Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The Hidden Tax Trap for SaaS Founders in Germany

vincentschmalbach.com

Post reply on HN
Print view View original

101–110 of 115 posts

Re: The Hidden Tax Trap for SaaS Founders in Germany

#101

Post by mytailorisrich »

impossiblefork wrote: post #99
mytailorisrich wrote: post #92

Earlier quoted context omitted.

The software aspect is quite irrelevant, and I believe that what is described is simply how GmbH companies work. If you own a company and sells it, what you are doing is selling your shares in the company. In many jurisdictions this is capital gain (or loss) for accounting and tax purposes since you are selling an asset. Ultimately I suppose the issue is the tax rate, not the "implementation details".

But often there's a special rule when you work in the company in question, in which case you have to pay income tax on a certain fraction of dividends, with something similar for the sale of the company.

We're not talking about dividends here but about selling shares, which is completely different.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#103

Post by impossiblefork »

mytailorisrich wrote: post #101
impossiblefork wrote: post #99

Earlier quoted context omitted.

But often there's a special rule when you work in the company in question, in which case you have to pay income tax on a certain fraction of dividends, with something similar for the sale of the company.

We're not talking about dividends here but about selling shares, which is completely different.

Yes, but in order to prevent people from bypassing the rules similar rules almost always apply to sales. It's a system made to ensure that income from work is taxed as work, whether you extract the money by dividends or through a sale.

For example, in Sweden we have a set of rules called 3:12 rules, which govern people who simultaneously own parts of a company and also work in it. In Sweden we have an exemption for large sums, for which ordinary capital taxation rules are applied, and the German law is very similar, only with a much higher exemption.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#104

Post by sofixa »

unmole wrote: post #63
sofixa wrote: post #33

Earlier quoted context omitted.

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.

When opening a bank account in the EU, you get asked if you're an American fiscal resident in some sense (citizenship, US-based LLC). If you are, either they refuse you entirely, or they ask you to jump through extra hoops because they are forced to report to the American tax authority (IRS) everything about you due to American regulations.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#105

Post by petercooper »

vincent_s wrote: post #7
earthnail wrote: post #5

There's a reasonable argument to be made whether you should be subject to capital gains in the first place. I sold my last company in the UK, and honestly the tax burden was so ridiculously low I still feel somewhat bad for it. It's crazy. There is of course a competition problem with the high taxation in Germany; if your expected returns are much lower than in other countries your risk just increased significantly.…

I'd love to hear more about your UK exit! Most of my knowledge about UK tax rates and processes is theoretical research, so I'd really appreciate hearing a real-world experience. Did you qualify for Business Asset Disposal Relief (the old Entrepreneurs' Relief)? How was the overall process and timeline for you?

I was going to say that I'm not sure the article is quite right. While the UK does have BADR for up to £1m, it applies to individuals, not businesses. So if I sell the shares in my company or liquidate my company, I can use it. But if the business does an asset sale, there's another step: the company selling the assets. And that company has to pay its own taxes first.

If my British company sold its assets for £1m, it needs to pay 25% Corporation Tax on that. Then I could liquidate the company with its £750k remaining cash and pay 10% on that (for now, it's going up to 14% in April). This results in a total 32.5% tax, not 10%. Above £1m, it'll be even more as there's no more BADR (so roughly 40% tax total on the £1m+ chunk).

Re: The Hidden Tax Trap for SaaS Founders in Germany

#106

Post by unmole »

sofixa wrote: post #104
unmole wrote: post #63

Earlier quoted context omitted.

> 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.

When opening a bank account in the EU, you get asked if you're an American fiscal resident in some sense (citizenship, US-based LLC). If you are, either they refuse you entirely, or they ask you to jump through extra hoops because they are forced to report to the American tax authority (IRS) everything about you due to American regulations.

I misunderstood your comment, you meant FATCA compliance.

But why would the US LLC need to open a non-US bank account?

Also, a US LLC wholly owned by a foreign company is a disregarded entity for income tax purposes. It is not considered a US fiscal resident.

Re: The Hidden Tax Trap for SaaS Founders in Germany

#107

Post by ajsnigrutin »

noduerme wrote: post #75
ajsnigrutin wrote: post #25

Earlier quoted context omitted.

> by treating business sales like regular income. But aren't they regular income? Why should one form of income be taxed at a different rate than some other? Tax rate too high? Sure, agree. Should all income be taxed at same levels? Yes to that too.

Because, follow this logic: 1. You sit down at a blank screen and begin writing code. 2. You put your own money into launching your web app, then advertising it, then managing it every day and modifying things before you see a single penny in revenue. 3. You earn revenue, now you are already paying taxes on that revenue. 4. You sell the company which had zero value to begin with, you already paid tax on all the reven…

But this is true for everything. A farmer puts a seed into the groud, takes care of it, harvests the vegetables, sells them, pays vat, pays possible corporate income tax, and if he wants to transfer the money to his personal account, he has to pay out a paycheck and pay taxes on that.

Where's the difference if you work 8 hours at your regulat job + 4 hours at a second job? Or 4 extra hours of that second job for your own company? Or just 4 hours of overtime at the first company?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#108

Post by vwkd »

bluecalm wrote: post #96

As someone who has run a small business in an EU country for 10 years and is in a process of relocating to a low tax jurisdiction I wonder what EU's endgame on this one is. It's not like EU countries offer a potential founders anything of substance. You can just as well run your company from abroad. Most of your customers are going to be outside of EU (most likely), you will be buying services from outside of EU, hir…

Which country did you move from and which did you move to?

Re: The Hidden Tax Trap for SaaS Founders in Germany

#110

Post by noduerme »

jillesvangurp wrote: post #98
noduerme wrote: post #84

Earlier quoted context omitted.

Interesting post. >> The whole point of limited liability companies in other countries is to de-risk the process of creating new businesses for individuals so that people might do innovative things that benefit the economy. Germany does the opposite. It actively discourages people from doing that. And a Gmbh actually exposes you to a lot of liability. Can you elucidate what you think the philosophy or psychology is t…

It is definitely a weird cultural thing. I can speculate a bit. It might have some roots in social well fare. But I've also lived in Sweden and Finland which have a very different attitude towards building tech companies. Especially Finland is quite successful at doing startups and scaleups. Especially considering its small population. And of course both countries have a strong social well fare culture. And Germany i…

It's surprising to me that Germany isn't at the forefront of incentivizing an agile startup economy in any way possible. Especially as they've always been the economic powerhouse of Europe, failure to get ahead of these global trends is surprising. And this is the first time I've ever heard anyone describe Germany's infrastructure as anything below world-class, although it's been ten years since I've been there now. The idea that the roads would be rougher than those in the Netherlands is fairly shocking. I do think it's a great teller, though. I live in Oregon where the roads immediately degrade when you cross the border from California; and I used to live in Argentina, where the roads degrade when you cross from Chile. The feeling you have crossing one of those borders says quite a bit about what's happening in the place.

Thanks for your honest reply.

Post reply on HN