it's a completely separate issue. It's also not a big issue in tech.
I think the numbers in the article are mixed up. Earnings 200k. Wage 120k. So the profit is 80k for the calculation. 80×13,75=1.100k. 60% of it = 660k. Personal tax at 120k income = 45%. More likely less as for health insurance, etc. 660k×45% = 297k exit tax. Which can be paid in 7 yearly rates. So 42k per year. You still have a company that has earnings of 200k.
This 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.
That 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.
Its 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.
Just 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.
Keep in mind there are two methods for taxation: the simplified earnings value method (13.75 factor) or the actual unrealized profit of the business. If you believe your company will not be profitable in the future because you’re moving away, you could wind it down — but you’d still end up paying the same taxes on the unrealized gain.
Why does it matter if I believe if my company is going to be profitable or not? I have no idea what happens. It may be more profitable, it might be less profitable, it might go bankrupt. It's impossible to predict. This is especially true for small companies because outcome depends on what the founder does in the future. Taxing future efforts which are going to be outside of the country is just ridiculous.
It also depends on how the company is valued: If based on balance sheet (retained profits + share capital) e.g. 5×100k retained = 500k value, the exit tax is 18k/year for 7 years. If simplified earnings method with factor 13.75 is used it much higher valuation, the exit tax is at the 42k/year.
Does this apply to non-resident owners/founders (big shareholders that don't live in Germany) of German companies when they sell their shares?
> (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
Is there a look back period? What stops me from selling my business to my buddy the day I leave and then buying it back the day after?
The idea is that leaving the country is taxed as if you sold your shares.
So selling them presumably doesn't help.
The idea is presumably that you would "sell" at an artificially low price.
Which is illegal if you do it for tax evasion.
and legal if you’re just helping your buddy out
Not sure if the tax office agrees.
Your taxes should work out the same (or worse). Exit tax is akin to you selling all your properties at the point of exit.
Yup, this is possible. It would have to be at some fair market value, and you'd (obviously) have to tax that in Germany. And depending on how much you trust your buddy, you might or might not have to draft up some complicated legal framework that you indeed have the right to buy back your company at some stage :)
Nothing. But you will have to pay taxes on the money you get from your buddy. If he is paying too little, you may get into additional trouble.
> But no, it’s not fine, because the same person was working for a salary of €0 just a few years ago and likely has nowhere close to €700k of random savings stashed away for paying some taxes.
By your own admission, this person earned almost a million euros in the past 3 years.
Oli (Oliver? Not sure which you prefer, which I realize now I should have asked a long time ago in our first call) -
Just wanted to reiterate that I really appreciate what you have done with both OpenRegulatory and Formwork, as it was a big unlock for one of the companies I helped a few years ago as we navigated our way into the QMS / FDA / med. reg. world.
While reading this as a many-times-over-founder myself, I deeply felt multiple emotions which this would bring upon me if I were in your shoes after all the work I know you’ve put in.
I hope you are able to navigate this to a happy / successful outcome for yourself and any others involved for the relevant compan(y/ies)!
I am grateful for what you have contributed over the years on the software and documentation fronts with OpenRegulatory and Formwork both.
What does "leave" mean? Go to vacation in Austria? Leave country for more than 183 days? Rescind German citizenship?
Doesn’t every country have an exit tax, tho? Some are worse, some are better, but this is always the case.
Lots of countries have some level of exit tax on unrealised capital gains, but the devil is in the details. A painful part in the German case is that they have a fixed company valuation method that might make it untenable to leave the country.
It's one thing to tax people on assets they actually have or that are easily realisable like ETFs, as they then pay a portion of money they have ready access to. It's quite a different thing to invent a value for something and tax on that. The company ownership in question might not be realisable at anything close to that amount, especially for a startup, if you don't leave before making a profit
So don't do startups in Germany. The exit tax is just one of many reasons for that, the whole German system is bureocratic and inflexible compared to nearby countries.
The EU forces every member state to implement an exit tax to trap entrepreneurs in a disadvantageous situation (Anti-Tax Avoidance Directive).
Some countries such as Sweden implements this only minimally - making capital gains of Swedish companies you hold realised within 10 years of moving abroad are taxed, so just don’t sell in 10 years but take out credit with those assets as collateral.
Of course outside the EU, such as Switzerland and the UK, these governments are not bound by EU rules and don’t impose exit taxes.
Which is why so many European millionaires are doing their best to live in these countries
The reframing of anti tax avoidance to be a "trap", a "disadvantageous situation" is egregious.
Like maybe just pay your dues? Contribute back to the society that enabled you to become rich in the first place instead of parasitically extracting value?
Tax avoidance is legal. Everyone has the right to minimise their taxes lawfully, arguably this is only paying your dues but not more...
If duties are unreasonably bothersome then it's a trap.
Who are you to decide what is reasonable and what is unreasonable over the democratically elected lawmakers? This is a deeply anti-democratic attitude.
Democracy in most EU countries is messed up. People don't get to vote on stuff. There are usually 2-3 major parties that campaign on this or other hot issue. There is nothing that can be done about most issues even if vast majority of citizens support them.
Parliamentary indirect democracy is an illusion. It's just a capture by the political class. Will of the people has very little to do with what is done. I would love to live in actual democracy where we get to vote on stuff and popular policies are implemented while unpopular get struck down. It's even worse than American system where at least you can vote for your representative who has some independence. Here they are just a party official and if they don't vote along the party lines the party will run someone else next time around. Their loyalty is not to the electorate.
Thank you. Couldn't have said it better myself.
Eu ATAD only do exit tax on corp level. Germany does it on personal level
The UK doesn’t.
also buy fax machine, dozen ring binders, and paper shredder before you start that business
Also:
- A printer (the most important equipment of any German startup founder)
- Envelopes for letters
- A stamp with your company name (some companies and agencies you deal with require you to stamp things, because a stamp obviously proves, beyond any doubt, that you are acting on behalf of your company, because obviously no one would be able to create a similar stamp with your company's name on it, right)
- A virtual office address at a coworking space (because you're receiving physical mail, and also there are weird tax reasons not to register your company at your home address)
- A mail-scanning service (because you don't want to walk to the coworking space every few days to pick up your physical mail)
- A mail-forwarding service (so that the mail gets forwarded from your virtual office address, which now has exactly no purpose at all, to your mail-scanning service)
A good one! I remember I needed a stamp when I started a business in Poland as well! I've never used it and never was asked to so I guess the regulations no longer apply.
Poland is pretty good at digitalizing bureaucracy as well. You can do most things online including talking to the tax office and solving problems with your tax declarations.
Taxes are reasonable but I am still bitter about cap gain tax as it's a form of a wealth tax for someone that invest in equities - at some point moving to more tax friendly jurisdiction saves enough that you can fund your comfortable life and save 100% of your income.
I also think tax burden is going to increase significantly there in coming years.
Given that this kind of thing seems to be widely reported, are there any significant efforts to reduce the friction all this causes?
Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far.
That being said, it's probably overly simplistic to blame political parties for this - there's a lot of e.g. county/state-level bureaucracy in Germany which gets in the way of making any sort of constructive changes. It's a bit like blaming the CEO of a bloated company for not making it "agile" in a short period of time. Sure, leadership is important, but the reality is, it's.. complicated.
> 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.
for comparison in china stamps completely replace the signature. but then, digital signatures that are not cryptograpically signed are no better.
And the right color pen. God forbid you fill in an official form in the wrong color pen.
I would think it's a joke but once literally had an office clerk in Germany scratching with fingernail my signature to check whether it's by pen and in the right color.
Signatures that can be erased easily aren't a great fit for a legally binding document.
For more information, you can check whether the ink complies with DIN ISO 12757-2 and/or read up on "Dokumentenechtheit" [1]
[1] https://de.wikipedia.org/wiki/Dokumentenechtheit (It hasn't been translated to other languages yet.)
Apparently my every signature ever has been ISO compliant without me even knowing about that norm.
There's a reason why Kafka wrote his novels in German.
Because he was German Bohemian? (https://en.wikipedia.org/wiki/Sudeten_Germans#Austria-Hungar...)
no, because bureaucrazy in Germany is rampart.
He didn't live in Germany.
He actually lived in Berlin for a few years before he died. But you're right, he spent most of his life in Prague. However, his native language was German.
Certainly an interesting man. I highly recommend checking some of his work (ie. The Metamorphosis).
Actually The Trial more closely resembles what the OP went through.
anyone 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
Canada also has an exit tax. For individuals as well as businesses.
It's an exit taxes, but as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That doesn't seem particularly unfair. If you can image a scenario where someone buy Apple at $1, and it's now worth $1,000. They just leave Canada, pay no tax, then sell in a low tax jurisdiction.
However, it can be a massive pain in the ass for illiquid assets or assets you don't intend to sell at that point in time. A good example might be a pension. Getting hit with a tens of thousand dollar tax bill for a pension you won't receive for another 2 decades is painful.
> as far as I'm aware, it simply taxes you on all assets as if you disposed of them the day you leave.
That is also what Germany does. The 13.75 multiplier is the fallback number used if there is no valuation for the company. It's such an irrelevant number that tax advisers writing about the topic don't even bring it up. Get a valuation.
> it simply taxes you on all assets as if you disposed of them the day you leave.
Same thing in the U.S. but I think the first $800 or so is exempt.
EDIT: I meant $800K
They do tax on residency rather than citizenship. If you are a structured embezzler in another country, than expect the CRA auditors after 184 days in Canada.
Also, Canadian laws don't stop at the border as a citizen... so breaking laws in other places still puts you in legal peril for extradition.
Notably, corporate tax rates are often much lower in Canada, and export free trade is available with most trading partners. Note the US taxes on citizenship regardless of where you live (or if you hold multiple citizenship), and failure to file your IRS statement was an $8k fine last I heard. The fine often stays even if you owe the IRS $0, and temporarily live in another region.
The TLDR version: talk with corporate tax accountants in each region before filing, and do not assume the late tax filing fines will magically not apply to your situation. AMCHAM will usually help guide investors on their filing obligations for type C corporations in the US. =3
Departure tax for individuals:
https://www.canada.ca/en/revenue-agency/services/tax/interna...
Departure tax for corporations:
https://www.canada.ca/en/revenue-agency/services/tax/interna...
That is nuts, I always assumed that would fall under the capital gains taxes in the investors T5 filing at the end of the year. (could be dramatically lower rate if you get stuck with cash at the end of the year)
Now I know why the brand trademarks are usually held by an independent entity, and licensed to a domestic number company.
I guess that is why we pay the corporate accountants. lol =3
At least Canada steps us cost basis upon becoming resident AFAIU.
Ah yes, the Reichsfluchtsteuer. https://en.wikipedia.org/wiki/Reich_Flight_Tax
you could have shortened your advice to: "leave germany"
not sure how useful this is. germany is a great place to live, safe, with great infrastructure and access to europe, good food, lots of personal freedoms, orderly society, few overtouristic’ed cities, and a thoughtful populace for the most part.
No it's not . If you are young you are a slave for the elderly. Personal freedom is also very questionable. Good Food haha
We feel exactly the same in the UK. Except personal freedom isn't questionable, it's in the gutter
Social Contributions + taxes are rising and benefits get worse and worse ... Pretty sad what happened/happens to Europe
Also: absolutely beautiful, with great people.
This 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
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.
Or you could pay your fair share to contribute back to the country that supported you initially by providing education, labour, infrastructure, etc.
The moment we talk about piracy it's all about how poor billionaires will have to sleep in their cars if you make a digital copy of something you would not have otherwise bought, but when it comes to supporting the society that created you and your wealth, suddenly it's all about finding ways to weasel out of paying.
> 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.
No, 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).
All 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.
> 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.
> 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.
Actually you can. Nothing motivates you more than the lack of basic necessities. When you're poor, you have only one option: do whatever it takes to not be poor.
The reason many poor people stay poor is because they lack discipline and grit. They would rather stay poor than grind for 8-12-16h a day to get out.
Rich people don't go robbing less rich people at night and that's how they get to be even richer. Stop blaming all the world's problems on "the rich who want to be even richer".
> Actually you can. Nothing motivates you more than the lack of basic necessities. When you're poor, you have only one option: do whatever it takes to not be poor.
That's only true in rich people fantasies.
> That's only true in rich people fantasies.
I am not rich my any means. In today's definition of classes I guess I'm somewhere middle class with a chance of making it to upper middle class by the time I reach retirement age.
But, I grew up very poor (shoes with holes in them going to school type of poor) and that motivated me to do more, learn more and hopefully achieve more than my predecessors.
And for this reason I abhor all the "only the reach get richer and other's people misery is all their fault" mantra.
Let me guess, you did it all by yourself - you worked nights to pay for your school when you were seven. You grew your own wheat and baked your own bread.
I still grow my own wheat and bake my own bread. Farm my own vegetables, raise chicken... the works.
No, I took every opportunity to learn new skills and advance in life.
You can mock me all you want, it is not going to change my opinion that you be poor if you chose to be poor.
Yes, the single mother working three jobs in America who still can't afford healthcare for her children chooses to be poor. It's like success gets to your head and pride takes the place of empathy.
I am very tired of people just complaining and blaming everyone else for their situation.
My situation is pretty good thank you! But unlike you, I have empathy. I want us all to contribute to a society that helps out those who need it.
Go donate to worthy causes, help your neighbors out and the like. Who is stopping you?
But don't come here on a high horse claiming that everyone should have the same inclination like you.
no, I get it, you don't have empathy. it's not a flex.
> Rich people don't go robbing less rich people at night and that's how they get to be even richer.
You should look into who profits from wage theft. Spoiler alert: it's not poor people.
> An yet in the current discussion, only the rich get to profit from it.
In the current discussion, it’s about people who built their wealth from _zero_ by working overtime for years of sleepless nights, sacrificing their health and personal relationships — bootstrapping entrepreneurs.
You kinda say: yay, fuck this greedy capitalist with taxes, we don’t want this kind who lift themselves from poverty through a lot of work. Instead we want people to stay poor, relying on government handouts, and only allow our usual masters with generational wealth not pay taxes, nobody is allowed to join the upper class through honest work.
> They're barely surviving because the rich keep sucking any chance of building wealth out of them
I have strong impression that you don’t personally know any person actually barely surviving (not only in Germany, but in any other country as well), and you base your opinion on pictures from social networks, where mentally ill working-age people beg for money to buy their next dose of alcohol or drugs.
> When inequality is low, more people become rich.
This literally never happened in the history of humankind when the taxes were this high (~20% VAT, up to 50% personal income tax) — feel free to provide a counterexample. Taxes this high is actual slavery.
Try Scandinavia.
> Taxes this high is actual slavery.
I assume you're just being a drama queen now?
It is quite funny how exactly the current amount of taxes being requested by the local government is magically "fair." Although, of course, if taxes were raised, I'm sure you would still call that "fair." And countries where taxes are lower...well, the citizens must be scamming their government, I guess?
> And countries where taxes are lower...well, the citizens must be scamming their government, I guess?
Yes. The happiest countries have the highest taxes because they tax those able to contribute so that everybody has a decent standard of living. Who do you think works in local government? Aliens? It's the people who live there.
Wow. Can't wait for you to win the lottery and pay the government 80% of what you won in taxes and be happy about it.
Do you even know anyone poor? As in living off on less than $2-$5 a day? Or whatever the definition of poor is in your country? And if so, can you share here with the group why they're poor and continue being poor?
A quarter of children under 4 in the UK face hunger.
https://www.bbc.co.uk/news/articles/c8xeyx7x75eo
And corporate profits have never been higher. Number of billionaires has never been higher.
how does your link answer my question?
> Or whatever the definition of poor is in your country?
Do you read your own questions?
I asked if you personally onow any poor people and why they are poor and how come they cannot escape their condition.
You sent a link from BBC. Same as “more than 50% of Americans don’t have an emergency fund”. Very useless by itself.
Why do I need to know them personally? Is it not enough that they exist? As I wrote above and you dismissed:
> "Yes, the single mother working three jobs in America who still can't afford healthcare for her children chooses to be poor. It's like success gets to your head and pride takes the place of empathy."
Why should you know them personally? So you can understand why they are the way they are. Armchair politics are not helping anyone.
yes, it's her fault that corporate profits kept rising and wages stagnated since the 90s.
Berlin wall of tax? Seriously? Nobody gets shot trying to cross the border here and it's clear that the ones who can afford a decent financial advisory will get around most of the regulations anyways. I don't see how this business economist whining belongs on hn.
The EU is great, we have free movement, we can move anywhere we want without restrictions... wait a minute?
This sort of law is stretching things to the point of utter bad faith.
It's always had restrictions. For example beyond 3 months, you have to demonstrate being economically active or a student or self sufficient etc.
Then there are restrictions due to public health, personal conduct, public security
Here we go, the usual blurb. In practice you need to really cause trouble for anything to happen to you but, anyway, this is quite irrelevant to the point here.
Uhm 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.
> 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.
The rich will do anything to appear to be the victims of the world they created.
EU countries really like turning the screw on small business owners. They come up with all those requirements, taxes and limitations and then when they notice the world is getting ahead their idea to fix it is to raise taxes even more and create "business incubators" where government officials redistribute part of it to their buddies.
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While rather sarcastic, your comment does hit an interesting point: How much does the infrastructure and society of any given state contribute to the "building" of a company?
I'd argue that, for software companies, not very much; at least if you contrast it with a hardware company. If you're, say, forging steel, you're using roads, trains, a lot of electricity, you've got an industrial plant, worker unions, public accident insurance, etc., etc. - a significant chunk of state-associated infrastructure is a part of your business, and was a part of your business when you built it.
But for software companies? I mean, you need a stable internet connection, good mobile phone coverage (tricky in Germany sometimes), rule of law, efficient bureaucracy (e.g. when hiring people), good banks which don't lose your money, electricity, etc. - none of these "infrastructure factors" feel as big as the ones for a hardware business.
On the contrary, for a software business, one could argue that Germany is actively hostile to you: Founding a company takes weeks / months and is expensive (notary), most processes are still paper-based, hiring people (especially internationally) is a huge pain, mobile internet is spotty, residential internet has outages. Charging customer credit cards via Stripe exposes you to a rabbit hole of VAT bureaucracy - all companies I've met so far rolled their own, broken software stack to somehow match up their Stripe + VAT charges with their internal bookkeeping software (e.g. Datev). A huge mess. It doesn't end there.
But I may be wrong.
You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
Someone growing up in a society is strongly an outcome of that society.
> You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
This is a great point.
The flip side is that if a government fails to deliver those, they have failed their side of the social contract. Then ideally, the citizens they've failed should be able to opt out..
What about a software company founded in Germany by someone who grew up in another country, and accordingly got their education elsewhere?
What if that company is a remote company which hires people all over the world, and none of those people benefited from the {education|peace|law enforcement|trust} in Germany?
I do agree with you, in principle, that a company is somewhat coupled to the country it was founded in. The exact nature of that coupling, however, is not that simple, I would say.
Reality is complicated, I suppose :)
Lets drop you into the mid Cretaceous period and see how far your education takes you.
Without the contributions of millions of others on a daily basis you’d have nothing.
In business, you pay for those contributions.
Milton Friedman describes how a pencil is made with the self-coordinated efforts of millions of people around the globe: https://www.youtube.com/watch?v=67tHtpac5ws
For those unaware, the original essay "I, Pencil" was written by Leonard Read:
https://fee.org/ebooks/i-pencil/
Dinosaurs don’t take credit cards
> I'd argue that, for software companies, not very much
If you build any successful business, including a software business, in a lawless and corrupt country you will have local mafias try to extort you for money the moment they hear about it. In especially corrupt countries, corrupt cops/prosecutors etc will be in on it so there will be nothing to protect you. Blackouts will be common due to a poor power grid. Likewise, internet access will be unreliable, slow and expensive due to poor infrastructure.
A country like Germany is absolute godsend compared to, say, Nigeria or Cambodia.
> If you build any successful business … you will have local mafias try to extort you for money the moment they hear about it.
Precisely how is this different from mixed economies, like the US or Germany?
1. Attract software companies
While minimal infrastructure investments would need to be made to entice software companies, their is a political price to pay by allowing young business people into your country who likely will out-earn the average resident (many historical examples of this). This makes the majority of people unhappy, but brings in educated-non-criminal customers and tax dollars. Lets say Germany does (1) great, they attract 1000 smart europeans to found companies, and 10 years later 1 of those companies becomes a megacorp.
2. Keep software companies happy
10 years has passed, new politicians are in charge. Pursuing #1 is a separate strategy to #2. I would hope i live in a country that wants to (1) attract young talent and (2) keep talent happy, but of course thats not necessarily true. The new politicians in charge need to appease the majority of people again as its election season!
I think Germany / USA can't really have an honest conversation about this as Germany + USA already have highly progressive tax systems. A significant % of USA and Germany residents don't pay any reasonable amount of tax, and are drains on the tax system. I assume these %s are likely projected to grow in the future rather than decline.
If the price of bread happens to rise? Then our politicians and voters will support squeezing more tax out of productive sects of society for the short term gains. Then those productive and mobile members of society will slowly move elsewhere.
"If you comply here, you will be compliant in almost all EU countries or even around the world" situation, many qualified students, international talent pool due to attractive cities, quality of life, startup grants/funding, hotspot for B2B fairs...
It looks like education is cheap.
Presumably you paid for that infrastructure in the form of taxes while you did business in the country. Why, then, should the state have additional claims on the money you made? Were the taxes they collected already not enough?
That's not what the exit tax is, though. The German exit tax is effectively just a way to give the existing capital gains tax a way to tax unrealized gains when you leave the country, to prevent you from dodging taxes on capital gains by simply leaving the country.
In other words, it's not an additional claim. It's simply an enforcement mechanism for the money you already hypothetically owe.
Yes, that's true, but the implementation is.. not very elegant.
In theory, the exit tax should ensure that Germany gets the taxes of the sale of your company. So, if you ever sold your company once you're no longer in Germany, Germany wouldn't get those taxes, so it charges you immediately once you leave Germany in a sort-of "virtual" sale.
This, of course, sucks tremendously because you actually haven't sold your company, and "normal" people don't have this sort of cash on hand.
Other countries have "smarter" exit tax implementations and only charge you when you actually sell your company in the future. I think that's pretty fair. It also doesn't hinder people from leaving the country.
Another reasonable implementation would be for the government to accept payment in the form of shares of your company. Personally I think this is how all taxation of illiquid assets should be done, but I suppose it could get complicated.
As an immigrant to Germany, I've often made the observation that Germany frequently has a really severe implementation problem. So I'm generally very sympathetic to that idea.
That being said, I'm not entirely sure that's the case here, and this is often also brought up in the context of strengthening the inheritance tax in Germany. In both the inheritance tax and the exit tax, the inherent applicability conditions are such that the end result is that there simply aren't that many people in a situation where it actually has a measurable impact. For the exit tax, you'd need to find people who 1. want to leave Germany, 2. already started a company here, 3. that company grew large enough that the Wegzugssteuer would really be a burden, and 4. that don't have enough liquidity, or cannot raise enough liquidity by selling some of their ownership, to cover the tax. That ends up being a really small number of people, which always eases questions about the reasonability (Angemessenheit) of the law. And in the context of inheritance tax, there's the added point that there's a floor to its application.
As another commenter mentioned, even for those situations where the exit tax actually is burdensome, just as with inheritance tax, there are two really simple solutions: first, create a floor for the minimum valuation by which the exit tax is actually assessed, and second, allow you to "sell" shares to the German government as a means of paying the tax, turning the Finanzamt into a silent shareholder in the company. I think both of these would be substantial improvements to both the German exit tax and inheritance tax.
Don’t you have to pay capital gains on sale to USA government even if you leave? I thought it was based on where the shares were assigned.
In Germany only 40+% of your income goes to taxes and social security. Plus another meager ~20% on most things you buy. Plus a small tax on many things that are supposedly bad for you, like ~70% on cigarettes. Death is taxed at a discount, only 15-40% depending on how rich you were.
"Free" healthcare though. It's a bargain!
"Free" healthcare always turns out to be the most expensive healthcare.
This take is wildly out of sync with the reality that the U.S., as one of the few developed nations without free healthcare, pays more for their healthcare than all of them while having worse than average outcomes.
The worst healthcare is in reality American healthcare. We pay through the nose for the privilege of getting terrible results.
Switzerland has almost the same system as the US, and it works - when my wife needed an MRI, she got referred at around 11am by a specialist, for a call around 1pm to see if she's available that afternoon. She wasn't so they agreed on the next day.
Is it expensive? Yes. Does it work? Absolutely.
I received a CAT scan a couple years ago, about 4 hours after I wandered into urgent care. Before they stuffed me through the toroid, I asked the operator to set the dials to 1988 so I could advise my former self to buy MSFT with everything I had.
The bill was quite a whopper, though Obamacare paid most of it. Of course, my Obamacare premiums are about 4x what they were before Obamacare.
I call BS on this statement. And German healthcare isn’t even free.
Of course. And historically, US health care costs rose at about the rate of inflation until the late 1960s, where the curve tilted strongly upwards at a much higher rate, and continues today.
What happened in the late 1960s? The advent of "free" healthcare!
Which free health care caused US healthcare to get so expensive?
Free healthcare was part of LBJ's "Great Society".
Did it happen?
I think most people would be okay with an exit tax if it's reasonable. Requiring the owner of a business generating €20k in profit to then pay €70k in taxes is not reasonable.
Canada also has an unreasonable exit tax. Canadian founders are taxed on 50% of the FMV of their shares on departure. So if you own half of a company that is worth $50m, your taxable income for the year of departure is increased by $12.5m.
Agreed. As mentioned in another comment, I think it'd be fair to levy the exit tax when you actually sell your company in the future. Like, if I ever sell my business, I'd be happy to pay my fair share of German taxes on said business, even if I'd no longer be a tax resident of Germany.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
Interesting pointer on Canada - thanks!
The idea that a company is "siphoning out" value is fundamentally flawed. The company is creating value, and society enables it. This enablement is ongoing, and should be paid for with ongoing tax. If the actual value creator decides that they can get a better deal somewhere else, then barriers to exit come in because the government is trying to get more out of a company than it provided. (Since if there are superior places to operate, the worth of what the state you are leaving provides must be overvalued, otherwise you wouldn't leave).
You'd have a point if Germany did anything to actually support businesses scaling instead of trying to kneecap them at every turn
Perhaps you would apply the same logic to a family car, or the clothing you bought? Should they tax the value of your medical degree when you leave the country?
Yes.
Remember that in Germany you don't pay for University degrees. High education isn't just for a wealthy minority.
That doesn't make the degree worthless, surely
Sure. I just want to say that your educated workforce is part of the infrastructure provided by the "evil" government.
I would assume that logic is applied.
Exit taxes are generally applied as if the taxpayer sold all capital assets on the day of leaving.
At least in the US taxation regime (I'm unfamiliar with others), family cars don't qualify for a capital loss, and rarely appreciate. Clothing would be similar.
But it doesn't seem unreasonable that a country should want to be paid tax on unrealized gains as you're leaving. It would probably be more fair to wait until the gains were realized and then apportion the gains among the countries of residence, but if you're leaving, it's going to be hard to compel your participation later, so it makes more sense to do it as you're leaving.
In many cases people want to move precisely because Germany doesn't provide as good infrastructure for startups as other countries.
Also, the "you can't leave because you owe society" argument, while not necessarily wrong, is strongly associated with the abuses of Communism.
Yes globalism is bad :) outside of certain forms of trade. Next up, remittances.
> State that let you build
Excuse me, why I need state permission for building business?
yep, there’s a reason these people start their businesses in stable economied countries, yet certain groups of them do everything to pretend they owe nothing back.
i’d love to see a comprehensive study on how much corporate tax avoidance costs a country vs food stamps so we can get an accurate view on who leeches/gains more. my suspicion is corporate wage theft/tax avoidance/evasion/subsidies are significantly higher, particularly if we add in executives and major stock holders.
In the article it shows that very rich owners can evade the tax (probably they've already planned and left!), while middle class people the tax wipes out their business and probably send them bankrupt. It's more like handcuffs than socialism.
I am sure they could achieve the same goals of fair tax but learn some game theory before doing so.
Man soll den Flüchtlingen aus Deutschland keine Träne nachweinen, eh?
You talk as if society and the infrastructure society paid for somehow belonged to the state.
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The developed world is increasingly facing a funding crisis brought on by this propaganda that if we tax corporations and the very wealthy then they'll leave.
One of the most farcical examples of this is the decades-long race to the bottom on business taxes and incentives between Kansas City, Missouri and Kansas City, Kansas. For the non-Americans out there, this is basically one city but it sits at the border of two states. So the two states are constantly torching money to lure businesses that play this system and simply go back and forth.
I believe this situation will come to an end and there are several reasons for this:
1. For the EU in particular, reliance on US tech giants is increasingly becoming a security issue. The Eu will increasingly wants homegrown alternatives so the option of leaving will simply not exist because you could leave but then you lose the EU as a customer;
2. For a long time multinational companies used transfer pricing to avoid paying taxes. What's transfer pricing? Let's say you buy a sofa in China for @200, ship it to the US for another $200 and then sell it for $1000. You've made a gross profit of $600. What if instead you have a subsidiary in Vanuatu, which has no corporate income tax (AFAIK), and it buys the sofas for $400 and sell them to the US company for $950? Well, you've booked $550 in profit where there's no tax and only $50 profit where there is.
That's technically illegal. It's often-called transfer pricing manipulation.
So what do tech giants like Google do? They sell their IP to an Irish subsidiary. There's a nominal process to make sure this is done for a "fair" value (according to the IRS). Then they pay royalties to their own Irish subsidiary to shift profits to a lower tax regime. Previously, this created a problem because they couldn't repatriate the money without paying (then) 30%+ corporate taxes but this all changed in 2017 with a tax holiday and a change to how this kind of income was treated. The net result was way lower than 30% net tax however, even with Biden's 15% minimum tax (which was a good thing) that came later.
What's the difference between this kind of profit-shifting with IP and transfer pricing manipulation? Absolutely nothing, except one is illegal and one isn't.
3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK; and
4. While individuals may be able to notionally "leave", assets generally can't. Land can't be moved overseas. Natural resources that are mined or fished or logged can't be moved overseas. So it's really an empty threat.
I'm really sick of this "the businesses will leave" propaganda.
> I'm really sick of this "the businesses will leave" propaganda.
I don't think anything you've said convinces me it's propaganda.
Businesses are profit-seeking ventures. They will optimize their operations to maximize profits.
So I'm not sure why you'd call it "propaganda" to say that companies will leave. I think the evidence is that they will.
Of course, taxes are not the only variable in a profit-maximizing formula. US companies aren't going to flee in mass if Somalia decides to have zero corporate taxes. But you can't ignore that companies will optimize their operations and structure if they can lower taxes.
The US have something similar just for citizens and greencard holders
https://www.greenbacktaxservices.com/knowledge-center/exit-t...
So should greencard holders flee the US before they become too rich
Why are taxes so high though? Like in Sweden I'd pay literally 80% tax on extra sole trader income - 30% employer tax, 30% income tax, 20% high income tax.
But there is no Swedish moon base, or ultra high speed rail, etc. - where does it all go? We have higher taxes but less infrastructure investment than a century ago.
Well, Sweden has the largest wealth inequality in Europe, so I guess it goes to the friends' pockets.
Because we don't tax the people with all the money. It's why someone making $100,000 a year loses probably half of it or more to federal, state and local income taxes, property taxes, sales taxes, etc and Warren Buffett pays 3%.
There is a persistent idea that we cannot or should not tax wealth because it's "unfair". We certainly can. We do it all the time. Property taxes, depending on your jurisdiction, are either taxed based on assessed value or whatever the assessment method is correlates strongly to property value.
I can't speak to the specifics of Sweden and its tax base but in general a key problem in the developed world is the skyrocketing cost of housing. Why is this a problem? Because it's an input into the cost of everything. It makes your labor more expensive, which in turns makes what they do more expensive. I have heard getting an apartment in Sweden is rather difficult. Stories of having to register at birth and waiting 20+ years. I could be wrong.
But everywhere in the developed world has high housing costs (in terms of real income) because we constrain supply, subsidize demand (particularly to the very rich) and allow people to hoard housing.
How much detail do you need? High level expenditure breakdowns are here: https://www.government.se/government-of-sweden/ministry-of-f... and https://www.government.se/contentassets/5dc8d78159ee495fb5f3....
You can probably find more detailed breakdowns if you're really interested. But overall, most expenditures are probably in the categories healthcare, transfers to lower-incomes and education, like in most other European countries, and you probably won't find anything nefarious by looking into more detailed splits.
If "businesses will leave" was propaganda, you wouldn't need an exit tax, would you?
If there is an exit tax because companies would leave otherwise, why would someone rational start a new company in the country rather than leave first?
Governments have extraordinary powers to bring individuals and corporations to heel if necessary. Governments can:
- Charge exit taxes on people who "leave". As someone else pointed out, the US already does this with citizens who renounce citizenship (and it applies to long term permanent residents too);
- A lot of assets simply can't leave. Physical assets, land, etc;
- Assets and corporations can be nationalized;
- You can use tariffs and other legislative methods to punish those companies that "leave";
- You can also just deny access to a market for pretty much any reason you want. For example, Huawei is heavily restricted in use in American telecoms infrastructure for "national security" reasons; and
- You can generally impose cvarious levels of capital controls to limit the inflows and outflows of capital in pretty much any way you want. China does this heavily.
China is often criticized because the companies are an extension of the state. That's true. They are. But what we have instead is governments that are extensions of corporations. Can we really say that's working out better?
The US economy is rapidly becoming Russia. Russia has autocratic rule with oligarchs who pay fealty to Putin. In return they can do whatever they want. Do you really think we're different at this point?
Compare that to China. China isn't afraid to "disappear" their billionaires for awhile to bring them into line aka Jack Ma [1]. Exactly where he went and why and what happened is still unclear. China continues to crack down on tax evasion by so called "yin and yang" contracts (eg [2]). And China executed two for a scandal involing tainted baby formula [3].
What do we get? A world where governments can't punish companies for offshoring because that violates "free trade". Companies can take governments to a WTO court. And have.
[1]: https://www.bbc.com/news/technology-56448688
[2]: https://www.globaltimes.cn/page/202403/1309137.shtml
[3]: https://www.theguardian.com/world/2009/nov/24/china-executes...
Oh, so you didn't mean "businesses will leave [is] propaganda" as in
but as in I can imagine other problems with that, but it's less worthwhile to discuss>3. Revenue will increasigly have to be taxed in the source country. For example, Google I believe books all UK ad contracts through Ireland such that the UK subsidiary has essentially zero income to tax. I believe governments will increasingly crack down on this such that if something is sold in the UK, it's taxed by the UK;
Wasn’t this only a thing while the UK was in the EU, because the EU expressly allowed it?
Clear explanation, thanks. Seems that many companies have moved from California to Texas or Tennessee. Am I wrong?
You're not wrong. The reasons why come down to really one or more of these factors:
1. To lower labor costs. For example, the Big 3 auto makers are unionized. Tesla's manufacturing isn't. Guess who earns more? [1];
2. Deregulation. Some things (eg polluting) are way easier to get away with in Texas than, say, California;
3. To shift the tax burden from the owners to the workers. Texas famously has no state income tax. It does have sky high property taxes though. Property taxes are a super regressive tax;
4. For the politics of the owners; and
5. Other miscellaneous reasons. For example, Texas is about the absolute worst place to get divorced for a spouse who is a parent and isn't the primary income earner. Why? Texas courts won't let you move out of state with the children [2] and child support will be severely capped [3], even if, say, the other parent is a billionaire.
[1]: https://www.businessinsider.com/tesla-pay-vs-ford-gm-uaw-uni...
[2]: https://www.thetxattorneys.com/child-custody/relocation
[3]: https://ondafamilylaw.com/what-is-the-maximum-child-support-...
It is not 2005 anymore . Stop spreading bs . There are many mechanisms against profit shifting and transfer pricing . BEPS 1.0 and 2.0 and many more.
Or... just don't leave the country? You only pay an exit tax if you, y'know, exit.
https://en.wikipedia.org/wiki/Serfdom
https://en.wikipedia.org/wiki/Rule_of_law
… or you just pay the frickin tax for once instead of leeching on society without giving back
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We detached this comment from https://news.ycombinator.com/item?id= 44829333 and marked it off topic.
I don't know why you need to mix that in here. It's irrelevant.
Looking at their older posts, many of which are greyed out, best strat is "FAMO" - flag and move on.