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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

#41

Post by noduerme »

lifestyleguru wrote: post #13
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%.

I had assumed that if I were a German citizen, I'd probably pay the same amount in taxes on that dividend. Would I actually pay less?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#42

Post by shubhamjain »

Is there actually any sane country to do SaaS business except the US? It's insane how easy it's to start an LLC in US, set up a bank account, do your taxes, without ever leaving your home. Hell, you can start it as a foreigner, opt for pass-through taxation, and pay taxes at your tax residence.

I mean, I get higher taxes, I just don't understand why you want to make it so hard to start and operate a company.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#43

Post by Woeps »

noduerme wrote: post #20
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 i…

Wait, are you suggesting we do not get taxed for what we're selling? Because in the end selling a company is nothing but selling a type of goods.

Also: >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?

Is the same as: Why would a person who created his career, and put countless of unpaid hours into building it, then have to pay for the sale of his knowledge and skill?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#44

Post by simgt »

vincent_s wrote: post #10
Tomte wrote: post #6

[flagged]

This isn't about "special treatment for the rich." When international companies buy German software businesses, that's foreign investment flowing into Germany - money that often gets reinvested locally in new startups and jobs. But our system actively discourages these transactions by treating business sales like regular income.

> our system actively discourages these transactions

When a foreign company is building a factory, even with tax breaks it's fairly easy to see how it's an investment. I'm less convinced when it's about buying existing businesses, if they are profitable why would you want the profits to be in the control of a foreign entity?

Whether they are initially profitable or not, we've seen what happens in other fields and in particular the industry: after a couple years, the businesses are dismantled and sold for parts.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#45

Post by alkonaut »

noduerme wrote: post #20
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 i…

There are competing incentives: on one hand things like creating jobs and driving innovation, and on the other it's the incentive to avoid tax loopholes. I think most people in Europe (I hate generalizing "Europe" but let's say Nordics and Germany) at least would be more upset about the presence of a loophole that for example allowed people to funnel money through a company and lower (what should have been) income tax, than they'd be upset over how much tax policy incentivizes startup creation.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#47

Post by jwr »

Incidentally, in a neighboring EU country (Poland) the tax system has a bizarre nod towards solo entrepreneurs running a SaaS: you can choose simplified revenue-based taxation and fall into the 8.5% bracket.

8.5% tax on revenue is really good. And this is very specific: it applies specifically to SaaS businesses, most revenue-based rates are higher.

If you decide to sell your business, assets are taxed at 3%.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#48

Post by noduerme »

ml-student wrote: post #30
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…

You're probably entitled to get all of that back due to double tax treaties. You just need to file for a refund.

Tricky, maybe, because it was bought in a Roth IRA - which is not taxed. And therefore, I think, not eligible for tax refunds. I probably should have bought it in a normal trading account.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#49

Post by noduerme »

mrks_hy wrote: post #35
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…

Sorry to "but actually" you, but that is just because you did not claim the treaty benefits. Pedantic, it is also 26%, not 30%. You should be able to get 15% tax on dividends, which also count towards your US taxes which you stil have to pay. It is also exactly the same for foreign investors from Germany investing in US companies. We have to file a W-8BEN, otherwise the US takes 30% on dividends and even on capital g…

Is that true if it's in a Roth?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#50

Post by anonzzzies »

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.

This is not as easy as it sounds, either way really. You very quickly get into tax evasion, whether you know this or not (which is not an excuse). A lot of people I know (I know almost only entrepreneurs in my friend circles) have companies elsewhere (outside the EU) for this reason; most of them are and then figure out how to fix the US taxes with that, creating a huge mess.

Of course they usually won't find out (no-one is going to check for a few 100ks/year), but it's not legal. To do it properly, you need multiple people as shareholders who do not live in your country and who have the decision power, or at least you definitely don't have it alone. So if you have someone in Mexico, someone in Thailand and you in Germany, and decision power/shares is 1/3rd for all, you'd be fine. But you in Germany with 100% ownership of a Delaware company is not something you can do unless you pay GmbH taxes, in which case, what's the use? Well, I guess if you are looking for US VC money, that might be a use case for it even though you pay defacto GmbH taxes.

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