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The Hidden Tax Trap for SaaS Founders in Germany

vincentschmalbach.com

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Re: The Hidden Tax Trap for SaaS Founders in Germany

#11

Post by fabian2k »

vincent_s wrote: post #3
BoredPositron wrote: post #2

…if you plan to sell your company.

That's exactly the problem - you often don't plan to sell from the start. Life changes. Kids are born. Health issues emerge. New opportunities arise. If you start successful in Germany without the right structure, you're locked in. At least if you plan to sell from day one, you have options (expensive ones). But most bootstrappers just build stuff users want. Then one day they get an interesting acquisition offer...…

You're paying the same amount as if you had been employed and earned as much as you're selling your company assets for. If that costs you millions, you're still having millions left.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#13

Post by lifestyleguru »

noduerme wrote: post #8

I made a rather stupid mistake recently, as an American. I put $30k or so of my Roth IRA into BMW stock, since it was paying something close to 8% annual dividends. Once a year. I suppose I should have looked at this more closely. When the dividend was paid, the German government took about 30% of it right off the top in taxes... for a foreign investor. Still not a bad return, but I won't be buying any German stocks…

The EU stock exchanges withhold the most aggressive dividend tax disregarding bilateral agreement with country of your tax residence. If you think that German 26% is bad, the Swiss withhold 35%.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#14

Post by TomK32 »

The disclaimer is absolutely right, you should consult a qualified accountant because the rest of the article is wrong. First of all, it's not just about SaaS, but all GmbH. I don't see any reason why Germany should make exceptions for software companies as the author wishes for in the second-to-last paragraph.

In regards to taxation of a sale I can only point to this first google result: https://www.rosepartner.de/besteuerung-verkauf-gmbh-kauf.htm...

In cases where you personally owned the company, only 60% of the sale price will taxed. After this Teileinkünfteverfahren the 60% are indeed subject to your incomee tax. Even better as sales are consindered außergewöhne Einkünfte their taxation will follow the Fünftelregelungen where the sale profit is spread across five years. https://de.wikipedia.org/wiki/F%C3%BCnftelregelung Realistically you'll end up paying taxes comparable to the 10~20% you can expect in the US.

Edit: Sorry, missed that part about the seller GmbH still existing afterwards. But the next paragraph I linked goes into that as well: https://www.rosepartner.de/besteuerung-verkauf-gmbh-kauf.htm... Again, Teileinkünfteverfahren only 60% being taxed.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#15

Post by vincent_s »

unmole wrote: post #9

> Structure larger exits through international holding companies (complex and expensive) Setting up an LLC in a low-regulation US state is simple and inexpensive.

True, creating a Delaware LLC is simple, but that doesn't solve the tax problem. Management decisions from Germany mean German tax liability, regardless of where the company is registered. The only way to benefit from US tax rates would be physically moving there - just having a US company adds complexity without fixing anything.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#17

Post by dkyc »

TomK32 wrote: post #14

The disclaimer is absolutely right, you should consult a qualified accountant because the rest of the article is wrong. First of all, it's not just about SaaS, but all GmbH. I don't see any reason why Germany should make exceptions for software companies as the author wishes for in the second-to-last paragraph. In regards to taxation of a sale I can only point to this first google result: https://www.rosepartner.de/b…

You should read the article in full, and/or learn the difference between a share and asset deal. Your link is about the former, the article about the latter.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#18

Post by herbst »

unmole wrote: post #9

> Structure larger exits through international holding companies (complex and expensive) Setting up an LLC in a low-regulation US state is simple and inexpensive.

Being an US business makes things complicated in Europe. Especially banking is very eager to understand every single US associated transaction to your account.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#19

Post by brtkdotse »

noduerme wrote: post #8

I made a rather stupid mistake recently, as an American. I put $30k or so of my Roth IRA into BMW stock, since it was paying something close to 8% annual dividends. Once a year. I suppose I should have looked at this more closely. When the dividend was paid, the German government took about 30% of it right off the top in taxes... for a foreign investor. Still not a bad return, but I won't be buying any German stocks…

FWIW it’s the same thing if you buy an American stock from a EU country, the dividends are taxed in the US.

That why global index funds are probably the best way to invest for non-professionals

Re: The Hidden Tax Trap for SaaS Founders in Germany

#20

Post by noduerme »

Tomte wrote: post #6

[flagged]

Why would a person who founded a startup, and put countless unpaid hours into building it, then have to pay for the sale as if it were employee income? What would be the incentive for them to have done anything more than be someone else's employee?

Taxes are incentivizing or disincentivizing, so policy should mirror what you want out of your economy. If the goal is not to have people create startups, there you have it.

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