Bootstrapping a SaaS Business in Germany: How I did it

I hope it's not Switzerland, internationally recognised tax haven. If your country profits from the tax-avoidance of the rich then I won't consider it.

I agree that the pension scheme is really the achilles heel of the german state, as the pensions schemes are not really determined bye their true worth. But that's literally only one function of many. And the it also has good sides, as you there's less risk of serious poverty in old age.

> Germany could remove all federal income tax

While it's certainly a big part, it's still the minority of the federal budget and so you could only reduce the federal income tax. Things like research, social safety net for work-seekers, healthcare or major transportation routes are in the hand of the federal state.

EDIT: In the end I am not really arguing that germany is best. But I am arguing that in germany the taxes fulfil important functions and in the end they manage to deliver on most points. You might not want to accept it, but then moving abroad or changing the system from within is the only way to do it, but not staying in germany and avoiding taxes. Pay your fair share if you do your business in germany. I am convinced that successful entrepreneurs have social responsibility, because economy serves society and not the other way around.

I doubt your proposal is implemented in any, or many, countries worldwide. Why? Your proposal seems far more prone to abuse than the status quo.

After all, even most of Elon Musk's Tesla gains have not been realized in the sense of the TSLA stock being sold for a profit. He's sold some shares of course, but most of the wealth he accesses is by borrowing against his on-paper gains, not realizing them in the tax or accounting sense.

So, wealthy people like him who can clearly afford to pay the taxes on their gains would just be exempted by that policy merely due to their choice to borrow against rather than sell their shares.

If an arms-length investor has said that your shares are worth $XMM when they were worthless before, it's not unreasonable for the tax man to expect you to find some way of paying tax on those gains in a timely manner, even if you have to borrow to do so. Every other person with an on-paper gain outside the world of private corporate shares sometimes has to do similar things to satisfy their exit tax. This sometimes even happens in the world of private corporate equity where there is enough of a secondary market for third parties to buy options off of people who don't have the liquidity to pay the taxes required to exercise.

> To ensure the "fair" tax is levied i'd propose a limited continued tax jurisdiction over the shares until the time they get liquidated, with the optional alternative of prematurely ending that jurisdiction by settling it at the time of the shareholders convenience, with the ensuing valuation being kicked off then.

This is absolutely a reasonable way of doing it... almost. Allowing the shareholders to choose the time of tax exit separately from any real-world substantive transaction is so very prone to abuse. They'd just wait until the next recession to minimize taxes, even if they don't move or do any major corporate ownership or investment transactions during that recession.

And the limited continuing tax jurisdiction needs some way to ensure that enforcement will be possible, such as posting acceptable security, at least when the person doesn't move to another a cooperative tax treaty partner country that is willing and able to help with any required enforcement. Otherwise, again, they can just move their residence and assets to a tax haven country and thumb their noses at Germany.

Maybe you're wondering, how is posting acceptable security different than paying taxes, or just plain how would it work? First answer is to go look at other countries like Canada which already offer this option as a way of deferring exit tax on illiquid assets and see what they do.

But purely speculating here: It doesn't necessarily have to prevent you from getting a return on investment on the security you're posting. For example, maybe the security could be in the form of a temporary restriction on your right to withdraw a certain amount of funds from a German bank account, but retaining the right to earn interest on that money and possibly also to withdraw that interest.

> The limited continued tax should assume a linear value growth over time and armed with that calculate back what the tax would have been at the point the share holder left the tax system.

Why would it be linear when that's in no way a reasonable approximation of what happens to most businesses which end up in the tax-trap scenario you're describing? But more importantly, why would one need to care about subsequent events when valuing the company at the moment of departure? Just value the company at the moment of departure, whether or not tax is deferred.

Let me give another scenario or two. What if you die soon after the valuation round instead of leaving Germany? Or, same thing, but what if you divorce instead of die? Either way, you need to value the company well enough to value your shares for whatever inheritance or asset-splitting process follows the death or divorce. To me, applying the same valuation to a residence-based exit tax seems like the fairest and most just solution.

> Since the valuation is largely out of the hands of the founder, the abuse potential is limited to knowing of upcoming changes in the valuation, but since they would be future changes in the valuation, i don't see a legitimate reason why the state you leave should tax you for it.

I don't understand the point here, but I agree that the state you leave should not normally be taxing you on changes in valuation which happen after you leave. Exceptions might exist in some edge cases where you can reasonably attribute the change in valuation to the period before you leave. (Imagine a case where a term sheet is signed before ending German tax residence, prompting you to try to dodge the tax hit by emigrating before closing.)

All I can say is that it's de facto possible to create a GmbH after you already have started building something that will be owned by the GmbH without requiring a formal transfer of the assets. To do so in a way that is legally safe and sound you should speak to a legal expert.

As I understand it, it's less that there's a legally defined period, it's more about the limits of what you can rationalize or to what degree history can be redefined. If all the code you've written is sitting on machines under your control, who's to say that the code you wrote before the company was founded is the same as the code the company ends up owning? Especially when it was just a draft prototype you definitely threw away anyway. If sale of the company or investment ever comes up, they'll do the due diligence to make sure the documented history is up to par anyway.

If any of this was too subtle: legally, history consists of what everyone agrees history is. Founders can be expected to bring in their prior knowledge when founding a company, so any software produced by them for the company while employed by that company is owned by that company, even if it happens to be indistinguishable from software they wrote prior to founding the company, as long as there are no third-party claims to that previous software (which would create liability for the founder anyway). If you're the only person who knows what color your bytes are, well... .