olieidel

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).

How about we switch - you move to Germany and get barred from leaving the country.

I look forward to your blog post.

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.

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.

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).

Haha, thanks for linking to my website! Happy to answer any questions.

Skimmed this thread and I'm quite surprised how few people are aware of the permanent establishment problem.

Quick primer on the permanent establishment problem: You would technically have to pay taxes for your company in the place you're living (not Estonia). For example, if you're living in Germany, your Estonian OÜ would technically have to file for German taxes, too, because it's being run from Germany and it now has a permanent establishment in Germany.

So, roughly speaking, the Estonian OÜ is only useful if:

- You are in a country which doesn't have a permanent establishment problem and maybe even offers tax benefits for foreign companies (e.g. the non-dom rules of Malta, Cyprus, etc.)

- You are in a country which doesn't have a permanent establishment problem because they don't crack down on foreign company ownership (e.g. most developing countries)

In all other countries, the Estonian OÜ is likely going to cause you many tax headaches in the long run. In practice, this means:

a) Your local tax authorities don't notice or don't understand, and you're still fine, even though you'd need to file for taxes;

b) Your local tax authorities crack down on you and you need to go looking for a very expensive international tax advisor versed in Estonian and your local tax law.

A lot of slightly misleading information here.

- What you're talking about is working as a freelancer (Freiberufler), which is a subset of a sole proprietor (Einzelunternehmen); these are different business types than a GmbH, and the article is about setting up a GmbH.

- Only setting up a GmbH if you want to "invest money" is overly simplistic. People might choose a GmbH due to limited liability, a more solid shareholder structure, etc. Slightly more generalized, you do have a point that of course a sole proprietorship might be a much better and simpler choice for one-person "companies" who mainly offer software freelancing services.

- Not setting up a separate bank account for your business, GmbH or otherwise, is strongly advised against. Not only by literally 100% of tax advisors, but also by the tax office themselves.

Yup. Most of the time, you simply don't need a GmbH.

I wonder why German people often think they need to found one - maybe because people in the US have a low threshold of founding an LLC, but that's because it's easy and cheap; or maybe due to the German Angst of "I will immediately get sued, so I need limited liability".

Sure, there are lots of middlemen who are more than happy to take your money to navigate this broken process, and tax advisors are probably #1 on the list :)

That being said, even throwing money at a tax advisor won't reduce the 16 steps to 1. More like 5-10.

You'll still have to to go the notary yourself, you'll still be opening the bank account yourself, you'll still be subject to Handelsregister spam and fake invoices, etc., etc.

Thanks! Super interesting.

Yeah, they were alright - definitely a bit of a "we love to take a lot of your money" vibe, but they did have some actual knowledge.

Some of the other tax advisors in this area are way more shady - like, "do you have 30k€ in your bank account for our fixed-fee consulting" shady.

Still, I'd really love to have a more transparent and affordable choice here. Currently, to my knowledge, none exists.

Awesome. I'd be really curious which lawyer you were referring to - if you like, feel free to reach out privately (e.g. Telegram channel link on the website) :)

Ha, that's my website - thanks for posting it (and for linking to it - allaboutberlin is awesome!).

Indeed, the valuation for the purpose of exit tax is 13.75 * (avg. of yearly profits for the past 3 years); and that valuation is taxed at approximately 30%.

So, as an example, if you own 100% of a company which makes 200k€ yearly profits, your back-of-the-envelope exit tax is 200k€ * 13.75 * 0.3 = 825k€.

A few quick notes:

- If your startup is not profitable but has raised VC money (we're on the YC website after all), the tax office likes to take the VC valuation (!) instead of the valuation resulting from the 13.75 multiple. So, if the valuation in your last round was €10M, then that's your valuation for the purpose of exit tax (back of the envelope: You own 50%, €10M valuation: 0.5 * €10M * 0.3 = €1.5M exit tax; huge problem for early-stage founders who usually don't have liquidity).

- You can deduct a CEO salary from that (yearly) number if you haven't been paying yourself a salary yet - realistically, up to 150k€ / year. So if your profit is up to 150k€ / year, you can reduce it to near zero for the purpose of exit tax valuation.

- You can also supply your own company valuation, but it has to be done by a "Wirtschaftsprüfer" - this costs around 10k€ per company; if you have shares >1% in multiple companies, this means costs of n * 10k€. This is often prohibitive.

- There's a whole tax advisor industry around this exit tax topic, and it feels very shady. I've written up all my notes from (paid) tax advisor calls and shared them on my website for free (linked by in parent comment).

- There are various setups to "avoid" it (all outlined on the website). None of those setups is easy, and none of them is free. Still, if you're e.g. faced with a potential exit tax of 825k€ like in the example above, any setup which might cost less than that might be theoretically worthwhile.

- If you leave Germany and return within 11 years, you get the exit tax back - so if that's your plan, you could "just" take out a loan and it mainly becomes a liquidity problem.

- Historically, there has been a strong tendency for Germany to tighten its exit tax laws over time.

- Different people have (vastly) different opinions on how "good" or "fair" this tax is.

- Discussing the exit tax has become quite a common topic among German founders nowadays.

Roads are salted, everything else is not.

Berlin is a great place to observe policies with good intentions, yet negative second-order effects.

Distributing free potatoes will likely cause waste somewhere else, as e.g. people will buy less potatoes in supermarkets. The waste just becomes less visible as supermarkets dispose of food every day.

Another current exhibit is the prohibition of using salt for removing snow and ice from the pavements because it's "bad for plants and the ground water". While that is true to some degree, the Berlin policy conveniently ignores all second-order effects: Sidewalks are more slippery, more people get hurt. I see people slipping on snow-compacted ice almost every day. How many trees have to be saved to make it worthwhile for more people breaking their bones?

You can apply for an exemption though, e.g. if you plan to use salt on a driveway to a hospital. Processing fees for such an exemption are up to 1.4k€ [1].

The rent cap is another one. But let's go there another day..

[1] https://www.berlin.de/umwelt/themen/natur-pflanzen-artenschu...

That won't work, for multiple reasons:

- I assume you're referring to founding a UG with 1€ in Germany. If you truly found it with 1€, it'll technically be bankrupt shortly after founding it because the founding costs are around 1k€ (notary etc.), and you haven't made any revenue yet. It's generally recommended to found with at least 2-3k€.

- 10 days is not a reasonable timeframe for founding a German UG. Optimistic timeline: Instant notary appointment, 14 days for corporate registry, instant bank account, 14 days for tax ID. Total of 28 days.

In most developed countries, you should incorporate at your place of residence. That's because incorporating in a foreign country will introduce tax issues regarding the so-called "permanent establishment".

As an example, if you'd be living in Germany and choose to incorporate in Estonia, then it's likely that your Estonian company has a permanent establishment in Germany, because you (as an owner and managing director) are performing work there. This leads to your company having to file for Estonian and (!) German taxes, which quickly becomes a headache.. and potentially expensive, as you'd need to rely on international tax advisors if you run into problems.

But even besides that, the main problem is that you still are hit with German bureaucracy, even if you incorporate in Estonia - you have to file for German taxes, potentially register your Estonian company (= its permanent establishment in Germany) in the German corporate tax registry, etc.

I've looked into this fairly in-depth and also discussed it with people in the Estonian e-Residency team. They largely confirmed my analysis, which I wrote up here [1].

The conclusion, unfortunately, seems to be that incorporating in another country (e.g. Estonia) only is viable if a) you're not living in a developed country which follows up on tax payers and where their businesses are located, b) you're actually living in Estonia or c) you have a sufficient budget for actually setting up a (physical) establishment there so that you don't run into the dual-permanent-establishment problem.

[1] https://eidel.io/estonias-e-residency-is-awesome-and-sucks-t...