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Exit Tax: Leave Germany before your business gets big

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Re: Exit Tax: Leave Germany before your business gets big

#191

Post by procaryote »

enricozb wrote: post #167
chaosprint wrote: post #154

Norway also has crazy exit tax and wealth tax. I heard lots of complaints that this system makes it almost impossible to build a decent vc-driven tech startup.

However it also prevents hoarding wealth, which in turn prevents special interest groups and some forms of election manipulation. Balancing taxes for fairness and innovation is quite tricky...

An exit tax in itself does nothing to prevent hoarding of wealth. It might enable you to deploy other taxes that would make rational people leave the country, but it's a bit of a "lock the doors and rob people" strategy.

If you have good advisors as a wealthy person you know this and leave as soon as an exit tax is on the table. If you start new businesses you start them outside of the country

If you're a regular non-wealthy person who happens to become successful you're stuck paying high taxes of course, but you'll probably learn and structure your next venture better.

Re: Exit Tax: Leave Germany before your business gets big

#192

Post by procaryote »

bmacho wrote: post #136
geff82 wrote: post #126

The crazy thing is that as a business owner (GmbH/AG) you can’t even move to another EU country any more since 2022. As the owner of such a company it feels like I have become a slave of the government.

Why can't businesses be owned by people that: - enjoy owning and managing a business - do think that owning and managing a business should come with the same compensation as any other dayjob (hairdresser or whatever) While managing a large amount of money naturally lead people to have enough to buy luxury items, IMO, this is just a sad fact of our world, and we should fight against it.

The thing you're describing is an underpaid CEO position without equity. If you're competent enough to get the job in competition with people who want to get paid, I'm sure you can.

Re: Exit Tax: Leave Germany before your business gets big

#193

Post by dismalaf »

derriz wrote: post #187

It’s not as crazy as it initially seems. It’s because of a fundamental difference between how capital gains tax and income tax are collected. Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation. I’m from a country which has no…

Well if you force collection on gains every year, what happens if the value of the asset goes down? Will the government pay you back? Opens up a huge can of worms...

Re: Exit Tax: Leave Germany before your business gets big

#194

Post by jeofken »

chaosprint wrote: post #154

Norway also has crazy exit tax and wealth tax. I heard lots of complaints that this system makes it almost impossible to build a decent vc-driven tech startup.

Norway has a high wealth tax (it’s gonna be 1.1% of total wealth per year in normal cases), high capital gains tax, and an exit tax treating moving abroad as a capital gains event.

This means, if you start a not-yet-publicly-listed company, get investment at a high valuation (on paper), you must pay wealth tax as if you had that money liquid in your own name. But you don’t have it liquid, it’s yet just a valuation of a VC, so you are screwed.

This means any Norwegian trying to start eg a fast growing software biz must relocate to Sweden if they want to be close to home, or Switzerland more realistically, as swedens top income tax bracket is >50%.

Scandinavia is attractive as a destination if you are poor and especially from the 3rd world and could benefit from free government services and welfare, but for anyone entrepreneurial or already wealthy, there are many better alternatives.

Re: Exit Tax: Leave Germany before your business gets big

#195

Post by jwr »

profstasiak wrote: post #138

Isn't USA even worse? If you move as US citizen to EU, you would need to pay bot h local EU tax and USA tax right? (I am not a USA citizen, this is legit question)

The US does not have an exit tax for businesses, but has an absolutely horrible tax system in which expats are treated badly.

The reporting requirements for expats are insane: all bank/brokerage/whatever accounts with max levels during the year, FATCA and FBAR forms, and the cherry on top: Form 8858 ("Foreign Disregarded Entities", whatever that is) which is needed for your self-employment and for each of your rental properties. If you think this is easy, look it up — https://www.irs.gov/forms-pubs/about-form-8858

It's pretty much impossible to file your taxes yourself, you will never get it right. You have to pay specialized accountants, some of which will charge you >$1500 to prepare a yearly return with self-employment and rental.

Then come the actual taxes to pay, which are the least of all problems.

Expats are treated this way because they have no lobbying power.

Re: Exit Tax: Leave Germany before your business gets big

#196

Post by cdeez »

derriz wrote: post #187

It’s not as crazy as it initially seems. It’s because of a fundamental difference between how capital gains tax and income tax are collected. Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation. I’m from a country which has no…

Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell.

Source -> https://www.ato.gov.au/individuals-and-families/coming-to-au...

If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian property – to have been disposed of for CGT purposes. This may mean you become liable to pay CGT.

You can choose not to have this deemed disposal apply. But if you do eventually dispose of the assets, we consider the whole period of ownership – including any period when you're not an Australian resident – when we calculate a capital gain or loss for CGT purposes.

Re: Exit Tax: Leave Germany before your business gets big

#197

Post by digianarchist »

hiAndrewQuinn wrote: post #161
profstasiak wrote: post #138

Isn't USA even worse? If you move as US citizen to EU, you would need to pay bot h local EU tax and USA tax right? (I am not a USA citizen, this is legit question)

US-EU transplant here. No, the United States does not have anything even vaguely similar like this. Seriously putting forward the idea of an exit tax on anyone who owns more than 1% of any LLC worldwide would in all likelihood be deeply politically unpopular. It goes against the very name and spirit of a limited liability company, for one. For two (real ballpark number here) about 1 in 10 Americans would actively be…

Exit tax applies to some Green Card holders too.

Re: Exit Tax: Leave Germany before your business gets big

#198

Post by bluecalm »

EU countries really like turning the screw on small business owners. They come up with all those requirements, taxes and limitations and then when they notice the world is getting ahead their idea to fix it is to raise taxes even more and create "business incubators" where government officials redistribute part of it to their buddies.

Re: Exit Tax: Leave Germany before your business gets big

#199

Post by digianarchist »

cdeez wrote: post #196
derriz wrote: post #187

It’s not as crazy as it initially seems. It’s because of a fundamental difference between how capital gains tax and income tax are collected. Capital gains are deferred - so as years pass you’re working up a tax liability but most countries recognize that forcing collection every year is not practical given the often illiquid nature of capital gains and the difficulty around valuation. I’m from a country which has no…

Australia has a "good" system for this (or fair system) - when you leave the country you either choose to pay CGT based on the value at that date, or Australia has a claim on the assets when you eventually sell. Source -> https://www.ato.gov.au/individuals-and-families/coming-to-au... If you cease to be an Australian resident while overseas, we deem some of your assets – generally those not taxable Australian propert…

Canada does this too. Don’t most countries?

Re: Exit Tax: Leave Germany before your business gets big

#200

Post by procaryote »

jmyeet wrote: post #92

The developed world is increasingly facing a funding crisis brought on by this propaganda that if we tax corporations and the very wealthy then they'll leave. One of the most farcical examples of this is the decades-long race to the bottom on business taxes and incentives between Kansas City, Missouri and Kansas City, Kansas. For the non-Americans out there, this is basically one city but it sits at the border of two…

If "businesses will leave" was propaganda, you wouldn't need an exit tax, would you?

If there is an exit tax because companies would leave otherwise, why would someone rational start a new company in the country rather than leave first?

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