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Comment by chaosprint | Hacker News Reader

meanwhile Norway has started a controversial exit tax that can kill many tech startups:

https://www.forbes.com/sites/danieladelorenzo/2024/04/09/nor...

Why would anybody do unpaid sweat equity in founding a risky startup? A gamble that can only pay off if you were to win the startup lottery.

The same issue in New Zealand. Anyone with a professional job invests $100k/year in lost wages founding their high risk venture. Lose taxes if you win. Lose 100% of your time if you lose. Hardly economically worth being a founder given expected return is so poor (worse than the standard figure of 90% businesses fail after 5 years). We don't have a capital gains tax yet in NZ but CGT means nobody sensible should found a startup by "investing" their time.

> When the natural interest for start-ups is to scale up and expand in foreign markets, or to leave the country to seek better deals, the proposed 37.8% exit tax on unrealized assets over $46.5 thousand that have been accumulated in Norway, seems to be the last drop for any foreigner or Norwegian with big dreams to set a business in the Nordic country.

As prior art, doesn't the US have something similar where if you want to leave your residency/citizenship, you have to pay up, even for unrealized gains and such? Seems like Norway is modelling something similar to what the US already has, and the US seems to still have tech startups coming out of it.

well. but these two countries are very different, so can't just copy paste policies.

I think the difference is that the US is where you'd want to found your startup anyway.

If I imagine being Norwegian, I bet the answer to that question is "Nope" more than "Yes".

I dunno, even Norwegians like money.

I think a major difference between people from the US and people like me from the Nordics is that we don't prioritize money above everything else. Good work/life balance for example, is commonly more important for us, just like everyone having access to good healthcare is also more important. But of course, not everyone shares that view :)

Sure, but people who found startups probably do care about money, and for them, the US offers more opportunity. Funding is easier, the market is bigger and unified, etc.

The real trick is to be European and then go to the US, make a ton of money, then fall back on the European social safety net when you want to start a family, etc.

For what it's worth a good few of my friends are software engineers and now that we're in our 40's it's the Americans who have better work life balance, not me (the American who moved to Europe chasing better WLB but instead just making a ton less money)

> Sure, but people who found startups probably do care about money, and for them, the US offers more opportunity. Funding is easier, the market is bigger and unified, etc.

Heh, funny that you just exemplified my "Americans care mostly about money" by only thinking about money/funding :) The startup/company culture might be a bit different in the Nordics compared to what you're used to. Many people just want to create a business that earns "well enough", then they're happy with that, rather than a "takeover the world" approach that is common in the US.

> The real trick is to be European and then go to the US, make a ton of money, then fall back on the European social safety net when you want to start a family, etc.

You do you! Personally I wouldn't feel ethically OK with that approach, as the country that raised you loses out until when/if you come back, and you're only moving to the US to make money, then leave with it, rather than retiring there.

But, everyone has a different approach to life, there is no right or wrong, correct or incorrect, only what we feel is the right approach for us :) In the end I hope you live the life you want, just like me.

The US exit tax isn't a fixed penalty for leaving, but rather a way to wring "pending taxes" out of citizens renouncing their citizenship. Per the exit tax you pay taxes as if all your assets had been sold, thereby forcing security gains to be "recognized" at that point.

How is that different from the thing Norway might implement? Besides the obvious difference of the US exit tax seems to be about citizenship while the Norwegian one seems to be about residency of the company itself.

> Besides the obvious difference of the US exit tax seems to be about citizenship while the Norwegian one seems to be about residency of the company

That’s a big difference. (Also, is it company or personal residence?)

Sure, but also the least interesting because that difference is very obvious, that's why I'm asking for other differences...

> that's why I'm asking for other differences

If the obvious difference explains the gap, this is unnecessary. Switch American taxation to a territorial system and you’d see a similar flourishing of start-ups and founders in Canada and Mexico.

You're right - maybe it is the same - I don't read closely enough, but the Norwegian tax is on "unrealized assets" which may be the same thing.

The big difference is that the US will sting you for tax wherever you are in the world, whereas most will only tax residents (complexities in terms of tax treaties notwithstanding).

Hence in both cases they are both looking to realise gains at the point where they no longer have control over the taxes being charged. A `penalty` for leaving their tax jurisdiction, notionally for the tax they are 'owed'.

A typical bit of Forbes scaremongering.

According to the local the threshold for share gains is 3 million kr, about 300 thousand USD. You only pay the exit tax on amounts above that.

"Those subject to the tax will have to address their tax obligations related to gains exceeding 3 million kroner on shares acquired during their time in Norway.

They will have several options to fulfil this obligation, including immediate payment, interest-free instalments spread over 12 years, or deferred payment with accrued interest.

The changes are part of the government's efforts to counter the recent outflow of wealth from Norway, with Switzerland being a popular destination for tax exiles."

https://www.thelocal.no/20241007/whats-the-latest-on-norways...

Yeah, but I think the point is that this applicable on unrealized capital gains too. So if I start a company in Norway, raise a bunch of money and then move to the US because the company wants to have a presence there, I now have to pay the tax on the basis of the money raised; It's quite common for a reasonable successful founder to be worth millions on paper while having no cash.

It is and the effect is immediate and destructive to any value creation in startups. It basically forces companies to leave before raising any serious money or founders will end up with tax bills that have to be paid out of investment money

Or just staying in the country, thereby bolstering their economy. Which is almost certainly the end goal. I mean, it kind of sucks if these countries provide the tools to create successful businesses and then those businesses just move to cheaper countries. You're kind of getting screwed over.

Countries invest too. In their economy. Providing high quality education at a low price is a huge investment, for example. It's not a good deal if citizens take that and you don't get a return on your investment, i.e. they're not creating innovative companies in your country.

On the other hand, not taxing unrealized capital gains on exit would effectively create a loophole by which it would be possible to avoid taxation simply by moving to a tax haven for a while and realize the gains there.

The Forbes article is from April, while The Local article you're quoting is from October. Back in April, the proposal was different, as The Local explains.

And the biggest problem for startup founders remains: you're taxed, on leaving the country, on unrealized gains. Being taxed on 5 millions of profit sounds fair, being taxed on 5 millions (or 30 millions) of valuation used for raising capital, in a startup that then fails and is worth nothing after a few years, maybe not so much. Neighboring countries do not have this kind of taxation.

Not at all. As soon as you get VC money, your valuation likely is in the millions, and then you're already way beyond the threshold. Good luck with the exit tax then.

Many sub-aspects of this are debatable, of course: Is VC money good? Are high startup valuations good? Also: Sure, you can defer the payment, you can pay it later with interest, etc., etc. But that's besides the point.

The problem here is: Once your startup reaches a high valuation, exiting the country, for whatever reason, will become difficult. And this might happen for rather innocuous reasons: Temporarily moving to the US to open up a subsidiary, staying there > 180 days / year? --> Exit tax. Etc. The number of second-order consequences is high, and I'd wager most of them are not good if your goal, as a country, is to foster a startup ecosystem.

Weird that they would even consider that – Norway is so rich from oil and gas, it may be able to keep going without collecting any taxes.

Taxes make a government accountable to citizens. While not paying taxes because of oil wealth might seem enticing in the short term, it'll lead to disaster in the long term if a government becomes accountable mainly to the resource industry and neglects to invest in a diversified, productive economy.

Norway has high tax rates despite having oil wealth-- this ensures citizens remain productive and don't get too complacent by depending on a fluctuating commodity.

The vast majority of oil tax revenue never enters the Norwegian domestic economy but is instead funnelled into the State Pension Fund (The Oil Fund) which invests outside the country. This means that the oil has little effect on inflation in the country. There is also a rule that only 3% or less of the fund can be used by the state in any one year. 3% is the expected real return so the fund should never shrink thus preserving the value for the future.

Norway has successfully avoided the Dutch Disease. But whether we will be able to successfully negotiate the decline of oil in the long run remains uncertain.

This is exactly the reason why we crossed out Austria as destination. Not only they have an exit tax, they want to tax the unrealized gains since the purchase of the asset instead of since entry to Austria. I wish they'd fix that weirdness.

Or just let people move between there and US without forcing asset sales at bad times to cover tax payments on unrealized gains.

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