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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

#61

Post by noduerme »

_w1tm wrote: post #51
noduerme wrote: post #20

Earlier quoted context omitted.

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…

I don't know. I think we want some people to take risk. Spending a lot of time building something that you don't have any guarantee of being paid from is a risk, but for every 100 which fail, one will succeed in providing jobs and foreign investment. That is, in fact, the concept behind ycombinator in a nutshell. Not startups for the sake of startups, but startups for the greater good. And that means individuals taking risks.

Saying that working for existing corporations is more valuable to society underestimates the frequent and obvious value to society of the one-in-100 startup which creates new avenues of wealth for whole sectors of society. A dynamic polity should emphasize that and create more incentives for it - not even for the good of the individuals who do it, but for its own survival.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#62

Post by unmole »

herbst wrote: post #18
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.

I guess my comment was not clear without the context from TFA. I was specifically talking about the dual company structure i.e. the GmbH owns the LLC.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#63

Post by unmole »

sofixa wrote: post #33
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.

For a German business, setting up a holding company in Estonia would be much better. Still in the EU, no onerous American reporting requirements, everything is fully online and cheap, and taxes aren't super high (20% capital gains, up to 7% on dividends if I'm reading things correctly).

> no onerous American reporting requirements

I'm sorry but US LLC reporting requirements are not onerous in any sense. Hell, some states like Arizona have no annual reporting requirements at all.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#64

Post by noduerme »

lexicality wrote: post #40
noduerme wrote: post #20

Earlier quoted context omitted.

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…

> If the goal is not to have people create startups, there you have it. That only makes sense if you think the only reason anyone ever founds a business is to sell it to someone else...

People found businesses with the idea of making money. At certain points in the growth of the business, you expect you'll weigh whether it's more interesting to continue your work there or whether you should sell it and start from scratch another business. The question is why a government or a society would wish to suppress people who actively start businesses... not to throw shade on anyone who starts a business because they might want to make money by selling it later

Re: The Hidden Tax Trap for SaaS Founders in Germany

#65

Post by flanfly »

I'm German and had a startup in Germany (standard UG holding + GmbH).

My one advice to anyone thinking of starting a company is: don't do it in Germany. Tax burden, insane bureaucracy and a conservative, tech adverse local market put you at a disadvantage against UK/US peers.

>German founders are incentivized to move abroad before exits

Don't do that. The tax office will treat that as a sale and will tax the current valuation at 20%.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#66

Post by noduerme »

rad_gruchalski wrote: post #36
noduerme wrote: post #20

Earlier quoted context omitted.

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…

> and put countless unpaid hours into building it Oh, just don’t mention that to the authorities because they will make you pay for breaching their working hours act. How dare you have a dream and a drive. Get back in line. Authorities in Germany don’t care. They are the Beamte, the have a special legal status, barely removable from their positions and with a guaranteed high pension. There are two classes of people i…

Jesus, is that true? You can get flagged for putting too many work hours into your startup? Or are you joking?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#67

Post by unmole »

vincent_s wrote: post #15
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.

> but that doesn't solve the tax problem

It solves the tax problem that TFA is talking about i.e. it makes selling the SaaS a share deal instead of an asset deal.

If you mean taxes in Germany are generally too high, that is an entirely separate discussion.

Fun fact: Before Trump's tax cuts, the US corporate income tax rate was higher than in Germany.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#68

Post by mr_mitm »

rad_gruchalski wrote: post #36
noduerme wrote: post #20

Earlier quoted context omitted.

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…

> and put countless unpaid hours into building it Oh, just don’t mention that to the authorities because they will make you pay for breaching their working hours act. How dare you have a dream and a drive. Get back in line. Authorities in Germany don’t care. They are the Beamte, the have a special legal status, barely removable from their positions and with a guaranteed high pension. There are two classes of people i…

I don't think working hours are limited for c-level management.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#69

Post by Rinzler89 »

lifestyleguru wrote: post #54
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.

CD Projekt Red?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#70

Post by noduerme »

simgt wrote: post #44
vincent_s wrote: post #10

Earlier quoted context omitted.

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…

So what? This is a global economy. If they don't sell the company, they can offshore the labor anyway. If they sell it, you end up with money in Germany and at least a few newly rich founders who will want to start more local companies.
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