Exit Tax: Leave Germany before your business gets big
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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.
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.
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!
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 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.
Those shouldn't be prohibitively expensive; even small businesses in the US can typically afford one. Just go ask them.
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.
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.
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.
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!!!
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.
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.
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!
Alternatively, simply keep both the house and company in Germany. No exit tax since, thanks to that house, you haven't technically exited, right?
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.
- 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
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_...
> Snark aside, this chart makes total sense
> to me now: https://i.redd.it/fxks3skmvt4e1.png
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
On the other hand, no one expects to pay "an exit tax from a country".
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.
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.
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).
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.
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.
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.
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...
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.
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.
Why is it just assumed that regressive taxes are bad?
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.
- 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.
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.
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.
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.
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.
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.
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?
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.
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?
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.
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.
What lender do you know of who will voluntarily reduce your mortgage obligation if the property depreciates?
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.
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.
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.
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.
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?
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.
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.
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.
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.
It’s okay to name him here you know. [redacted] can’t get you on HN
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.
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.
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.
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.
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.
_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.
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?
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.
Any claim of valuation is really only meaningful as a purchase offer.
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.
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.
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?
I think you're confusing a capital gains tax with a wealth or asset tax.
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.
In that they tax you when you stop being tax "resident", just like the others.
The US doesnt have an exit tax because, for the purpose of taxation, you can't leave.
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.
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.
But there could be a whole lot of complexity around stuff like ETFs and mutual funds and whether they were recognized by both countries.
Have friends who regularly spend 10x more than I do my accountant for my tax return because of this.
_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...
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.
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?
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
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.
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.
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 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.
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.
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.
This means lots of additional reporting work plus 49€ per ETF yearly for tax preparers.
US really hates expats.
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.
I can't believe how badly the US screws their expats, and nothing is done about this, it only gets worse over the years.
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..
Balancing taxes for fairness and innovation is quite tricky...
Hoarding wealth isn't a problem if no wealth creation happens in the first place.
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.
https://www.euronews.com/business/2024/04/01/wealth-inequali...
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.
Not everyone's top priority is building a big ol' dragon pile of gold.
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.
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.
If the rich get 10x richer, prices will rise by more than 2x, leaving everybody but the rich worse off.
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.
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.
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.
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).
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.
But maybe I read wrong history books.
(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…)
https://www.greenbacktaxservices.com/knowledge-center/exit-t...
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.
Why do you think that might be? Perhaps the Germans could make their IPOs more business friendly, so they have no reason to flee.
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.
This will cost for a while and then work again.
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.
That's why working class people are angry and feel broke despite the constant "line goes up" narrative.
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.
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.
My opinion is obvious. Not as business friendly as the US. Make Germany a more attractive place for business than the US.
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 “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.
Edit out swipes like this from comments on HN please, no matter what you're referring to.
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.
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.
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).
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.
A place where I could blend in which rules out the kind of obvious and otherwise excellent choices in Asia.
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.
We don't have AI in Europe (don't get me started about Mistral) but we have AI regulation.
In 2011 Germany had 17 active nuclear power plants. They closed their last one in 2023.
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.).
Unpopular opinion these days, but yes. A government's duty is first and foremost to its citizens. Anyone else comes last.
So when you get money out of this, you pay your fair share of taxes, like everyone.
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?
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?
no?
Businesses are also fleeing California, New York, etc., because of high taxes.
- 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)
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?
An incentive for entrepreneurs?
It can help kickstart a stagnant economy.
The economy is stagnant for a reason. At some point, the juice isn’t worth the squeeze.
Ironically some of the biggest european companies are related to luxury items.
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.
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.
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.
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.
It’s like rolling a 50/50 coin where your payout is 0 or 100%. Why would you play if there is only downside?
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.
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.
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.
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.
In part, "following the law" means "clearing any outstanding debts."
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.
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.
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.
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 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?
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?
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.
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.
- 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
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.
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.
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.
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.
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.
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.
> 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.
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.
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.
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?
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 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?
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 would understand if they'd tax the sale of the business.
So selling them presumably doesn't help.
this is the money quote here
By your own admission, this person earned almost a million euros in the past 3 years.
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.
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.
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
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?
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.
Certainly an interesting man. I highly recommend checking some of his work (ie. The Metamorphosis).
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.)
- 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)
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.
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.
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.
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)
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
https://www.canada.ca/en/revenue-agency/services/tax/interna...
Departure tax for corporations:
https://www.canada.ca/en/revenue-agency/services/tax/interna...
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
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.
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.
Same thing in the U.S. but I think the first $800 or so is exempt.
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.
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.
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.
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.
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.
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.
> Taxes this high is actual slavery.
I assume you're just being a drama queen now?
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".
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.
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.
But don't come here on a high horse claiming that everyone should have the same inclination like you.
You should look into who profits from wage theft. Spoiler alert: it's not poor people.
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.
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?
https://www.bbc.co.uk/news/articles/c8xeyx7x75eo
And corporate profits have never been higher. Number of billionaires has never been higher.
Do you read your own questions?
You sent a link from BBC. Same as “more than 50% of Americans don’t have an emergency fund”. Very useless by itself.
> "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."
This sort of law is stretching things to the point of utter bad faith.
Then there are restrictions due to public health, personal conduct, public security
And likening that to the Berlin wall, where people literally got shot dead, is honestly pretty disgusting.
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.
Also, the "you can't leave because you owe society" argument, while not necessarily wrong, is strongly associated with the abuses of Communism.
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.
Remember that in Germany you don't pay for University degrees. High education isn't just for a wealthy minority.
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.
Someone growing up in a society is strongly an outcome of that society.
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 :)
Without the contributions of millions of others on a daily basis you’d have nothing.
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
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..
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.
Precisely how is this different from mixed economies, like the US or Germany?
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.
In other words, it's not an additional claim. It's simply an enforcement mechanism for the money you already hypothetically owe.
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.
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.
"Free" healthcare though. It's a bargain!
What happened in the late 1960s? The advent of "free" healthcare!
The worst healthcare is in reality American healthcare. We pay through the nose for the privilege of getting terrible results.
Is it expensive? Yes. Does it work? Absolutely.
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.
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.
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!
Excuse me, why I need state permission for building business?
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.
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I am sure they could achieve the same goals of fair tax but learn some game theory before doing so.
Please take a moment to read the guidelines and make an effort to observe them in future, particularly these ones:
Be kind. Don't be snarky. Converse curiously; don't cross-examine. Edit out swipes.
Comments should get more thoughtful and substantive, not less, as a topic gets more divisive.
Please don't fulminate. Please don't sneer, including at the rest of the community.
Eschew flamebait. Avoid generic tangents. Omit internet tropes.
Please don't use Hacker News for political or ideological battle. It tramples curiosity.
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.
Wasn’t this only a thing while the UK was in the EU, because the EU expressly allowed it?
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.
https://www.greenbacktaxservices.com/knowledge-center/exit-t...
So should greencard holders flee the US before they become too rich
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-...
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?
- 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...
"it's not true"
"the state has all the power it needs to practically prohibit that, if they were just more open to autocracy"
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.
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.