>Other costs (total: 2.6k€):
Notary: Changing company address and CEO: 1.5k€
Notary: Changing company suffix from UG to GmbH: 1.1k€
This is absolutely crazy. For comparison, below are the costs in Switzerland (and you can do all the things yourself by writing a letter signed by the authorized persons, so add whatever your time costs):
It's very good you mention Switzerland, as the contemporary German exit tax legislation traces back to the scandal with Helmut Horten, a department-store magnate who moved to Switzerland in 1968, sold his business stake and paid virtually no tax. The event prompted enactment of the Foreign Tax Act (Außensteuergesetz) in 1972, whose exit-tax provision (§ 6 AStG) is nicknamed lex Horten.
Yep. The broader question for society is whether to introduce legislation which will make everyone suffer because a few individuals abused it in the past.
I don't have a perfect answer to that, but we can at least observe that most people nowadays affected by the German exit tax are not rich department store owners who planned to move to Switzerland to optimize their company sale taxation.
Most people I talk to are other founders who own a small business, and the overall bureaucratic complexity and tax advisor costs are cost-prohibitive for leaving the country.
Change or add company address
"Änderung des Rechtsdomizils oder einer zusätzlichen Adresse"
30 CHF
Change CEO
"Eintragung, Änderung oder Löschung von Personenangaben oder der Funktion einer Person"
20 CHF
Changing company suffix
"Umwandlung in eine juristische Person"
420 CHF
Deletion (from the registry) due to leaving the country
"Löschung infolge Wegzugs ins Ausland"
210 CHF
Switzerland uses an exit tax I don't quite understand. The companies "hidden reserves" are valued and taxed about at about 17%. Those include the "goodwill" you have generated over the years, which is similar, but not the same, as the market value.
These types of taxes are common and logic is simple, you have capital gains that accrued during the time you were tax resident in Germany. By rights the taxes on those gains are due to the German state. So you need to do a deemed disposition and pay the relevant taxes.
I had to do the same when moving country and it’s right.
They wanted him to pay almost six years worth of his normal post-tax income. Did you have to pay six years worth of income? It took him a lot of work to get it down to 'only' 18.7k€.
It's idiotic. You spend your life paying taxes that go to fund programs that decrease your rights and inflate away your savings and then when you want to leave they request that you then give them another cut just because you were born in the country and provided value to the world.
> GmbH & Co. KG holding: The only solution which is generally accepted by the tax office, involves minimum payments to the STANIC and allows you to keep your companies
I’m confused by that article. So, it seems there is a clear option that doesn’t require you to pay a large exit tax or to sell your shares. I don’t understand all the complaining.
Germany’s tax system has a lot of issues and deserves to be criticized, but for that specific situation it seems there is a clear option that is pretty reasonable?
Yes, you're right, and the main point of the article indeed is that it required talking to 13 tax advisors for 1.5 years and paying them (and notaries) 18.7k€ in fees to implement this solution.
If this solution would be fast, cheap and simple, then I'd generally be fine with that. However, it is not.
I don’t think so, it seems they spent that much money trying to evade their exit tax. It’s actually really not clear what their costs were for. It’s also not clear how many companies they own. There is no reasons to believe that’s the median costs
Those only apply if you renounce your citizenship, not if you simply change your country of residence. However, unlike Germany, the US taxes its citizens regardless of their country of residence so renouncing your citizenship and paying that exit tax is the only way to stop being responsible for paying US taxes.
> The German exit tax is very.. expensive. In simplified terms, I'd have to simulate a sale of all my companies at a high valuation (13.75 * earnings), and pay 30% tax on that.
This is an outrageous valuation and taxation scheme.
I think German politicians either don't understand the magnitude of the issue, or they have been coopted by lobbying somehow. It's such a tough environment for innovation.
Because, if you want to attract founders, it's not a great proposition to state "as soon as you found a company here, leaving the country will subject you to massive bureaucratic pain with significant costs".
Many founders I've talked to opted to leave Germany before founding their companies; and many would-be founders opted to not found their company while remaining in Germany (for now).
It’s only if you want to avoid exit tax and do not want to sell your shares, while moving officially to a different country. It’s not really a Germany problem, you will have similar situations in other countries with an exit tax.
Germany tax system has a lot of problems, especially for founders, that specific one doesn’t sound like one honestly
Because innovation requires taking risks. In the off chance those risks pay off, you are now massively penalized for your success. In that scenario you're much better off just selling the company or never starting one in the first place. This situation strongly favor incumbents by inhibiting competitors from emerging.
It's not that you can't have an exit tax, it's that it shouldn't be so out of tune with other OECD countries, so bureaucratic and so expensive to even process.
Not at all, you’re better off using a holding, which is a perfectly reasonable solution if you want to live in a different country than where your companies are registered, want to keep your shares, and don’t want to pay an exit tax.
That whole article is really whiny, there is no massive penalization
Incredible that you describe a 1.5 year process that cost almost 20 thousand euros (plus running costs to keep a physical presence, management and tax advisors in Germany) a perfectly reasonable solution.
The author seems to own multiple companies. They seem to have an extremely complicated tax situation. Their own personal costs and issues do not reflect the system as a whole. I’m very critical towards Germany’s tax system, but that specific article doesn’t do a good job if their goal is show how absurd things are.
It depends on the industry, but regular companies are usually valued at 3x to 6x EBITDA for private acquisitions. A small one-person company would probably be valued at much less than that. Most countries with an exit tax would calculate both the valuation and the tax rate much more favorably than Germany here.
>Other costs (total: 2.6k€): Notary: Changing company address and CEO: 1.5k€ Notary: Changing company suffix from UG to GmbH: 1.1k€
This is absolutely crazy. For comparison, below are the costs in Switzerland (and you can do all the things yourself by writing a letter signed by the authorized persons, so add whatever your time costs):
https://www.fedlex.admin.ch/eli/cc/2020/180/de
The important sentence in the article is:
" I own a few companies which means I'd be hit by the German exit tax. "
We don't know how many companies does he own.
We can look into exit tax rate, in different countries:
Germany: effective tax rate of up to roughly 28.5%
Japan: CGT rate is 20.315%
Israel: Standard CGT rate is 25%
Austria: Standard CGT rate is 27.5%
https://en.wikipedia.org/wiki/Exit_tax
The tax rate is one thing, but the way your companies are valued before multiplying that valuation with the tax rate is another thing.
Germany values your companies at 13.75 * earnings by default.
If you prefer to provide an alternate valuation, you're looking at valuation costs of at minimum 10k€ per company (Wirtschaftsprüfer).
It's very good you mention Switzerland, as the contemporary German exit tax legislation traces back to the scandal with Helmut Horten, a department-store magnate who moved to Switzerland in 1968, sold his business stake and paid virtually no tax. The event prompted enactment of the Foreign Tax Act (Außensteuergesetz) in 1972, whose exit-tax provision (§ 6 AStG) is nicknamed lex Horten.
Yep. The broader question for society is whether to introduce legislation which will make everyone suffer because a few individuals abused it in the past.
I don't have a perfect answer to that, but we can at least observe that most people nowadays affected by the German exit tax are not rich department store owners who planned to move to Switzerland to optimize their company sale taxation.
Most people I talk to are other founders who own a small business, and the overall bureaucratic complexity and tax advisor costs are cost-prohibitive for leaving the country.
"I wanted to move to Thailand to live with my girlfriend. I own a few companies" seems like tiny violin territory...
How about we switch - you move to Germany and get barred from leaving the country.
I look forward to your blog post.
These types of taxes are common and logic is simple, you have capital gains that accrued during the time you were tax resident in Germany. By rights the taxes on those gains are due to the German state. So you need to do a deemed disposition and pay the relevant taxes.
I had to do the same when moving country and it’s right.
They wanted him to pay almost six years worth of his normal post-tax income. Did you have to pay six years worth of income? It took him a lot of work to get it down to 'only' 18.7k€.
This ranks right up there with the author who wrote a children's book about a village where they had to turn over 102% of the potatoes they grew. https://en.wikipedia.org/wiki/Pomperipossa_in_Monismania
It's idiotic. You spend your life paying taxes that go to fund programs that decrease your rights and inflate away your savings and then when you want to leave they request that you then give them another cut just because you were born in the country and provided value to the world.
> GmbH & Co. KG holding: The only solution which is generally accepted by the tax office, involves minimum payments to the STANIC and allows you to keep your companies
I’m confused by that article. So, it seems there is a clear option that doesn’t require you to pay a large exit tax or to sell your shares. I don’t understand all the complaining.
Germany’s tax system has a lot of issues and deserves to be criticized, but for that specific situation it seems there is a clear option that is pretty reasonable?
Yes, you're right, and the main point of the article indeed is that it required talking to 13 tax advisors for 1.5 years and paying them (and notaries) 18.7k€ in fees to implement this solution.
If this solution would be fast, cheap and simple, then I'd generally be fine with that. However, it is not.
I don’t think so, it seems they spent that much money trying to evade their exit tax. It’s actually really not clear what their costs were for. It’s also not clear how many companies they own. There is no reasons to believe that’s the median costs
Very reasonable.
US Exit Tax for comparison:
https://www.irs.gov/individuals/international-taxpayers/expa...
https://americansoverseas.org/en/knowledge-centre/exit-tax-u...
Those only apply if you renounce your citizenship, not if you simply change your country of residence. However, unlike Germany, the US taxes its citizens regardless of their country of residence so renouncing your citizenship and paying that exit tax is the only way to stop being responsible for paying US taxes.
Seems like the guy is wondering why they can't avoid taxes more easily. I'm not sympathetic
> The German exit tax is very.. expensive. In simplified terms, I'd have to simulate a sale of all my companies at a high valuation (13.75 * earnings), and pay 30% tax on that.
This is an outrageous valuation and taxation scheme.
I think German politicians either don't understand the magnitude of the issue, or they have been coopted by lobbying somehow. It's such a tough environment for innovation.
How is an exit tax a tough environment for innovation? You can continue to innovate while registered for taxes within the country.
Because, if you want to attract founders, it's not a great proposition to state "as soon as you found a company here, leaving the country will subject you to massive bureaucratic pain with significant costs".
Many founders I've talked to opted to leave Germany before founding their companies; and many would-be founders opted to not found their company while remaining in Germany (for now).
It’s only if you want to avoid exit tax and do not want to sell your shares, while moving officially to a different country. It’s not really a Germany problem, you will have similar situations in other countries with an exit tax.
Germany tax system has a lot of problems, especially for founders, that specific one doesn’t sound like one honestly
Because innovation requires taking risks. In the off chance those risks pay off, you are now massively penalized for your success. In that scenario you're much better off just selling the company or never starting one in the first place. This situation strongly favor incumbents by inhibiting competitors from emerging.
It's not that you can't have an exit tax, it's that it shouldn't be so out of tune with other OECD countries, so bureaucratic and so expensive to even process.
Not at all, you’re better off using a holding, which is a perfectly reasonable solution if you want to live in a different country than where your companies are registered, want to keep your shares, and don’t want to pay an exit tax.
That whole article is really whiny, there is no massive penalization
Incredible that you describe a 1.5 year process that cost almost 20 thousand euros (plus running costs to keep a physical presence, management and tax advisors in Germany) a perfectly reasonable solution.
The author seems to own multiple companies. They seem to have an extremely complicated tax situation. Their own personal costs and issues do not reflect the system as a whole. I’m very critical towards Germany’s tax system, but that specific article doesn’t do a good job if their goal is show how absurd things are.
Have you looked at German politics lately? These aren't serious people.
What do you think is a reasonable price/earnings ratio?
It depends on the industry, but regular companies are usually valued at 3x to 6x EBITDA for private acquisitions. A small one-person company would probably be valued at much less than that. Most countries with an exit tax would calculate both the valuation and the tax rate much more favorably than Germany here.