Agreed. As mentioned in another comment, I think it'd be fair to levy the exit tax when you actually sell your company in the future. Like, if I ever sell my business, I'd be happy to pay my fair share of German taxes on said business, even if I'd no longer be a tax resident of Germany.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
Yes, that's true, but the implementation is.. not very elegant.
In theory, the exit tax should ensure that Germany gets the taxes of the sale of your company. So, if you ever sold your company once you're no longer in Germany, Germany wouldn't get those taxes, so it charges you immediately once you leave Germany in a sort-of "virtual" sale.
This, of course, sucks tremendously because you actually haven't sold your company, and "normal" people don't have this sort of cash on hand.
Other countries have "smarter" exit tax implementations and only charge you when you actually sell your company in the future. I think that's pretty fair. It also doesn't hinder people from leaving the country.
Another reasonable implementation would be for the government to accept payment in the form of shares of your company. Personally I think this is how all taxation of illiquid assets should be done, but I suppose it could get complicated.
As an immigrant to Germany, I've often made the observation that Germany frequently has a really severe implementation problem. So I'm generally very sympathetic to that idea.
That being said, I'm not entirely sure that's the case here, and this is often also brought up in the context of strengthening the inheritance tax in Germany. In both the inheritance tax and the exit tax, the inherent applicability conditions are such that the end result is that there simply aren't that many people in a situation where it actually has a measurable impact. For the exit tax, you'd need to find people who 1. want to leave Germany, 2. already started a company here, 3. that company grew large enough that the Wegzugssteuer would really be a burden, and 4. that don't have enough liquidity, or cannot raise enough liquidity by selling some of their ownership, to cover the tax. That ends up being a really small number of people, which always eases questions about the reasonability (Angemessenheit) of the law. And in the context of inheritance tax, there's the added point that there's a floor to its application.
As another commenter mentioned, even for those situations where the exit tax actually is burdensome, just as with inheritance tax, there are two really simple solutions: first, create a floor for the minimum valuation by which the exit tax is actually assessed, and second, allow you to "sell" shares to the German government as a means of paying the tax, turning the Finanzamt into a silent shareholder in the company. I think both of these would be substantial improvements to both the German exit tax and inheritance tax.
- A printer (the most important equipment of any German startup founder)
- Envelopes for letters
- A stamp with your company name (some companies and agencies you deal with require you to stamp things, because a stamp obviously proves, beyond any doubt, that you are acting on behalf of your company, because obviously no one would be able to create a similar stamp with your company's name on it, right)
- A virtual office address at a coworking space (because you're receiving physical mail, and also there are weird tax reasons not to register your company at your home address)
- A mail-scanning service (because you don't want to walk to the coworking space every few days to pick up your physical mail)
- A mail-forwarding service (so that the mail gets forwarded from your virtual office address, which now has exactly no purpose at all, to your mail-scanning service)
A good one! I remember I needed a stamp when I started a business in Poland as well!
I've never used it and never was asked to so I guess the regulations no longer apply.
Poland is pretty good at digitalizing bureaucracy as well. You can do most things online including talking to the tax office and solving problems with your tax declarations.
Taxes are reasonable but
I am still bitter about cap gain tax as it's a form of a wealth tax for someone that invest in equities - at some point moving to more tax friendly jurisdiction saves enough that you can fund your comfortable life and save 100% of your income.
I also think tax burden is going to increase significantly there in coming years.
Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far.
That being said, it's probably overly simplistic to blame political parties for this - there's a lot of e.g. county/state-level bureaucracy in Germany which gets in the way of making any sort of constructive changes. It's a bit like blaming the CEO of a bloated company for not making it "agile" in a short period of time. Sure, leadership is important, but the reality is, it's.. complicated.
> Pretty much all political parties loudly announce that they'll reduce bureaucracy, but, judging by the outcomes, not much has happened so far.
I do not believe that this will be possible in our lifetimes. Germany cannot function without a very high degree of bureaucracy. It's like asking fish to breathe out of water.
Yup, this is possible. It would have to be at some fair market value, and you'd (obviously) have to tax that in Germany. And depending on how much you trust your buddy, you might or might not have to draft up some complicated legal framework that you indeed have the right to buy back your company at some stage :)
While rather sarcastic, your comment does hit an interesting point: How much does the infrastructure and society of any given state contribute to the "building" of a company?
I'd argue that, for software companies, not very much; at least if you contrast it with a hardware company. If you're, say, forging steel, you're using roads, trains, a lot of electricity, you've got an industrial plant, worker unions, public accident insurance, etc., etc. - a significant chunk of state-associated infrastructure is a part of your business, and was a part of your business when you built it.
But for software companies? I mean, you need a stable internet connection, good mobile phone coverage (tricky in Germany sometimes), rule of law, efficient bureaucracy (e.g. when hiring people), good banks which don't lose your money, electricity, etc. - none of these "infrastructure factors" feel as big as the ones for a hardware business.
On the contrary, for a software business, one could argue that Germany is actively hostile to you: Founding a company takes weeks / months and is expensive (notary), most processes are still paper-based, hiring people (especially internationally) is a huge pain, mobile internet is spotty, residential internet has outages. Charging customer credit cards via Stripe exposes you to a rabbit hole of VAT bureaucracy - all companies I've met so far rolled their own, broken software stack to somehow match up their Stripe + VAT charges with their internal bookkeeping software (e.g. Datev). A huge mess. It doesn't end there.
> You need peace, law enforcement, trust in others to lower stress and increase creativity, good teachers and education.
This is a great point.
The flip side is that if a government fails to deliver those, they have failed their side of the social contract. Then ideally, the citizens they've failed should be able to opt out..
What about a software company founded in Germany by someone who grew up in another country, and accordingly got their education elsewhere?
What if that company is a remote company which hires people all over the world, and none of those people benefited from the {education|peace|law enforcement|trust} in Germany?
I do agree with you, in principle, that a company is somewhat coupled to the country it was founded in. The exact nature of that coupling, however, is not that simple, I would say.
> I'd argue that, for software companies, not very much
If you build any successful business, including a software business, in a lawless and corrupt country you will have local mafias try to extort you for money the moment they hear about it. In especially corrupt countries, corrupt cops/prosecutors etc will be in on it so there will be nothing to protect you. Blackouts will be common due to a poor power grid. Likewise, internet access will be unreliable, slow and expensive due to poor infrastructure.
A country like Germany is absolute godsend compared to, say, Nigeria or Cambodia.
While minimal infrastructure investments would need to be made to entice software companies, their is a political price to pay by allowing young business people into your country who likely will out-earn the average resident (many historical examples of this). This makes the majority of people unhappy, but brings in educated-non-criminal customers and tax dollars. Lets say Germany does (1) great, they attract 1000 smart europeans to found companies, and 10 years later 1 of those companies becomes a megacorp.
2. Keep software companies happy
10 years has passed, new politicians are in charge. Pursuing #1 is a separate strategy to #2. I would hope i live in a country that wants to (1) attract young talent and (2) keep talent happy, but of course thats not necessarily true. The new politicians in charge need to appease the majority of people again as its election season!
I think Germany / USA can't really have an honest conversation about this as Germany + USA already have highly progressive tax systems. A significant % of USA and Germany residents don't pay any reasonable amount of tax, and are drains on the tax system. I assume these %s are likely projected to grow in the future rather than decline.
If the price of bread happens to rise? Then our politicians and voters will support squeezing more tax out of productive sects of society for the short term gains. Then those productive and mobile members of society will slowly move elsewhere.
"If you comply here, you will be compliant in almost all EU countries or even around the world" situation, many qualified students, international talent pool due to attractive cities, quality of life, startup grants/funding, hotspot for B2B fairs...
This multiplier would be ridiculous for an LLC you are just shareholder of but in case of one person company which usually derives most of its value from the work of the founder it's just on another level.
One person shops would rarely get 3-5x multiplier if the founder leaves. It's straight up "you belong to us" type of regulation. Next they will make you fight in the arena to win your freedom.
If you’re a one person shop you rarely run a limited liability corporation. If you just run your business an individual without a corporate structure this tax is not applicable to you.
- First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
- The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
- Factor 13.75 is defined in Bewertungsgesetz (BewG), § 203 Kapitalisierungsfaktor [3]
- The tax rate of 42% is the marginal tax rate in Germany (at least below €250k income, beyond that it's 45%) - so the assumption here is that, in the year in which you leave Germany, you've already had some salary income (say, €90k) which bumps you into the marginal tax rate for any additional income on top of that.
> - First off, your assumption is wrong that only the increase in value gets taxed. No, the entire value of your holding gets taxed, see § 6 Abs. 1 Satz 1 Außensteuergesetz (AStG) [1].
You're misreading that law. It says moving away is equivalent to selling shares and that §17 EStG is applicable. Which in turn says:
(2) Veräußerungsgewinn im Sinne des Absatzes 1 ist der Betrag, um den der Veräußerungspreis nach Abzug der Veräußerungskosten die Anschaffungskosten übersteigt.
> - The factor 13.75 originates from the calculation method called "vereinfachtes Ertragswertverfahren" (~ simplified earnings-based method), which itself is defined in Bewertungsgesetz (BewG), § 11 Wertpapiere und Anteile [2]
§199 BewG says "…kann das vereinfachte Ertragswertverfahren (§ 200) angewendet werden, wenn dieses nicht zu offensichtlich unzutreffenden Ergebnissen führt."
Key phrase there being "kann". It doesn't have to. You can probably sue against it getting applied, if they're really insisting on it. And note §11 BewG says:
"…so ist er unter Berücksichtigung der Ertragsaussichten der Kapitalgesellschaft oder einer anderen anerkannten, auch im gewöhnlichen Geschäftsverkehr für nichtsteuerliche Zwecke üblichen Methode zu ermitteln; dabei ist die Methode anzuwenden, die ein Erwerber der Bemessung des Kaufpreises zu Grunde legen würde…"
So, finding a reasonable method that a buyer would use to determine the values of the shares is explicitly pointed out.
1. Yeah, valid - I was assuming the default case of "you founded your company in Germany and are moving away at some stage". In that case, you could deduct the initial share capital (often €25k) from the valuation, as that was your "purchase price". In most cases, that doesn't lead to a significantly different outcome.
But yeah, if you actually bought shares of an existing company at a certain (higher) price, than of course the "taxable delta" might change your calculation.
In that respect, I was wrong as I assumed everything would get taxed. This is only roughly the case when you founded the company yourself in Germany, as mentioned above. Thanks for the correction!
2. True! As mentioned in my post, you can also pay someone to assess the value of your shares, which would most likely result in a valuation lower than 13.75x. You will have the additional costs of getting that assessment though, and you'll have to convince the authorities that your assessment is closer to the truth than the default valuation which is based on 13.75x.
People tend to forget this outside of the Tech / VC / YC bubble.
OpenAI is losing a brutal amount of money, possibly on every API request you make to them as they might be offering those at a loss (some sort of "platform play", as business dudes might call it, assuming they'll be able to lock in as many API consumers as possible before becoming profitable).
The big question here will be what will happen next: Serving LLMs will likely become cheaper (as the past has shown). But will that lead to companies like OpenAI becoming profitable? Or will that lead to all platform providers lowering their prices again, offering them at a loss again? Or will that lead to everyone self-hosting their own LLMs because serving them has become cheaper not only financially, but computationally? That's the big question.
>OpenAI is losing a brutal amount of money, possibly on every API request you make to them as they might be offering those at a loss (some sort of "platform play", as business dudes might call it, assuming they'll be able to lock in as many API consumers as possible before becoming profitable).
I believe if you take out training costs they aren't losing money on every call on its own, though depends on which model we are talking about. Do you have a source/estimate?
1. Looks like the cost of this project so far is already ~€1M. Does it really take you a million Euros to set up a DNS server?
(Just did a quick research in the EU's financial transparency system [1], I entered "dns4eu" in the subject field. €3m budgeted, €1M used already, most of it going to a company named "Whalebone sro" (?))
2. Why does every EU-funded software project have such a terrible website? As a visitor, you get the impression that the designers took great care to obfuscate the actual product as much as possible, while throwing in random text blurbs, useless buttons and boxes.
Stuff like:
> Looking for a fast, secure, and privacy-focused way to browse the internet? You're in the right place.
Yeah, sure.. just give me the product?
Reading on..
> Learn everything you need to know about DNS4EU Public Service – including where it's located, how to easily set it up on your device, and what configuration options are available to best suit your needs.
Yeah, sure.. just give me the product?
Compare this with the UI of Cloudflare's 1.1.1.1 [2] which gives visitors exactly what they need. It's awesome.
---
It's hard not to be cynical about EU projects, this one included. I've had the questionable pleasure of diving deep into EU software projects and their funding when analyzing and rebuilding [3] the EU medical device database [4], a simple database with ~500k entries (~10GB on disk), which has burned €45M (!) so far and employs a team of ~50 people. Link to website with budget tracker [5].
I don't know the finer details of this project that's being launched, but if I'm setting up a global DNS server, I want to make sure it stays up all the time, it's kind of the point.
It's not a project that "We will scale when we reach out limit". So I imagine there's a significant initial payment.
I never said that 1M EUR is too much.
And yeh you are right, you want a global DNS server to be global.
Nonetheless Cloudflare has more POPs of their DNS server as this project and a lot lot more traffic as this project just starts.
So i think that the comparison is not useful at all.
An better question is why they did not take more money and build an alternative to the root servers on top of it, or a super low cost registrar (for self cost like CF).
I would absolutely love too see more from this project and less of bad comparisons that are knee jerk comparisons.
> Does it really take you a million Euros to set up a DNS server?
The subtext of the above being
that it "obviously" shouldn't cost 1M to slap BIND on a spare beige box in a closet.
The subtext in mine was to put the scale context back in, not really comparing this project to Cloudflare who has more POP but also does a lot of other things (and so providing the DNS part for free is really a rounding error in their biz bottom line and they probably couldn't really tell how much it would actually cost).
But then again the QA invites the comparison, they clearly position as challengers to 1.1.1.1/8.8.8.8/9.9.9.9
I didn't mean it to be knee jerk at all, sorry of it came across so.
Overhead from "international consortium of members from 10 EU countries": €500k
I'm just making up numbers here, but this is roughly how it usually works. A lot of these EU projects are huge "design by committee" efforts, with all the associated downsides.
It's not really a "EU thing though", but more of a "government thing". Or perhaps more accurately: "private companies doing work for government" thing. Defence contractors in the US are notorious for having their snout in the trough. How much was spent on that UK Post Office accounting system? A billion pounds IIRC? And that "contact tracing" COVID app that didn't even work was a few dozen million quid IIRC. There is an endless list of examples from many countries.
slight improvement: "more of a not government thing". Neo-liberal dogma tells us that `public services == bad`, government should hand out contracts to commercial sector, aka "small government".
Commercial sector gets dependent on government, and takes on politics as part of the business. You end up with State Capture. That means that the "real world" government is shifted outside public control.
> Defence contractors in the US
are something else entirely. keyword: political economy
I agree 100% with everything you've said, and I'm from the EU. EU companies are burning and pocketing as much money as they can for themselves while delivering sub-par software.
I do get your point - and, sure, the EU website is not catastrophically terrible. But, damn, if I'm looking for a DNS, I just want the IP, I don't want five options and the mental overhead of having to determine why the hell I now am faced with five options for a DNS, which one I should choose, how they differ, etc., etc.. Add all of the IPv4/6 stuff on top of that, and.. oh man, I feel like you've lost 90%+ of interested people already.
I agree that the DNS4EU website is not designed very well, but CF's isn't any better - sure it shows the IP up front, but immediately below is the incredibly non-descriptive tagline of "The free app that makes your Internet safer." and download links for some kind of unrelated software (looks like a proxy? CF says it helps me "Connect to the Internet faster and in a more secure way.", and that "The Cloudflare WARP client blah blah faster, more secure, and more private experience online blah blah The WARP client sits between your device and the Internet, blah blah"). I'm just looking for DNS configuration instructions, why are they asking me to download software.
I am in for better public documentation about the various software initiatives the EU supports in general. The reporting seems to follow the internal governments process and structure in form, rather than having some external user in mind.
The EU funds various highly useful, difficult projects across the globe. They make use of lean foundations who are highly knowledgeable in their area of expertise with a focus on delivering improvements for the public. The EU supports even non-EU citizens open source innovations, for example projects with a focus on novel p2p techniques, open hardware etc.
I have a problem with the general "omg public good, money waste" learned response from some other commenters. Neo liberal dogma's are just that, and they end up convincing the public to give consent to State capture. To me the more interesting critique would have been why DNS is not considered public infrastructure, instead of leaving that to commercial control only.
> Does it really take you a million Euros to set up a DNS server?
Why are you acting as if the scope of this project is dumping bind on a server somewhere? They are operating filters and threat detection. The scope is obviously wider than just “setting up a DNS server”.
> as any critique of the EU seems to be met with universal outrage.
Absolutely not, in fact as an EU citizen, I am the first to call out issues and complain about things getting changed. That's why there are nicer privacy protections for example in the EU.
That said, the comment doesn't really apply to "only EU".
> a simple database with ~500k entries (~10GB on disk), which has burned €45M (!) so far and employs a team of ~50 people
"Burned €45M" with zero citiation, on even where the funding goes to, there are lot of regulations around medical databases, and for good reason.
Tell me outside the EU doesn't have overblown budgets also?
1. Enter "subject of grant or contract" = "eudamed" [enter]
2. Receive the numbers until 2022 inclusive (2023 is incomplete).
3. Extrapolate conservatively.
Citation #2:
We received documents as part of a "freedom of information act" request (the EU version, named differently) which we published here. Those include numbers for 2022 and the head count, among other things.
> You throw your computer out of the window, quit your regulatory job and vote "Yes" on Brexit.
Talk about throwing the baby out with the bathwater.
> Okay okay, yes, this is a bit of an apples-to-oranges comparison: The EUDAMED team had to spend time on the upfront work modelling the data structures (not that the end result is super great), and they also had to build the whole "entering data" kind of stuff which our solution doesn't have. Sure, the EUDAMED team had more work. But 300x more work?
This is something we hear all too often and it never passes the smell test.
"Well you finished that feature in 1 day so I can give you 5 features for this week"
It's not the same.
I agree it could be better, but there are graph databases with the data that work extremely well for my requests anyway. But sure, you offer a right click solution. Great, but I "imagine" it doesn't fit everyone's requirements.
Let alone any legacy integrations that might already be there.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
Interesting pointer on Canada - thanks!