There's a reasonable argument to be made whether you should be subject to capital gains in the first place. I sold my last company in the UK, and honestly the tax burden was so ridiculously low I still feel somewhat bad for it. It's crazy.

There is of course a competition problem with the high taxation in Germany; if your expected returns are much lower than in other countries your risk just increased significantly. We already have a situation where on average it's much, much more lucrative to work at bigcorp instead.

My main gripe with the GmbH though is not the amount of taxation. GmbHs are so needlessly complex it blows my mind (I'm currently running one), but that's on the side of regulations. I'd MUCH prefer if Germany worked on getting rid of silly shit like the notary requirement etc., and if taxation and bookkeeping were simplified, before we talk about lowering taxes.

The disclaimer is absolutely right, you should consult a qualified accountant because the rest of the article is wrong. First of all, it's not just about SaaS, but all GmbH. I don't see any reason why Germany should make exceptions for software companies as the author wishes for in the second-to-last paragraph.

In regards to taxation of a sale I can only point to this first google result: https://www.rosepartner.de/besteuerung-verkauf-gmbh-kauf.htm...

In cases where you personally owned the company, only 60% of the sale price will taxed. After this Teileinkünfteverfahren the 60% are indeed subject to your incomee tax. Even better as sales are consindered außergewöhne Einkünfte their taxation will follow the Fünftelregelungen where the sale profit is spread across five years. https://de.wikipedia.org/wiki/F%C3%BCnftelregelung Realistically you'll end up paying taxes comparable to the 10~20% you can expect in the US.

Edit: Sorry, missed that part about the seller GmbH still existing afterwards. But the next paragraph I linked goes into that as well: https://www.rosepartner.de/besteuerung-verkauf-gmbh-kauf.htm... Again, Teileinkünfteverfahren only 60% being taxed.

The headline is a bit sensationalized: the article focuses exclusively on small SaaS exits, which are usually done by selling assets, NOT the whole company. In Germany, these sales are treated like any other business income.

If you're aiming for a normal exit - where you actually sell the company - things are much more favorable.

You need to set up a holding company, which is usually a UG. This is easy and cheap: there is a simplified process for it ("Musterprotokoll"), and it requires no upfront capital like a GmbH. As of recently, it can be done online without having to visit a notary in person. The overhead is negligible.

Once the holding sells its subsidiary ("share deal"), in most cases, the effective tax rate at the holding level is only ~5% due to § 8b KStG. This is not bad at all, since you'll want to reinvest most of the money anyways.

There are gotchas in every jurisdiction, and you need to get professional advice by a local accountant. Germany is a fine place to run a business. If you already live here and don't want to move your family for tax reasons, you don't have to.

I'm German and had a startup in Germany (standard UG holding + GmbH).

My one advice to anyone thinking of starting a company is: don't do it in Germany. Tax burden, insane bureaucracy and a conservative, tech adverse local market put you at a disadvantage against UK/US peers.

>German founders are incentivized to move abroad before exits

Don't do that. The tax office will treat that as a sale and will tax the current valuation at 20%.

I made a rather stupid mistake recently, as an American. I put $30k or so of my Roth IRA into BMW stock, since it was paying something close to 8% annual dividends. Once a year. I suppose I should have looked at this more closely. When the dividend was paid, the German government took about 30% of it right off the top in taxes... for a foreign investor. Still not a bad return, but I won't be buying any German stocks going forward.

That's my Yelp review of investing in German businesses, if it helps anyone. I've had more or less the same experience dining in Seattle and accidentally tipping 20% on top of an included 20% tip that was already included but not specified in the bill.

As someone who has run a small business in an EU country for 10 years and is in a process of relocating to a low tax jurisdiction I wonder what EU's endgame on this one is.

It's not like EU countries offer a potential founders anything of substance. You can just as well run your company from abroad. Most of your customers are going to be outside of EU (most likely), you will be buying services from outside of EU, hire/work with people from various countries. There is just no reason to be in Germany, France, Spain, Italy when you don't get anything but bureaucracy burden and high taxes.

I paid my (admittedly quite low by EU standards) taxes honestly but right now savings on capital gain tax alone are enough for me to buy a beach house in a country with a better weather and still save some. My country wants to charge >1% of my wealth every year just to be there not even going into business taxes. The incentives are right there to leave. If I ever start another business it will be in my new tax friendly country. A lot of people are like me and will realize what terrible deal they are getting. Out of those who stay a smaller number is going to be successful because of all the tax/bureaucracy burden. Is the endgame to just give up on IT? Introduce tariffs on everything? Forbid foreign corporations to sell in EU?

I just don't see how EU isn't going to be left in the dust in technology sector with their current policies.

Taxes bad, we get it.

Those tax rates in the article are about the same as for a normal person working as an employee.

Sorry you don‘t get a free ride for being rich. Luckily, there are tax advisors and attorneys who help you with all kinds of loopholes and rarely-discovered tax fraud schemes.

Regulation, Taxes, inflexibility and small-thinking mindset let me leave Germany 10 years ago. I didn’t regret it a single day and everytime I’m going back home after visiting my parents in Germany I feel so much more free.

Incidentally, in a neighboring EU country (Poland) the tax system has a bizarre nod towards solo entrepreneurs running a SaaS: you can choose simplified revenue-based taxation and fall into the 8.5% bracket.

8.5% tax on revenue is really good. And this is very specific: it applies specifically to SaaS businesses, most revenue-based rates are higher.

If you decide to sell your business, assets are taxed at 3%.

If you ever plan on selling your company you’d do well to have it wholly owned by a holding company (which in turn is owned by you).

…if you plan to sell your company.

Please take note that his specific situation is not selling a company - which would qualify him for a reduced tax burden, but selling assets as a private person.

I am unsure if this would be taxed differently in any other country.

The Germans aren't wrong to see it as income from work though, because software is an example of crystallised work.

This is why it has had unfavourable treatment in Europe. If you allow people to build software and sell it for capital gains rates, then if you're consistent you allow people to build anything and sell them for capital gains rates, which means that the 'real' tax on labour if you structure your work as leading to something which can be sold, is the capital gains rate.

This is the problem for software in Europe: when you tax work, the one who build something through work retains a smaller fraction of it, so he has less money to invest in expanding the work.

In the UK it also is ~20% capital gains tax when you are just equity holder /employee instead of the actual business owner. While the owners with the same class stock can get 10% instead.

Disclaimer: Not a tax professional, but have had a few businesses.

Why are you calculating the US/UK/AUS as sale of a business, and the german one as sales of an asset owned by the business?

One is profit of the business, and therefore subject to additional taxation before before distribution of funds, the other isn't. Thats why your figures are so different.

Even in your examples where they would buy the whole company, if they then wanted to roll the assets into their own company in any way, the tax liability would still exist. So all that happens is the burden moves from you to them (no doubt they would do it as efficiently as possible, but there is still a liability).

If you are selling the sole asset of your business at what you deem the same value as the whole business, then you clearly aren't accounting for the business liabilities. Account for that, and then you will be equal again.

> Structure larger exits through international holding companies (complex and expensive)

Setting up an LLC in a low-regulation US state is simple and inexpensive.

This is a lot of words trying to explain that in Germany the system is designed that poor remain poor. First 40% of gross salary on contributions, then 30% of net salary on rent. Dynasties with their VW-Porsche-VW-Porsche quadruple currywurst burger-sandwich need the society to be poor.

Move to Belgium and get a whopping 0% capital gains tax

I have shares in a bootstrapped Gmbh via a holding company. Germany is a complex place to do business for non native speakers and it is generally financially risky to do business here. But if you structure it right, the flip side is that Germany has a lot of family owned smaller and larger businesses. The economy kind of runs on companies like that. So, it is definitely possible to be an entrepreneur in this country.

I don't actually mind paying taxes (to a point); I think there's a fairness in wealthy people doing their part for supporting the society they are a part of that supports them. What I do mind is the incentive structure in Germany is geared towards discouraging people from being entrepreneurial, taking calculated risks, and generally trying to do new things.

You take on a lot of personal risk when you found a company here. You are dealing from day one with greedy accountants, endless bureaucracy, a tax office that wants to squeeze you before you even have any revenue, etc. I'm bleeding cash via my holding company that's effectively running on my savings. This thing serves no purpose other than to insure me against potentially succeeding and not bankrupting myself in the process. Success here would be me generating a lot of tax income, employment, etc. I.e. things that most economies would regard as rather desirable things.

The whole point of limited liability companies in other countries is to de-risk the process of creating new businesses for individuals so that people might do innovative things that benefit the economy. Germany does the opposite. It actively discourages people from doing that. And a Gmbh actually exposes you to a lot of liability.

Bootstrapping means you take a lot of opportunity cost. For example by taking no or a very low salary. So the tax office creaming off profits before you even had a chance to pay yourself is not helpful. That's literally a situation we face now. We've been inching closer to break even this year. We went from the edge of bankruptcy to having a bank account that is able to sustain us well into next year in the space of a few months. This has been a long journey of about four years. We've had part of the German bureaucracy trying to support us and other parts of it doing their best to frustrate that. It's internally conflicted on this.

The situation does not compare well to some other countries in Europe where this stuff is a lot easier, less risky, has way less friction, and takes way less time. Though in fairness, lots of EU countries have their own unique challenges for trying to do business.

Some Germans get really defensive on this topic. But the fact is that Germany is bordering on a recession right now and it needs the next generation to step in the vacuum of the retiring baby boom generation and its imploding car industry. And that's before we start talking about its crumbling infrastructure, high energy prices, etc. Germany has economic issues. And the fix for many of those issues is for it to invest. And not in its dying industries but in new ones that can replace them and the infrastructure to support the economy. Which includes its legal framework. The trick is investing efficiently and effectively. And it's not currently able to do that.

The #1 thing holding that back is the German rules, bureaucracy, counter productive rules and policy, etc. Easy to fix on paper. But that requires a change in attitude here. Apparently we have some elections coming up. Maybe some change is possible.

in USA its qualified small business so tax is 0

Is there actually any sane country to do SaaS business except the US? It's insane how easy it's to start an LLC in US, set up a bank account, do your taxes, without ever leaving your home. Hell, you can start it as a foreigner, opt for pass-through taxation, and pay taxes at your tax residence.

I mean, I get higher taxes, I just don't understand why you want to make it so hard to start and operate a company.