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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

#281

Post by graemep »

jacquesm wrote: post #246
jillesvangurp wrote: post #225

Earlier quoted context omitted.

Exactly, you need to get proper advice on how to structure your business in Germany. Basically, putting your shares in holding companies is both common and not dodgy. Corporate taxes are more friendly than personal income taxes. You can do constructions with salaries, dividend, etc. Doing this is standard practice if you are founding a company. You need to plan for your startup to be actually successful and being on…

> this is a topic where LLMs can be helpful. That's probably the very last spot where you want to use an LLM, especially not in Germany. One single mistake can cost you a fortune, and you won't be able to spot the mistake because you're not an expert. LLMs could be used to prime you for conversations with an expert (but be prepared to be corrected on points of law and fact) but they are no substitute. Corporate law i…

I would say not with tax law anywhere. It is very complex and has all sorts of interactions between things - e.g. double tax treaties.

That said, a lot more people would probably use complex constructs if they were not so expensive to set up because of the advice needed. I just do not think LLMs help.

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

#282

Post by nolverostae »

throw9349494 wrote: post #230
nolverostae wrote: post #201

I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it. If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a…

> be in Germany twice a year to sign off on having done the management within Germany. Pretty stupid. You are signing paper that claims you never left Germany!!! You are opening up yourself to personal German tax residency, with all pleasures it brings. Payable 10 years back! And do not believe that 185 days bs. Correctly losing tax residency in state like Germany, Denmark, Norway or Australia is very difficult. You…

> You are signing paper that claims you never left Germany!!!

No you aren't. You are signing a paper that says a managerial decision about the shares of the company happened in Germany. Where you live does not matter. You just have to do a board meeting, and be physically present in Germany during the meeting.

In fact, you likely want to keep any proof of your travel from a different country, which makes it obvious to the authorities that you don't spend all your time there.

There's multiple variants though, this is just one of them. You can also pay someone to manage the shares (and of course contractually bind them to not do anything without permission).

Edit: Also, to be clear, you don't need to manage the company from Germany. You only need to manage the holding company from Germany, where the only managerial decision is related to the shares themselves.

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

#283

Post by graemep »

digianarchist wrote: post #199
cdeez wrote: post #196

Earlier quoted context omitted.

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?

I do not think so. It varies a lot. The last time I looked at UK law you were liable for CGT for a long time after you left the country just to stop people leaving for a short time to evade CGT, but it was not the case a few decades ago.

With all countries you need to check the provisions of double tax treaties. There is likely to be somewhere that has no or low CGT that has a double tax treaty with where-ever you are that lets you dodge this sort of provision (at least partly).

Then there are things like using trusts (another thing you could get away with in the UK that got cracked down on in recent decades).

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

#284

Post by ivankra »

throw9349494 wrote: post #230
nolverostae wrote: post #201

I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it. If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a…

> be in Germany twice a year to sign off on having done the management within Germany. Pretty stupid. You are signing paper that claims you never left Germany!!! You are opening up yourself to personal German tax residency, with all pleasures it brings. Payable 10 years back! And do not believe that 185 days bs. Correctly losing tax residency in state like Germany, Denmark, Norway or Australia is very difficult. You…

> You can not keep any assets like company or house there!

Alternatively, simply keep both the house and company in Germany. No exit tax since, thanks to that house, you haven't technically exited, right?

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

#285

Post by wizzwizz4 »

tastyfreeze wrote: post #86
FooBarWidget wrote: post #84

Earlier quoted context omitted.

> German company now has 0 in revenue, wind it down and leave. You forgot about employees. If German employment law is anything like the Dutch one, then it means you can't wind down the company while you have employees. They may refuse to leave. Firing them may be subject to government approval, who may also refuse.

Dumb American here but that sounds like a few steps too far in employee protections. A business can't even die without government approval?

It's sensible, to prevent… well, exactly this kind of situation: taking away people's livelihoods as part of a tax dodge is an abuse of power. The power of being an employer comes with responsibility.

If the company's dissolving for legitimate reasons (e.g. there's no longer a market for the services), then that's one thing – but "I've had the company send all its customers to a competitor, also owned by me" is an extremely obvious loophole to work around employee protections, and it's correct that it should be closed.

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

#286

Post by graemep »

ivankra wrote: post #255
jwr wrote: post #195

Earlier quoted context omitted.

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…

US totally does: https://www.irs.gov/individuals/international-taxpayers/expa... - long-term (8y+) green card holders may need to pay up. One big difference is that the clock only start ticking after you get green card, whereas with Germany any residence year counts. Oh, and citizens of course aren't affected - since US continues to tax them wherever, but Germany like almost all other countries practices residence-ba…

It is very close to being all other countries. AFAIK the only other country that taxes non resident citizens is Eritrea - and the US has said its unfair they do it!

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

#287

Post by nolverostae »

ExpertAdvisor01 wrote: post #223
nolverostae wrote: post #201

I was someone who almost got hit by this tax. You don't need any offshore shenanigans to get around it. If you just want to move out of the country you can also just keep the ownership of the company within the country. You do this by putting your shares into a holding that stays in Germany even when you move out. That holding needs to be managed within Germany, so you need to assign a friend or be in Germany twice a…

It is not so easy as you describe.

You definitely need advice from professionals, yes. All included, I'd expect it to cost 5k€-30k€, but not more.

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

#289

Post by Wobbles42 »

mytailorisrich wrote: post #208
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…

Capital gain is the profit made on the sale of a capital asset. There is no gain or loss until the asset is sold. Taxation is not deferred, it applies when the gain is made, i.e. upon sale.

This needs to be repeated more often.

If I buy a house for $100k, and next year some idiot pays $1M for a very similar house three streets down, did I just magically make $900k? Should I be taxed on that gain immediately? Should I be forced to sell part of my property to cover it? What happens when that sale occurs at a much lower price, due to my need to liquidate, did that lower the prices of all the houses in the neighborhood back to normal? Does only the first person to actually pay the tax owe the tax?

That's the reasoning we're applying if we tax unrealized gains on stocks (or any other asset). We take what the highest bidder is willing to pay for some tiny percentage of an asset, and assume that means everyone else could get the same price, yielding these theoretical valuations that have no bearing on reality.

Property taxes have a similar problem but that is a whole other can of worms. I'd love to live in a world where the local tax assessor is obligated to purchase your property on demand for 80% of what they say it is worth -- surely they would jump at the chance to realize an instant profit, right?

You simply can't establish value without an actual transaction. Without a buyer and a seller you are just making up numbers.

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

#290

Post by ahoka »

GardenLetter27 wrote: post #244
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…

Why are taxes so high though? Like in Sweden I'd pay literally 80% tax on extra sole trader income - 30% employer tax, 30% income tax, 20% high income tax. But there is no Swedish moon base, or ultra high speed rail, etc. - where does it all go? We have higher taxes but less infrastructure investment than a century ago.

Well, Sweden has the largest wealth inequality in Europe, so I guess it goes to the friends' pockets.
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