Comment by defertoreptar | Hacker News Reader

Comment by defertoreptar | Hacker News Reader

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> This article is trying to suggest that equity incentives are somehow especially and unfairly (!) singled out by European tax schemes but I don't see any meaningful argument to support that.

From the article,

> A few years ago the Dutch capped bonuses for bankers, money managers, and other financial professionals at 20% of their base salaries. Entrepreneurs must navigate onerous tax rates and restrictions that often make equity sharing and options more trouble than they’re worth. When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. [End]

> If you want to make the arguments made by this article, IMO you have to first make the general argument that taxing wealthy people heavily is a bad thing.

Silicon Valley startups have gotten a reputation for being a way to get stinking filthy rich. What happened as a result? Tons of people, many of which visit this website, are out there everyday foregoing traditional careers, trying to make something new and something people want to buy.

The argument is that it takes a big carrot to get people to take big risks and work really hard to make something from nothing.

Those details about the Netherlands don't actually form an argument in my view, other than "look how much tax there is". And your additional arguments still just boil down to "we should not tax high levels of wealth" so heavily.

I'm not saying that sentiment is wrong (although I absolutely do disagree with it), I'm just saying that this article is disguising "too much tax!" as "look, I've identified an interesting pattern in European policy and causally linked it to Europe's less successful startup scene".

> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares.

almost exactly like in the US. hence the GP’s complaint.

I didn't want to make my post needlessly long, but the article continues,

> In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.

That’s not accurate at all.

To get the 0%, you have to exercise at strike price (only way to do that is to forward exercise your vesting schedule which is in theory great, but I have yet to see this allowed by a company for normal employees) AND you have to be under a certain threshold of income (39k for single and 78k for married [1]).

So in reality 0% is just not possible for most people with these options.

When you exercise, the spread between strike and fair market value is taxed, whether you sell or not, or even can sell. If the company is private, you have to pay and hope they become public or get sold.

If you happen to live in CA, add some more tax on top of that.

Now, as a founder, where you do not need to use options, the math is different, but still not zero percent.

[1] https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rate...

A data point: we allowed this for all our employees (83b for everyone!) and no one took us up on it. It was frustrating because as a founder, I viewed it as a benefit, but employees didn't. At all.

My guess is very few people knew that AMT was a thing and/or didn't have enough liquid cash to buy at the time. Had I know that in a few years I'd have a tax bill in the tens of thousands of dollars I'd have taken a loan out immediately to early exercise all my options and been much better off.

Depends on if they're ISOs or NSOs. Not having to pay income tax on the difference at exercise time makes all the difference.

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