[naiv]

The exit tax is absolutely insane and they even charge it within the EU.

Say you own a company which has a profit of 10.000 Euros on average the past 3 years. Before you can leave Germany you will have to pay taxes based on 137.500 Euros.

[nicbou]

I was glad to boil it down to "it probably doesn't concern you, and if it does, you probably have an expert on call already". The entire topic of taxation is a tarpit.

One important note: this 13.75x valuation is a worse case scenario if you fail to supply your own. There are many ways to reduce or avoid this tax.

It's awfully convenient that someone else went through it and started a website just for that topic. Funnily enough, his website was inspired by mine, and this guide was inspired by his post on exit taxation.

It's a far better resource on the topic: https://wegzugsteuer.info/

[olieidel]

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.

[naiv]

Thank you for the link. Very interesting!

[mpweiher]

"Freelancers and sole proprietors almost never pay an exit tax"