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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

#51

Post by _w1tm »

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…

> 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?

I would expect the incentive is the massive payout (even after tax).

If a startup founder would be better off as an employee because they have to pay the same amount of tax then it sounds like it was a bad idea to begin with.

Getting your income through a corporation instead of as a salaried employee is not inherently more valuable for society. We don’t want more startups for the sake of having more startups!

Re: The Hidden Tax Trap for SaaS Founders in Germany

#52

Post by TomK32 »

vincent_s wrote: post #23
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…

Thanks for sharing that link, but it actually confirms my point. That article is about selling GmbH shares ("Share Deal"), but as explained in my post, buyers of smaller SaaS companies ($1-10M) almost never want to do share deals - they want asset deals.

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...

Seller GmbH sells their assets, profits are taxed accordingly. Only when taking that profit our the individual is taxed but as I mentioned above the Teileinkünfteverfahren, only 60% being taxed.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#53

Post by noduerme »

lifestyleguru wrote: post #34
TomK32 wrote: post #22

Earlier quoted context omitted.

At least we still have inheritance tax, though it's somewhat broken for those you mentioned who are far too good at avoiding that tax.

Yeah the Lichtenstein based charities and trusts are very afraid of your inheritance tax.

I love countries that only exist as tax loopholes. Every time one disappears, another one pops up. Supply and demand.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#54

Post by lifestyleguru »

jwr wrote: post #47

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%.

And how many brilliant startups Poland bred? Poland is post-Communist state where you're at the mercy of a clerk, disfunctional courts, and bloated buggy IT systems.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#55

Post by noduerme »

reisse wrote: post #28
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 know that US taxes the same 30% on dividends for non-residents, right?

I didn't know that, but it sounds like a terrible policy.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#56

Post by impossiblefork »

The Germans aren't wrong to see it as income from work though, because software is an example of crystallised work.

This is why it has had unfavourable treatment in Europe. If you allow people to build software and sell it for capital gains rates, then if you're consistent you allow people to build anything and sell them for capital gains rates, which means that the 'real' tax on labour if you structure your work as leading to something which can be sold, is the capital gains rate.

This is the problem for software in Europe: when you tax work, the one who build something through work retains a smaller fraction of it, so he has less money to invest in expanding the work.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#57

Post by alkonaut »

127 wrote: post #38
Tomte wrote: post #6

[flagged]

Most small business owners make much less than the "normal" people. They work harder and take more risks. On the off chance that they are successful it looks like Germany takes over half what they have earned. It's a strange world where creativity, boldness and acumen are punished and the public applauds for it. Not every business is a large international mega-corp. Some are just a couple of individuals building a dr…

If you make very little money, then you don't pay much taxes. If you sell a company it's income. If that sale is a low amount, it's a small amount of taxes. If you sell it for millions, it's a lot of taxes.

If I buy a home at $1M and sell it for $3M, I'm taxed for the $2M profit. Same if I buy a company for $1M and sell it for $3M then I'm taxed for the $2M profit. Whether that tax is 1% or 50% can of course be a subject of debate, but that it's taxed at all is hardly controversial.

Not sure I'm following the debate here but are people suggesting that if I start a company and later sell it for $3M then those $3M should NOT be taxed the same as If had bought it for $1 and sold it for $3M? Why would that be?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#58

Post by mrks_hy »

noduerme wrote: post #49
mrks_hy wrote: post #35

Earlier quoted context omitted.

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?

Not from US, so can't comment on what it does for tax credit, but the treaty benefits should still apply.

Also, you should've mentioned that in your OP. Why would a foreign country's tax system care about another country's tax-advantaged investing account?

The tax withholding is seperate from any home countrystax obligations, if that helps to understand it. There are treaties to avoid double taxation that then allow claiming these unavoidable taxes at your tax residency. If you don't pay taxes there, usually you're out of luck.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#60

Post by unmole »

anonzzzies wrote: post #50
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…

> You very quickly get into tax evasion, whether you know this or not

I don't understand where you got tax evasion from my comment? US LLC's are pass through entities by default. All income from the LLC directly flows to the GmbH which pays the normal tax rate in Germany.

When the time comes to sell, transfer of the LLC is a share deal which avoids the downsides of the asset deal which TFA describes.

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