Why It’s Hard for Startups to Create Wealth in Europe(bloomberg.com)
bloomberg.com
Why It’s Hard for Startups to Create Wealth in Europe
https://www.bloomberg.com/news/features/2019-10-02/why-it-s-so-hard-for-entrepreneurs-to-get-really-rich-in-europe
295 comments
> This article is trying to suggest that equity incentives are somehow especially and unfairly (!) singled out by European tax schemes but I don't see any meaningful argument to support that.
From the article,
> A few years ago the Dutch capped bonuses for bankers, money managers, and other financial professionals at 20% of their base salaries. Entrepreneurs must navigate onerous tax rates and restrictions that often make equity sharing and options more trouble than they’re worth. When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. [End]
> If you want to make the arguments made by this article, IMO you have to first make the general argument that taxing wealthy people heavily is a bad thing.
Silicon Valley startups have gotten a reputation for being a way to get stinking filthy rich. What happened as a result? Tons of people, many of which visit this website, are out there everyday foregoing traditional careers, trying to make something new and something people want to buy.
The argument is that it takes a big carrot to get people to take big risks and work really hard to make something from nothing.
From the article,
> A few years ago the Dutch capped bonuses for bankers, money managers, and other financial professionals at 20% of their base salaries. Entrepreneurs must navigate onerous tax rates and restrictions that often make equity sharing and options more trouble than they’re worth. When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares. [End]
> If you want to make the arguments made by this article, IMO you have to first make the general argument that taxing wealthy people heavily is a bad thing.
Silicon Valley startups have gotten a reputation for being a way to get stinking filthy rich. What happened as a result? Tons of people, many of which visit this website, are out there everyday foregoing traditional careers, trying to make something new and something people want to buy.
The argument is that it takes a big carrot to get people to take big risks and work really hard to make something from nothing.
Those details about the Netherlands don't actually form an argument in my view, other than "look how much tax there is". And your additional arguments still just boil down to "we should not tax high levels of wealth" so heavily.
I'm not saying that sentiment is wrong (although I absolutely do disagree with it), I'm just saying that this article is disguising "too much tax!" as "look, I've identified an interesting pattern in European policy and causally linked it to Europe's less successful startup scene".
I'm not saying that sentiment is wrong (although I absolutely do disagree with it), I'm just saying that this article is disguising "too much tax!" as "look, I've identified an interesting pattern in European policy and causally linked it to Europe's less successful startup scene".
> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares.
almost exactly like in the US. hence the GP’s complaint.
almost exactly like in the US. hence the GP’s complaint.
I didn't want to make my post needlessly long, but the article continues,
> In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.
> In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program. Germany and 14 other countries, including Sweden and the Netherlands, are more burdensome than the U.S. regarding options, according to a 2018 study by Index Ventures, a venture capital firm in London and Silicon Valley.
That’s not accurate at all.
To get the 0%, you have to exercise at strike price (only way to do that is to forward exercise your vesting schedule which is in theory great, but I have yet to see this allowed by a company for normal employees) AND you have to be under a certain threshold of income (39k for single and 78k for married [1]).
So in reality 0% is just not possible for most people with these options.
When you exercise, the spread between strike and fair market value is taxed, whether you sell or not, or even can sell. If the company is private, you have to pay and hope they become public or get sold.
If you happen to live in CA, add some more tax on top of that.
Now, as a founder, where you do not need to use options, the math is different, but still not zero percent.
[1] https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rate...
To get the 0%, you have to exercise at strike price (only way to do that is to forward exercise your vesting schedule which is in theory great, but I have yet to see this allowed by a company for normal employees) AND you have to be under a certain threshold of income (39k for single and 78k for married [1]).
So in reality 0% is just not possible for most people with these options.
When you exercise, the spread between strike and fair market value is taxed, whether you sell or not, or even can sell. If the company is private, you have to pay and hope they become public or get sold.
If you happen to live in CA, add some more tax on top of that.
Now, as a founder, where you do not need to use options, the math is different, but still not zero percent.
[1] https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rate...
A data point: we allowed this for all our employees (83b for everyone!) and no one took us up on it. It was frustrating because as a founder, I viewed it as a benefit, but employees didn't. At all.
My guess is very few people knew that AMT was a thing and/or didn't have enough liquid cash to buy at the time. Had I know that in a few years I'd have a tax bill in the tens of thousands of dollars I'd have taken a loan out immediately to early exercise all my options and been much better off.
Depends on if they're ISOs or NSOs. Not having to pay income tax on the difference at exercise time makes all the difference.
[deleted]
Europe has none of the largest tech companies. The large ones that do exist were founded a long time ago, like SAP. Their startup pipeline is weak and IMO it’s all because of government policies, as there are huge numbers of highly talented people in Europe.
https://en.m.wikipedia.org/wiki/List_of_largest_technology_c...
https://en.m.wikipedia.org/wiki/List_of_largest_technology_c...
it's because Europe is a continent of 20+ different large languages and cultures. In Sweden everybody speaks Swedish and nobody uses cash. In Germany, nobody speaks Swedish and everyone uses cash. There is no homogenous market like in the US or China where you can blow up some product to 300+ million people.
That's the reason why there are fewer startups in Europe. Europe has plenty of large technology companies if one stops equating technology with "user facing smartphone application". They just happen to be export oriented, or pharmaceutical or manufacturing and transport companies.
Trying to copy the US or China in producing rapidly growing startup companies is in my opinion foolish and we shouldn't buy into the constant hype of just trying to emulate America, but rather aim to increase where European companies advantages lie, in integrating high technology into existing economic sectors that integrate with industrial production.
Not only is this much better suited to the economic and social European environment that simply isn't accepting of the "break the rules, worry about the problems later" mentality of internet statups, it's also arguably much more equitable and reaches a larger section of the labour market.
That's the reason why there are fewer startups in Europe. Europe has plenty of large technology companies if one stops equating technology with "user facing smartphone application". They just happen to be export oriented, or pharmaceutical or manufacturing and transport companies.
Trying to copy the US or China in producing rapidly growing startup companies is in my opinion foolish and we shouldn't buy into the constant hype of just trying to emulate America, but rather aim to increase where European companies advantages lie, in integrating high technology into existing economic sectors that integrate with industrial production.
Not only is this much better suited to the economic and social European environment that simply isn't accepting of the "break the rules, worry about the problems later" mentality of internet statups, it's also arguably much more equitable and reaches a larger section of the labour market.
>it's because Europe is a continent of 20+ different large languages and cultures. In Sweden everybody speaks Swedish and nobody uses cash. In Germany, nobody speaks Swedish and everyone uses cash.
How much does that matter though? You could just release your app/site/whatever in English and instantly have access to the US market.
How much does that matter though? You could just release your app/site/whatever in English and instantly have access to the US market.
The same things that make it hard to make one app for all of the EU also make it hard to make an app for the USA from outside the USA.
Even if you hire a UK or Éire citizen for their English skills, you have all the cultural reasons that means Tesco isn’t a supermarket brand in the USA and Walmart isn’t a supermarket brand in the UK even though both are English speaking nations. The language issues are also substantial, even though the cultural output of Hollywood has made it easier for many EU citizens to learn English than each other’s languages.
Even if you hire a UK or Éire citizen for their English skills, you have all the cultural reasons that means Tesco isn’t a supermarket brand in the USA and Walmart isn’t a supermarket brand in the UK even though both are English speaking nations. The language issues are also substantial, even though the cultural output of Hollywood has made it easier for many EU citizens to learn English than each other’s languages.
Walmart owns ASDA, or at least they did until recently.
Yes, but irrelevant. The details of the Walmart brand are essentially unknown in the UK, and the very fact that Walmart are now trying to sell ASDA for almost the same nominal amount they bought it for 20 years ago demonstrates the exact difficulty I was referring to.
Because when I want to talk to someone for support, especially when it's a small business that might be slower to addressing my support concerns because of a lack of resources, I want to speak to a native English speaker I can understand with an 800 number.
US companies get that baked in. Everyone else has to grow to become that.
US companies get that baked in. Everyone else has to grow to become that.
It does, the citizens of different countries don't care or know each other, anyone hardly knows how EU works or what people even do in Brussels. You have news stations that are literally for 300mil people. Same with every startup and product.
^ this, exactly. Europe is definitely not one big unique market, every country is a different one with its own specificity. They happen to share some regulation and to (almost all) use the same currency but they are quite different in their user behaviours and expectations.
Well I mean you also have smaller individual countries like Israel that don't seem to do too bad.
A typical EU startup:
- hey, we are startup, we can't pay you much, is that OK?
- well, we can't really compensate you with stock options, those are for founders
- oh no, your opinion doesn't matter, bosses are always right
- yes, you'll work crazy hours but we can only pay you for 40
In other words, EU startups have no mechanism in place to reward early employees that build the company from the scratch, it's all about making co-founders famous/wealthy. It's already bad in the US, imagine EU is 10x worse.
- hey, we are startup, we can't pay you much, is that OK?
- well, we can't really compensate you with stock options, those are for founders
- oh no, your opinion doesn't matter, bosses are always right
- yes, you'll work crazy hours but we can only pay you for 40
In other words, EU startups have no mechanism in place to reward early employees that build the company from the scratch, it's all about making co-founders famous/wealthy. It's already bad in the US, imagine EU is 10x worse.
What? No! Where are you getting your information from?
Having worked with a multitude of startups over the years I can say that none of them have behaved in this way in the Nordics.
Having worked with a multitude of startups over the years I can say that none of them have behaved in this way in the Nordics.
Did you get a competitive salary or ~1% of share of the company as an early employee? If not, you were used. The aforementioned is a typical Berlin startup. A favorite of mine is when a company tries to pay you with debt, i.e. instead of being just a developer, you become a banker for your future boss' idea. I wish I were joking...
Last time I was job hunting, one of the Berlin startups was offering €58k (iOS developer). Is that competitive? I find it hard to judge.
Depends your level, but if you have some experience, no it's not something I would consider competitive (talking about Berlin).
Last time is when? In 2019 the median seems to be 65k-70k, and 70k-75k is possible.
75k at a seed stage companies. Day rates are €1200 and total comp for real senior developers at established companies is €100k+
“Nobody in Berlin earns over €65k” should be a dead meme by now. Salaries are continuing to rise
“Nobody in Berlin earns over €65k” should be a dead meme by now. Salaries are continuing to rise
Not hard at all, there is plenty of information about wages in IT. If you understand the root of the article, the US versus Europe comparison, take Silicon Valley numbers and compare to €58k and you will find it ridiculously low. Damn, you get more in Romania (Bucharest or Cluj), I am not kidding you.
What I see in Germany is that some of the startups are basically contracted by larger companies, tasked to develop complex solutions for a fraction of the price that an established company would require for the same task.
At least that's my experience so far.
At least that's my experience so far.
I wouldn't really consider those startups since they're not trying to develop their own product for a market segment. Those are more like small development shops (there are a lot of those here in the US as well).
> I can say that none of them have behaved in this way in the Nordics.
The Nordic countries, particularly Sweden and Denmark, are among the few that actually have a pretty healthy startup scene. Maybe there's a link?
The parent comment rings true (in essence, despite its touch of hyperbole) with respect to France.
The Nordic countries, particularly Sweden and Denmark, are among the few that actually have a pretty healthy startup scene. Maybe there's a link?
The parent comment rings true (in essence, despite its touch of hyperbole) with respect to France.
I have never met any company like this, startup or not. Are you stuck in some scam? There are so many companies offering amazing benefits in Europe's capitals that it's hard to pick one.
At least in Croatia, I would say people are still figuring out how to do the startup thing. Certain incentives and incubators have appeared in the past few years, the country has shown some interest with improving regulation and some people are trying it out. The biggest thing I would say is the culture where I would say people are very risk averse so they do not want to jump into debt for some crazy idea so they cannot afford paying people. Most startups I know in Croatia are started by friends where no one is getting payed and then later there's a squabble when it turns out the friend who started the company now owns it while the others are just employees. Other startups hire lots of college interns for 5€ net an hour and waste time with them learning how to code instead of paying actual professionals. I would say the scene is improving and each year there are 2x as many startups doing recruiting but it's all still in its infancy.
I see a lot of these hot deals in the US also. They eventually find someone. Likely not the most qualified someone.
While the government policies don't always help, in my experience they are merely a hurdle and not the underlying reason it is difficult for startups to succeed in Europe. The ambient culture that defines behavior and sets expectations in the relationships between founders, investors, employees, and society at large is much more adversarial and conservative than the US.
Being an excellent engineer, the backbone of all good tech companies, is rarely recognized, poorly compensated, and engenders much less social status than if you were on the US west coast. Ironically, even though there are many highly talented engineers in Europe, European executives and investors frequently hold American engineers working in Europe in much higher regard and treat them differently than engineers from their own countries. I've seen it many times.
This is not an environment that incentivizes the world-class native engineering talent that exists in Europe to perform up to their abilities in a high-risk startup. Good engineers correctly view themselves as being undervalued, so there is no point in taking the risk. Nothing will change until Europe places more value -- economic, social, and cultural -- on being an exceptional engineer instead of treating them as a modern day factory worker subservient to the managerial class. This is not something you can easily change with government initiatives.
Being an excellent engineer, the backbone of all good tech companies, is rarely recognized, poorly compensated, and engenders much less social status than if you were on the US west coast. Ironically, even though there are many highly talented engineers in Europe, European executives and investors frequently hold American engineers working in Europe in much higher regard and treat them differently than engineers from their own countries. I've seen it many times.
This is not an environment that incentivizes the world-class native engineering talent that exists in Europe to perform up to their abilities in a high-risk startup. Good engineers correctly view themselves as being undervalued, so there is no point in taking the risk. Nothing will change until Europe places more value -- economic, social, and cultural -- on being an exceptional engineer instead of treating them as a modern day factory worker subservient to the managerial class. This is not something you can easily change with government initiatives.
Agree with this. Where people gravitate to in terms of career choices is very much driven by compensation patterns, and somehow, in (Western) Europe, being on the technical side of tech/IT just does not pay.
Large companies (those that are not tech-centric, e.g. financial services, etc) still tend to see it as a back office function and often outsources majority of operations to India (or fly and settle temporary employees locally). Companies that places tech at the center of their business recruit and hire a lot of tech talent from outside of Western Europe. There are also local developers, but their pay, compared to jobs in, say, marketing, sales, and other rather fluffy business functions, is low, low, low. Someone mentioned Bookings before. Their pay is on-par with the market average here, which is 50-80K. And that is very low compared to how a similar position is valued in SV.
Startups here in general also underpay their tech workers compared to counterparts in the US, since they point to the large companies locally (which already underpay tech roles), and say, "well, we can't afford corporate pay, we are just a startup". So you are kind of double-underpaid, even though the job descriptions are usually copy and pasted SV-speak with rainbows and unicorns.
Large companies (those that are not tech-centric, e.g. financial services, etc) still tend to see it as a back office function and often outsources majority of operations to India (or fly and settle temporary employees locally). Companies that places tech at the center of their business recruit and hire a lot of tech talent from outside of Western Europe. There are also local developers, but their pay, compared to jobs in, say, marketing, sales, and other rather fluffy business functions, is low, low, low. Someone mentioned Bookings before. Their pay is on-par with the market average here, which is 50-80K. And that is very low compared to how a similar position is valued in SV.
Startups here in general also underpay their tech workers compared to counterparts in the US, since they point to the large companies locally (which already underpay tech roles), and say, "well, we can't afford corporate pay, we are just a startup". So you are kind of double-underpaid, even though the job descriptions are usually copy and pasted SV-speak with rainbows and unicorns.
Wrong list, check this one. Booking, Zalando, Spotify, Bet365, Yandex.
https://en.m.wikipedia.org/wiki/List_of_largest_Internet_com...
https://en.m.wikipedia.org/wiki/List_of_largest_Internet_com...
Isn't Booking a US corporation and Yandex is a Russian one. Generally when people say "Europe" in this context they are mostly referring to the EU and the "satellites".
Regardless, the EU alone has 50% more population than the US, while the population is about as educated, yet it's only a small fraction of the US on this list.
Regardless, the EU alone has 50% more population than the US, while the population is about as educated, yet it's only a small fraction of the US on this list.
Booking is headquartered in Amsterdam (and not just for some sort of tax shenanigans).
I don't necessarily dispute that Europe is a worse environments for startups to succeed, I just don't see why taxing equity incentives has anything to do with that. And I think taxing equity incentives is fair.
it's because the market is heavily fragmented and to reach sufficient numbers you need to cover the whole European market. a startup here needs an accountant of the bat to handle the tax mess, a lawyer because incorporation is all but easy in most countries with few exceptions, a gdpr specialist, etc.
that's why there are comparatively few steps, the entry cost are massive and discouraging, and that's on top of the internationalisation requirements of course.
that's why there are comparatively few steps, the entry cost are massive and discouraging, and that's on top of the internationalisation requirements of course.
This is ridiculous. No, you don't need staff lawyer, accountant or "GDPR specialist" to start in Europe. One company I worked at didn't employ an accountant until pushing to €10M turnover. They still don't have a lawyer.
It's probably a misunderstanding of the GDPR's requirement for a designated representative. https://searchnewscentral.com/blog/2019/08/23/does-gdpr-requ... Still a barrier to entry for startups.
Having a designated representative is for companies outside the EU anyway. If you're inside there's no need...
This is incorrect - if you have more than 10 employees that handle data, and that basically means everyone sitting behind a computer, your company has to designate someone as data privacy officer who has to make sure that things get handled according to GDPR.
These rules arent strictly enforced yet, but when you run into issues and it can be shown that you didn´t take steps to implement it, it has consequences.
These rules arent strictly enforced yet, but when you run into issues and it can be shown that you didn´t take steps to implement it, it has consequences.
No, you need people be handling personal data, not any data.
That's not what the GDPR says. There's no bright line for the number of employees handling data.
A DPO should be assigned if:
>(a) the processing is carried out by a public authority or body, except for courts acting in their judicial capacity;
>(b) the core activities of the controller or the processor consist of processing operations which, by virtue of their nature, their scope and/or their purposes, require regular and systematic monitoring of data subjects on a large scale; or
>(c) the core activities of the controller or the processor consist of processing on a large scale of special categories of data pursuant to Article 9 and personal data relating to criminal convictions and offences referred to in Article 10.
(Article 37)
And in any case a data protection officer is different from a representative, as the title of Article 27 indicates ("Representatives of controllers or processors not established in the Union").
A DPO should be assigned if:
>(a) the processing is carried out by a public authority or body, except for courts acting in their judicial capacity;
>(b) the core activities of the controller or the processor consist of processing operations which, by virtue of their nature, their scope and/or their purposes, require regular and systematic monitoring of data subjects on a large scale; or
>(c) the core activities of the controller or the processor consist of processing on a large scale of special categories of data pursuant to Article 9 and personal data relating to criminal convictions and offences referred to in Article 10.
(Article 37)
And in any case a data protection officer is different from a representative, as the title of Article 27 indicates ("Representatives of controllers or processors not established in the Union").
Sure, you can get by without one, just like you can speed without getting a ticket. But that doesn't mean it's the type of situation that normally occurs. For example, if nobody in your company knows how GDPR works, how would you know that you're complying with it? The same goes for tax laws.
You just have to lower the blinds and stay quiet when the GDPR Gestapo comes near your office.
such bullshit. someone has to fill in the relevant taxes paperwork and handle the invoices. who does that is the accountant, even if it has founder, owner or some other label attached, and the time it takes to handle the paperwork is not free, whether you pay for it in money or work hours.
I co-owned one company and presently a board member on another.
Noone said that accounting needs not be done, just that you don't have to employ anyone you listed in a startup. You do as with any other non-essential work like cleaning, catering and so on: buy external services on the need to have basis.
This is also not something in any way unique to Europe. American start-ups also need to file taxes, incorporate and so on.
Noone said that accounting needs not be done, just that you don't have to employ anyone you listed in a startup. You do as with any other non-essential work like cleaning, catering and so on: buy external services on the need to have basis.
This is also not something in any way unique to Europe. American start-ups also need to file taxes, incorporate and so on.
did I say employ? no I said needs. everyone here so fast at replying but have you tried reading what's written? and however you want to spin it is a cost, and that is a barrier to entry which is actually quite tall if you trying to bootstrap something outside the angel/vc scene which is pretty dull anyway in Europe.
and Europe tax return are far more convoluted than the average Delaware company, especially because of bullshit like vatmoss schemes that are a specific result of the European market fragmentation, which was the main point to begin with
and Europe tax return are far more convoluted than the average Delaware company, especially because of bullshit like vatmoss schemes that are a specific result of the European market fragmentation, which was the main point to begin with
[deleted]
If you call yourself not an accountant despite doing the bookkeeping I’m pretty sure other accountants wouldn’t bat an eye at that language. It happens all the time in startups. Yes the work isn’t “free” but everyone wears many hats in a startup and often works for free.
Sure, the time cost it's not free, but it's not large enough to be a meaningful barrier of entry. For me, filing basic company taxes took like a couple hours per year.
Right. It's exactly the same barrier to entry a kebab restaurant or a bike repair shop has. If that's enough to detract one from starting a company, perhaps it's for the better.
Or, as with everything these days, pay another company to deal with it. I've been seeing ad's for Pilot.com all over recently which claims to do this work for you, in exchange for a fee, naturally.
Where are the talented people in Europe? I was looking for some for 14 years when I had my startup (in the most liveable city in the world apparently), but nobody came. What I learnt is that - naturally - nearly all highly talented people go to the USA (or sometimes UK) to maximise their chances. Also, the 2 most talented/intelligent people in IT I know since they were kids live in the US permanently now. One is at Google.
Keep believing that you'll find "huge numbers of highly talented people" here, you won't - unless perhaps you mean in the arts...
Keep believing that you'll find "huge numbers of highly talented people" here, you won't - unless perhaps you mean in the arts...
>> I was looking for some for 14 years when I had my startup ... but nobody came
did anyone show up, and if they did in what aspects were they lacking? Genuinely curious.
did anyone show up, and if they did in what aspects were they lacking? Genuinely curious.
You didn't offer enough money.
They are not evenly distributed. If you mean Vienna under the city - software engineers do not tend to stay there - low salaries, no software product jobs, only basically IT departments - so you are seen as spends there.
It depends where you are looking for them. They are plenty, but don't walk on the streets wearing a big sign.
> but nobody came.
)-,;
)-,;
The problem in Sweden at least is that you need to pay this tax before you can even sell your stocks. So basically you have no money to pay the taxes with.
That's not really true for Norway.
When I received my stock options for the company I paid no taxes at all. When I exercised them I got a tax hit, but that had to be paid like six months later so there was no issue selling enough stock to pay the tax.
Another funny thing about wealth creation. Norway and Sweden has more dollar billionaires pr capita than the US [1].
[1] https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe... (sort the list by Population pr one billionaire).
When I received my stock options for the company I paid no taxes at all. When I exercised them I got a tax hit, but that had to be paid like six months later so there was no issue selling enough stock to pay the tax.
Another funny thing about wealth creation. Norway and Sweden has more dollar billionaires pr capita than the US [1].
[1] https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe... (sort the list by Population pr one billionaire).
This works if you are in a position to sell the stock to pay the tax. If the company is not publicly traded you need to find a buyer, and because you really need that money before the tax returns you might have to sell at a lower price than the one you were taxed on, if you can find one at all. This makes it harder for startup employees to exercise their stock options before an exit or the company going public, unless they already have cash at hand.
Source: Have exercised stock options in a Norwegian startup. I was lucky enough to have enough cash at hand to pay the tax.
Source: Have exercised stock options in a Norwegian startup. I was lucky enough to have enough cash at hand to pay the tax.
Same as the US. You pay tax on the valuation difference when you exercise. and AFAIK you have to exercise before you sell on any primary or secondary market.
I didn't exercise until we did the IPO, but yeah it might be a problem.
I wouldn't exercise unless I knew I could sell it of course, then I'd be in a pickle or would have had to borrow until I could sell!
I wouldn't exercise unless I knew I could sell it of course, then I'd be in a pickle or would have had to borrow until I could sell!
The topic though is not really about billionaires, which generally are the founders of the company. It's about the much larger number of multimillionaires that got their money from stock options on IPOed companies. There are far fewer of those in Europe.
But, to be honest, that's really not that much different than in the US. While you hear a lot about incentive stock options (ISOs) in the US not being taxed until you sell them, in reality most people who exercise ISOs will have to pay alternative minimum tax (AMT, a kind of parallel tax scheme to 'normal' taxes) when they exercise. When I exercised my options I had to pay more in tax than I did for the exercise price of the options themselves.
Really? Could you link me to Skatteverket where it says this? The only info I find is that you tax when you sell your stock.
I read most of this: https://www.skatteverket.se/privat/skatter/vardepapper/omakt...
I read most of this: https://www.skatteverket.se/privat/skatter/vardepapper/omakt...
I'm talking about employee stock options. Google "personaloptioner". When you exercise the options and get stocks you need to pay taxes on the difference between the strike price and the market value, even if you have no possibility to sell the stocks (if the company is private for example).
> When you exercise the options and get stocks ... even if you have no possibility to sell the stocks
Why exercise the options if you have no ability to sell them? The risk of unexercised options is totally on the employer who granted the options.
For the employee, holding the option itself is likely a lower risk strategy than exercising and holding the illiquid stock.
Why exercise the options if you have no ability to sell them? The risk of unexercised options is totally on the employer who granted the options.
For the employee, holding the option itself is likely a lower risk strategy than exercising and holding the illiquid stock.
You have an expiration date. I had to exercise or I would lose them.
Isn’t this often true in the US as well? You pay to exercise your stock options, and then pay taxes on them (since they’re income). But if your company is still private, they’re basically illiquid.
Giveaway: Using the phrase "create wealth" instead of "get rich".
and given that there are so many countries outside europe who don't tax you as much it is just easier to move there.
I have a bunch of German friends who just went to Singapore to start their business there. In the US you also get less taxed. So it is a way of saying, hey I'm healthy, priviledged, why should I fund this massive safety net. I'll come back to Europe when I'm 60 and vulnerable.
I have a bunch of German friends who just went to Singapore to start their business there. In the US you also get less taxed. So it is a way of saying, hey I'm healthy, priviledged, why should I fund this massive safety net. I'll come back to Europe when I'm 60 and vulnerable.
> I'll come back to Europe when I'm 60 and vulnerable.
Come back to what exactly? If you haven't contributed to the social safety net, you're not going to get much out of it, and by the time you're 60 chances are a lot of things could change, for better or worse.
Come back to what exactly? If you haven't contributed to the social safety net, you're not going to get much out of it, and by the time you're 60 chances are a lot of things could change, for better or worse.
Government paid healthcare is still a big expense that's covered.
His point is that if people grow up in a country with a strong safety net (and enjoy the benefits of that upbringing), then move away to start businesses or earn money away from that country to avoid paying into the cost of that safety net, there might not be so strong a safety net when they plan to return.
Which makes perfect sense; if it happens at scale, how would that safety net survive?
Right now, the few who do this are free riders on a system everyone staying behind is supporting. It's not a problem if a thousand people leave Germany to go make money outside the German tax regime and then return in their old age, their system can absorb it.
What would happen if a fifth of the population did that? It might be harder to sustain that level of social services with that loss of tax revenue, i.e. payment for those social services.
Which makes perfect sense; if it happens at scale, how would that safety net survive?
Right now, the few who do this are free riders on a system everyone staying behind is supporting. It's not a problem if a thousand people leave Germany to go make money outside the German tax regime and then return in their old age, their system can absorb it.
What would happen if a fifth of the population did that? It might be harder to sustain that level of social services with that loss of tax revenue, i.e. payment for those social services.
What do you mean by safety net? If you haven't paid into pension funds (as required for employees but not eg freelancers), then you aren't receiving anything out of it. The situation for pensioners is actually very different: many can't live on regular pension so they're going to southern EU countries, or eg Thailand for much lower cost of living compared to central EU. Also, Germany's SPD party wants to buy pensioner votes by giving long-time employees additional tax money ("Grundrente"), but not eg freelancers who actually paid these taxes - a corrupt and unconstitutional plan. Their pension story is completely bankrupt anyway; in Berlin they're putting limits on housing rents and all other kinds of unhelpful restrictions on landlords, when renting property is one of the few ways to make a living when retired due to the ECB's zero interest rate policies.
If you did not contribute to the pension funds, you get money as social care, at least in my Eastern European country (part of EU). You never have to work a day in your life, this is what a number of people are actually doing.
Are they uniquely free riders or just joining the rest in their free riding? The majority of people are not net tax contributors. There's a fascinating gender difference as well, with only men as a group being net tax contributors.
Being shackled to the mediocre majority is never fun, some feel the shackles more than others.
Being shackled to the mediocre majority is never fun, some feel the shackles more than others.
There are entire political philosophies that acknowledge this.
They don't like the safety nets.
They don't like the safety nets.
Or they don't want one. I like safety nets, they are needed for some people that cannot make a living on their own, but I don't want one for me. It's a huge difference between "like", "need" or "want".
> Come back to what exactly? If you haven't contributed to the social safety net, you're not going to get much out of it
I guess they'll have contributed to their personal wealth instead and will just come for the public services / safety offered.
I guess they'll have contributed to their personal wealth instead and will just come for the public services / safety offered.
>I guess they'll have contributed to their personal wealth instead and will just come for the public services / safety offered.
Safety? I'm quite sure Singapore is a much safer country than Germany. The US, not so much...
But if you've already moved to Singapore and you want to live in a safe country when you're older, it would make no sense to leave Singapore, unless maybe you're moving to Japan. Western Europe is of course generally safer than America (very little gun violence, after all), but Singapore is one of the safest places on the planet. Just don't walk on the grass.
Safety? I'm quite sure Singapore is a much safer country than Germany. The US, not so much...
But if you've already moved to Singapore and you want to live in a safe country when you're older, it would make no sense to leave Singapore, unless maybe you're moving to Japan. Western Europe is of course generally safer than America (very little gun violence, after all), but Singapore is one of the safest places on the planet. Just don't walk on the grass.
Yes, this is how it works, by design. You get free health care and some pension even if you stick your fingers in your ears for most of your life.
In the Netherlands at least that pension is proportional to the number of years you worked in the Netherlands, so it would be very small indeed. And health care isn't free, just insurance is mandatory and standardized.
nhs is free no matter how much you contributed. you can also get money even if you didn't contributed
The effective tax on stock options depends on the EU country: https://ec.europa.eu/docsroom/documents/2071/attachments/1/t...
tldr uk, luxembourg and belgium seem to offer the most competitive rates.
Germany is appr. 50%. Usually you have the option to cover that tax by selling half of your RSUs, Options whatever and keep the rest or by keeping 100% and pay the tax in cash. Kind of fair, especially since you can get part of that tax back with your income tax declaration.
In Australia you pay the marginal tax rate which is nearly 50%, both on acquiring the shares, and (usually) any gains between then and when you sell them.
The article is real poorly written, I can't work out what it's saying the US or EU equivalents are.
The article is real poorly written, I can't work out what it's saying the US or EU equivalents are.
And ignores the horrible treatment of employee stock options and the sketchy as F^&K dual share classes that the USA allows.
In the UK a good 5 year share save can get you as much as the average SV startup that is successful and the employees get something.
Also for startups EMI schemes are legal - I know as my employer had to get it double checked for our eu colleagues
In the UK a good 5 year share save can get you as much as the average SV startup that is successful and the employees get something.
Also for startups EMI schemes are legal - I know as my employer had to get it double checked for our eu colleagues
To me the article reads as a complaint that the legal and tax structures of employee stock and options compensation in Europe make such compensation rare.
It doesn't present numerical data on how rare it is though, I'd like to see data on this.
It doesn't present numerical data on how rare it is though, I'd like to see data on this.
You can use existing information, especially that you are on this site you should know where to look.
Even ignoring this, how many successful European startups did you hear about? How many from US? Just rough numbers, are they anywhere equal or for each European one you have dozen or more in US?
Even ignoring this, how many successful European startups did you hear about? How many from US? Just rough numbers, are they anywhere equal or for each European one you have dozen or more in US?
This is a dumb article, let me count the reasons why:
Startups do not create wealth "in the US". They create wealth in a very small number of place within the US. Is there a link within the US between startup wealth created and tax policy? Given that California has a state capital gains tax and a state income tax. I'm waiting for the startup boom to move out of California to many of the states with neither. Any day now.
SV's dominance of venture funded startups is totally sui generis. It cannot be the case that this activity is totally centred in one place within the US and simultaneously that broad comparisons between "The US" and "Europe" (which is an even broader category) can be made by SV vs "Europe" without first making those comparisons between SV and the rest of the United States.
Literally in the article: "Likewise, a handful of countries hew to the American approach on compensation; Britain, Italy, Portugal, and, interestingly enough, France, tax options as capital gains when they’re cashed in."
Ok, great. Is this why the hubs of tech startup activity are in Lisbon and Rome? They interviewed a German guy because there actually are tech startups in Berlin. If this theory is correct then there should be some kind of link apparent between capital gains tax policy and startup activity.
Startups do not create wealth "in the US". They create wealth in a very small number of place within the US. Is there a link within the US between startup wealth created and tax policy? Given that California has a state capital gains tax and a state income tax. I'm waiting for the startup boom to move out of California to many of the states with neither. Any day now.
SV's dominance of venture funded startups is totally sui generis. It cannot be the case that this activity is totally centred in one place within the US and simultaneously that broad comparisons between "The US" and "Europe" (which is an even broader category) can be made by SV vs "Europe" without first making those comparisons between SV and the rest of the United States.
Literally in the article: "Likewise, a handful of countries hew to the American approach on compensation; Britain, Italy, Portugal, and, interestingly enough, France, tax options as capital gains when they’re cashed in."
Ok, great. Is this why the hubs of tech startup activity are in Lisbon and Rome? They interviewed a German guy because there actually are tech startups in Berlin. If this theory is correct then there should be some kind of link apparent between capital gains tax policy and startup activity.
The problems startups in Europe face are not really startup problems, but service sector problems. The single market is well integrated when it comes to goods, but not at all integrated when it comes to services. Any company offering services in multiple EU countries will have to deal with a maze of regulation. This makes it hard to scale. Software companies rely on scale to achieve profitability, so EU software companies have it tough.
There are additional problems with capital markets, but this is partly also a consequence of differing national legislation. Europe has astoundingly many stock markets. Most brokers won't even give you access to half. EU capital markets would be much more robust if the EU only had two (significant ones), like the US.
In a survey that The Economist looked at, EU companies aren't really very worried about language or culture. It's all the different national regulations that are the problem.
There are additional problems with capital markets, but this is partly also a consequence of differing national legislation. Europe has astoundingly many stock markets. Most brokers won't even give you access to half. EU capital markets would be much more robust if the EU only had two (significant ones), like the US.
In a survey that The Economist looked at, EU companies aren't really very worried about language or culture. It's all the different national regulations that are the problem.
Where can I find this survey by The Economist?
There are startups in Europe, but the founders are mostly older people on their second run instead of young people
getting an opportunity.
There are EU subsidies for established corporations to extend their business, while younger people have a hard time to get capital. You can easily start a small food shop if you can manage initial investments, but don't expect to get into many industries.
There are not many niches left and the population isn't one that can easily be filled with enthusiasm, especially related to tech.
I think we would need to loose some established corps to create space where new ideas can flourish. At least that is how it feels in Europe. America is probably more attractive for people to start a business.
Additional to that you have a lot of costs, especially if you are in need of employees.
Edit: I don't even think the sole focus on startups is healthy for an economy. It is desperately needed in Europe, since traditional industry will be subjected to a lot of changes in the future, but very few people profit from these. They are often just a vehicle for larger corps to just buy innovation.
There are EU subsidies for established corporations to extend their business, while younger people have a hard time to get capital. You can easily start a small food shop if you can manage initial investments, but don't expect to get into many industries.
There are not many niches left and the population isn't one that can easily be filled with enthusiasm, especially related to tech.
I think we would need to loose some established corps to create space where new ideas can flourish. At least that is how it feels in Europe. America is probably more attractive for people to start a business.
Additional to that you have a lot of costs, especially if you are in need of employees.
Edit: I don't even think the sole focus on startups is healthy for an economy. It is desperately needed in Europe, since traditional industry will be subjected to a lot of changes in the future, but very few people profit from these. They are often just a vehicle for larger corps to just buy innovation.
Depends on how much capital you need. From personal experience you can forget traditional bank loans unless you are already rich and VCs seem to be mostly following the latest SV ideas on top of being rather risk averse. What seems to work so (I currently going through that process albeit at a very early stage) is to get bank loans backed by the German KfW covering everything from 100k to almost 25M for more established companies. That seems to be the most feasible avenue for me right now. You still need some own capital so, roughly 10-15%. Still should cover most early stage capital needs. Also interest rates are backed by the state an thus pretty low.
The KfW, Kreditanstalt fuer Wiederaufbau or Bank for Reconstruction (very rough translation) is where Germany put the remaining funds from The Marshall Plan in. Kind of smart in retrospect.
The KfW, Kreditanstalt fuer Wiederaufbau or Bank for Reconstruction (very rough translation) is where Germany put the remaining funds from The Marshall Plan in. Kind of smart in retrospect.
There are startups in Europe, but the founders are mostly older people on their second run instead of young people getting an opportunity.
Is that not also true in the US?
https://hbr.org/2018/07/research-the-average-age-of-a-succes...
Is that not also true in the US?
https://hbr.org/2018/07/research-the-average-age-of-a-succes...
> There are startups in Europe, but the founders are mostly older people on their second run instead of young people getting an opportunity.
Not trying to come off as nit-picky here, but source on that?
Not trying to come off as nit-picky here, but source on that?
It is wrong from my experience (at least in France). A bit of truth: companies funded by older people succeed (ie. don't die after 2 years) more frequently, but that's about it.
I'm not sure how one generates wealth by just pumping reserve bank cash through startup founds into very localized communities inflating prices. If you have a job, a home, food and can put aside a little cash after all expenses necessary for a comfortable living, I'm not sure how you get any wealthier by having the cash to wreak havoc with the local housing economy.
One of the main barriers for early-on ramen-stage startups in many EU countries are compulsory "social, pension and health" insurance and minimal pay rules. Thankfully the health part is not a big component - usually around $100 per person per month if you pay yourself the minimum salary required by the law, but for example in Poland the minimum for other "insurances" is between $150 and $500 depending on if your startup qualifies for various discounts. You have to pay that per owner or employee regardless if you make any money or not.
I've been through a startup in the UK, 1997-2000.
I was 33-36; my boss was 30-33; the CEO turned 40. At time of IPO the average age was going down, but was still close to 30.
It wouldn't have been practical without the NHS; free healthcare enables older, more experienced people with families (and pre-existing health conditions) to take risks.
Non-health insurance is often about third-party cover—in other words, ensuring that if you accidentally injure someone else (e.g. your office catches fire, everyone in the building is rendered homeless), they aren't out of pocket. I see absolutely no reason why your desire to get rich quick should trump other folks' health and safety.
I was 33-36; my boss was 30-33; the CEO turned 40. At time of IPO the average age was going down, but was still close to 30.
It wouldn't have been practical without the NHS; free healthcare enables older, more experienced people with families (and pre-existing health conditions) to take risks.
Non-health insurance is often about third-party cover—in other words, ensuring that if you accidentally injure someone else (e.g. your office catches fire, everyone in the building is rendered homeless), they aren't out of pocket. I see absolutely no reason why your desire to get rich quick should trump other folks' health and safety.
UK is very different in this regard. This is why many EU companies actually register in UK. You have no compulsory NI nor NHS payments. If you want you can pay yourself a salary of 1GBP per month if you're a director.
Contrast that with Poland (and many other EU countries) where no matter if your company makes money or not you owe the tax man between $300-600 per founder or employee.
Contrast that with Poland (and many other EU countries) where no matter if your company makes money or not you owe the tax man between $300-600 per founder or employee.
I don't know where you get the idea there's no compulsory NI in the UK ...! The NHS is paid for out of income tax; unless you're wealthy going in, you're going to be paying yourself and your employees sooner or later.
Technically there aren't any compulsory NI contributions below a minimum threshold (~£8k per year). Obviously you're going to hit that if you're paying employees, but for companies with multiple directors/founders - they can pay themselves minimum salary + take dividends (which don't require NI contributions to be paid).
Above that threshold means you pay an extra ~13% in employer NI contributions on top of the gross salary of your employees.
Above that threshold means you pay an extra ~13% in employer NI contributions on top of the gross salary of your employees.
> early-on ramen-stage startups
assuming you do your homework, file for help programs etc., $250 a month would be high, and event then doesn't seem like such a high hurdle.
If you are that tight, shouldn't you take more time to build enough money before starting your business ? The actual "let's eat ramen for 2 years" mentality is usually unhealthy and you can't expect a gov. to encourage it.
On other angles, cutting these costs to 0 would also create so many loopholes for other businesses that should otherwise pay full price.
assuming you do your homework, file for help programs etc., $250 a month would be high, and event then doesn't seem like such a high hurdle.
If you are that tight, shouldn't you take more time to build enough money before starting your business ? The actual "let's eat ramen for 2 years" mentality is usually unhealthy and you can't expect a gov. to encourage it.
On other angles, cutting these costs to 0 would also create so many loopholes for other businesses that should otherwise pay full price.
>If you are that tight, shouldn't you take more time to build enough money before starting your business ? The actual "let's eat ramen for 2 years" mentality is usually unhealthy and you can't expect a gov. to encourage it.
In general I'm inclined to agree, but contrast this with my experience almost 20 years ago. I was 18, I was doing some ad-hoc programming jobs for few local businesses that earned me some money occasionally. I made a mistake of deciding to register my starting up business as required by the law back then. I immediately had about $340 per month to pay for myself (that was a bit more than $340 is now). I budgeted for this and I had the money for about a year set aside. After two months of making around $500-$600 the majority of which I was loosing to pay for various insurances I decided to move to UK. There if I registered my business as a sole trader I would pay £2.5 per week, or nothing if I registered a limited company. Almost 20 years later I live in Poland but my company is still registered in UK. Income and corporate taxes are actually lower in Poland now (17% in PL vs 20% in UK for personal income tax on company dividends and 9% in PL vs 20% in UK on company profit), but I prefer to deal with the UK tax man where if I make a mistake or I need advice I'm treated like a customer, not a potential tax evader and criminal. This however, is another matter altogether, but it would definitely affect my decision whether to start my startup in PL. Also, I heard some localities are better than others in this regard.
>On other angles, cutting these costs to 0 would also create so many loopholes for other businesses that should otherwise pay full price.
That is the eternal excuse for compulsory payments. "What if employers force their employees to become self-employed and they force them to pay nothing for their pensions?" is the usual argument for minimum contribution legislation. My answer is, if the tax man does its job properly this is a non issue. In UK there is a piece of legislation called IR35, basically it allows the tax man to detect such arrangements where a de-facto employment is hidden behind false self-employment and apply employment taxes backdated to both parties for years. It works pretty well from my perspective.
In general I'm inclined to agree, but contrast this with my experience almost 20 years ago. I was 18, I was doing some ad-hoc programming jobs for few local businesses that earned me some money occasionally. I made a mistake of deciding to register my starting up business as required by the law back then. I immediately had about $340 per month to pay for myself (that was a bit more than $340 is now). I budgeted for this and I had the money for about a year set aside. After two months of making around $500-$600 the majority of which I was loosing to pay for various insurances I decided to move to UK. There if I registered my business as a sole trader I would pay £2.5 per week, or nothing if I registered a limited company. Almost 20 years later I live in Poland but my company is still registered in UK. Income and corporate taxes are actually lower in Poland now (17% in PL vs 20% in UK for personal income tax on company dividends and 9% in PL vs 20% in UK on company profit), but I prefer to deal with the UK tax man where if I make a mistake or I need advice I'm treated like a customer, not a potential tax evader and criminal. This however, is another matter altogether, but it would definitely affect my decision whether to start my startup in PL. Also, I heard some localities are better than others in this regard.
>On other angles, cutting these costs to 0 would also create so many loopholes for other businesses that should otherwise pay full price.
That is the eternal excuse for compulsory payments. "What if employers force their employees to become self-employed and they force them to pay nothing for their pensions?" is the usual argument for minimum contribution legislation. My answer is, if the tax man does its job properly this is a non issue. In UK there is a piece of legislation called IR35, basically it allows the tax man to detect such arrangements where a de-facto employment is hidden behind false self-employment and apply employment taxes backdated to both parties for years. It works pretty well from my perspective.
In the US you're just paying higher salary instead. You really should be taking into account not an employee's salary, but total cost (some call it "gross gross salary") - gross salary + all other taxes (payroll, health & social insurance, etc.). Then you figure out that "cheap" EU countries aren't that much cheaper...
We compute and call it as "total cost to company" or TCC.
>We compute and call it as "total cost to company" or TCC.
Quick rule of the thumb here (Italy) is that the TCC is typically:
1) for executives/managers 1.5-1.9 of the actual net wage[1]
2) for employees 1.9-2.5
3) for workers (let's call them "blue collars") 2.5-3.0
The difference in the factor depends on the specific industry/sector, and is mostly related to insurance and continuity of employment.
[1) by net wage I mean what the actual employee brings home, already net of income taxes
Quick rule of the thumb here (Italy) is that the TCC is typically:
1) for executives/managers 1.5-1.9 of the actual net wage[1]
2) for employees 1.9-2.5
3) for workers (let's call them "blue collars") 2.5-3.0
The difference in the factor depends on the specific industry/sector, and is mostly related to insurance and continuity of employment.
[1) by net wage I mean what the actual employee brings home, already net of income taxes
But minimum wage is just 9 Euros or something. Even student software developers get more. So this cannot possibly be a serious limit. Likewise, insurances etc. are 0.15% of the salary. Hardly an issue. And because the employees need to pay less themselves the salary can be lower. And in Europe it‘s lower anyway.
There ate different reasons, like risk taking, culture and the availability of venture capital.
There ate different reasons, like risk taking, culture and the availability of venture capital.
> Likewise, insurances etc. are 0.15% of the salary.
If I pay someone €5000/month, I only have to pay an additional €7.50 in insurances? I agree that would not be an issue, but that doesn't sound right.
If I pay someone €5000/month, I only have to pay an additional €7.50 in insurances? I agree that would not be an issue, but that doesn't sound right.
Checking my payslip, health insurance is 10% of gross and pension is 25%. If you want to pay someone €5000/month you spend about €10,000/month in my country (there is also a 10% income tax and other smaller taxes).
Sure, if you‘re looking at the net salary. But most countries have significant income tax, including most states in the US.
I meant 15%. Sorry about that.
That sounds much less onerous than paying for your employees' healthcare in the United States.
In Spain it is essentially 30% of the salary (for standard salaries). Say the minimum is at least like 300€ (and you are not going to start a startup with 1000€ salaries.
Edit: that is: you have to pay the salary and, apart, 30% of that amount to the soc sec.
Edit: that is: you have to pay the salary and, apart, 30% of that amount to the soc sec.
However in Spain you get an engineer for half the before-taxes salary compared to the US. Even if you add 30% it's still a lot cheaper.
Cost isn't the reason.
Cost isn't the reason.
Depending on where in the US, even half is pushing it in most of Europe. For juniors, probably 20% of the cost of the US is more reasonable - especially in the 'startup land' of the Bay Area for example.
True, but when you're just starting out and you and your co-founders are the only employees you have a choice not to pay anything extra in US.
I don't envy US healthcare arrangement. The healthcare insurance is the only one of those compulsory taxes I don't mind here.
I don't envy US healthcare arrangement. The healthcare insurance is the only one of those compulsory taxes I don't mind here.
The difference is paid in taxes.
Sure, but have you seen US health insurance prices?
Edit: I don't know why this was downvoted, it's relevant to the claim of whether it's cheaper to setup startups in the US or Poland.
Edit: I don't know why this was downvoted, it's relevant to the claim of whether it's cheaper to setup startups in the US or Poland.
When my company asked me to move to the US headquarter I made some calculations: I am paying more in EU than in US for a smaller salary in EU before tax. This is with the company plan in US and standard rates in my country.
While I agree that salaries can be a pain, especially all the compulsory stuff like health care, social security and so on, for the employer a company that is unable to generate enough revenue or attract enough capital (loans, investment whatever) sounds more like a hobby to me than a viable enterprise. Sooner or later you will have to pay all that anyway, so better get used to it rigzjt of the bat.
Many successful businesses started up as a hobby. The issue with all the compulsory stuff is that you either do your hobby on the "black market" or you have to risk subsidising it.
At least these days some sort of sanity starts to be restored in Poland. New businesses can pay 50% of the minimum rate for first 2 years (if the founder didn't have any other business in last 5 years). And shockingly! there is even talk of possibly allowing people under 30 years of age to make their own decision whether they pay for the pension insurance or not. (Please bear in mind that the money paid for the pension insurance has little relevance to how much you'll actually receive in pension later.)
There is also another thing called non-registered business. Basically anyone can run a non-registered business if the income doesn't exceed approximately $300 per month. Profit is taxed as any other earnings on a personal annual tax return. It is in my opinion a really good thing that allows many hobby-stage businesses to avoid any paperwork whatsoever and still not feel like they operate illegally. Of course good luck trying to find any serious company that will use such a non-registered business as a subcontractor, but if you're in very early stages of starting up it is a very useful construct.
At least these days some sort of sanity starts to be restored in Poland. New businesses can pay 50% of the minimum rate for first 2 years (if the founder didn't have any other business in last 5 years). And shockingly! there is even talk of possibly allowing people under 30 years of age to make their own decision whether they pay for the pension insurance or not. (Please bear in mind that the money paid for the pension insurance has little relevance to how much you'll actually receive in pension later.)
There is also another thing called non-registered business. Basically anyone can run a non-registered business if the income doesn't exceed approximately $300 per month. Profit is taxed as any other earnings on a personal annual tax return. It is in my opinion a really good thing that allows many hobby-stage businesses to avoid any paperwork whatsoever and still not feel like they operate illegally. Of course good luck trying to find any serious company that will use such a non-registered business as a subcontractor, but if you're in very early stages of starting up it is a very useful construct.
No Nordic countries have any minimum wage or requirements like that. What countries are you talking about besides Poland?
Sweden does, if you're a non-EU citizen at least and love to deport tech workers.
You can be deported for having been paid too little, if your company didn't contribute enough pension or if you didn't take enough holidays.
https://sifted.eu/articles/tech-deportation-in-sweden/
You can be deported for having been paid too little, if your company didn't contribute enough pension or if you didn't take enough holidays.
https://sifted.eu/articles/tech-deportation-in-sweden/
That's true and completely messed up. For Swedish citizens however that works for companies without collective agreements it's anarchy (no minimum wage and no insurance requirements outside the social security contribution).
France has minimum wage like this, in addition to taxes, some paid by the employer, per employee, some paid by the employee (even before income tax)
All the Central and Eastern Europe countries, EU or not.
suspect that stock options is mostly about paying people less, rather than distributing wealth like the article seems to push, the fact that you earn less means less taxes, so stock options, playing the devils advocate, means in most cases less for everyone except those few founders that make it big.....
Stock options are a vestige if the first dot-com boom. Candidates saw the likes of Netscape and other contemporaries and wanted a piece of that. Companies obliged. It cost them little, allowed them to dangle vapor money as enticement and most everyone likes it.
Eh, stock options have been around since Microsoft IPOed in the 80s.
You’re right, but I think the dot-com boom bore many IPOs in a relatively short time making many Joe and Jill Blow employees financially secure thus creating a mythos around it and consequently became the in-thing for employers and employees.
Startups don't create wealth, they concentrate it. Cooperatives are a much better wealth producing arrangement but they don't make a few people very rich.
Any successful (profitable) business creates wealth, by definition.
(Technicality: as long as costs aren't being externalized e.g. as environmental pollution, fraud, etc.)
Whether a company is a cooperative or not has zero to do with how much wealth is being produced, only with how it's distributed.
Don't conflate production with distribution -- they're different things and have very little to do with each other.
Wealth production depends on product-market fit, ensuring costs are less than revenue, and business model.
Wealth distribution has nothing to do with that whatsoever -- it's simply the mechanism for profit sharing.
(Technicality: as long as costs aren't being externalized e.g. as environmental pollution, fraud, etc.)
Whether a company is a cooperative or not has zero to do with how much wealth is being produced, only with how it's distributed.
Don't conflate production with distribution -- they're different things and have very little to do with each other.
Wealth production depends on product-market fit, ensuring costs are less than revenue, and business model.
Wealth distribution has nothing to do with that whatsoever -- it's simply the mechanism for profit sharing.
I rather pointedly refuse to call the accumulation of capital in the hands of a small group of people "wealth". The fact that we use that notion of wealth as an index of how our societies are doing is part of the problem we have at the moment.
If you want to get technical, I'd suggest we scale the notion of wealth by the marginal utility of the additional capital given to an individual. Wealth is giving a person living paycheck to paycheck enough money to have leisure spend time with their kids.
Giving a billionaire another million dollars isn't wealth. They don't give a fuck about it except in the most abstract, brain-sick, anti-social sort of way.
If you want to get technical, I'd suggest we scale the notion of wealth by the marginal utility of the additional capital given to an individual. Wealth is giving a person living paycheck to paycheck enough money to have leisure spend time with their kids.
Giving a billionaire another million dollars isn't wealth. They don't give a fuck about it except in the most abstract, brain-sick, anti-social sort of way.
If you "rather pointedly refuse" to use words according to their dictionary definitions, then you're going to have a hard time having productive conversations.
Wealth means money or equivalent value (goods, conveniences, etc).
Marginal utility means marginal utility.
They're both tremendously useful concepts, but trying to confuse the two means nobody will understand what you're talking about.
Wealth means money or equivalent value (goods, conveniences, etc).
Marginal utility means marginal utility.
They're both tremendously useful concepts, but trying to confuse the two means nobody will understand what you're talking about.
Wealth isn't identical with money, or with capital accumulation. If you create an app that lets 1000 people do something they couldn't do before (or that lets 1000 people do with ease something they could only do with difficulty before), then you have created wealth for those 1000 people.
I don't disagree with this, of course. Some startups do create some valuable services for people. But society would be better off if those services were owned by the people using them and the surplus value was going to more people rather than a few investors.
Why would the users of the service be the appropriate people to benefit from its creation, instead of the creators?
Ideally they would be one and the same, but the short answers is because more even distribution of money and power in a society is a good in itself (from my point of view). And because large amounts of wealth in the hands of small individuals is useless and even bad.
I have created and supported products I have no ability to use because I'm not a large enterprise, and I don't think I'm particularly unique. Because of that, I disagree that producers and users of a product would ideally be one in the same. If organizations are required to perform all development and support in-house, specialization will be difficult if not impossible, and innovation and improvement will slow significantly.
Wealth and power distributions are relative, and if you're saying that moving towards a more even distribution from where we are now would be a good thing, I agree. However, I don't think a perfectly even distribution is desirable or even possible.
Also, large amounts of wealth in the hands of a small number of individuals is far from useless (it's not buried underground or stored in a vault), and whether it's bad or not depends on the context.
Wealth and power distributions are relative, and if you're saying that moving towards a more even distribution from where we are now would be a good thing, I agree. However, I don't think a perfectly even distribution is desirable or even possible.
Also, large amounts of wealth in the hands of a small number of individuals is far from useless (it's not buried underground or stored in a vault), and whether it's bad or not depends on the context.
I think the social utility of wealth, for the owner, is an under-discussed concept; capitalists have convinced society that it’s impossible to even discuss it, it’s a natural law that all accumulated wealth belongs to its holder.
I, like you I suspect, disagree with that framing.
Nevertheless, I think trying to redefine wealth (which has a pretty clear economic meaning, regardless of your beliefs about appropriate distribution) isn’t really a good conversational gambit.
The accumulation of wealth can be destructive, no doubt. But defining away liquid societal resources with broad based utility, because they happen to be too expensive for the general populous, doesn’t strike me as a way to convince people of the merits of a different distribution.
I, like you I suspect, disagree with that framing.
Nevertheless, I think trying to redefine wealth (which has a pretty clear economic meaning, regardless of your beliefs about appropriate distribution) isn’t really a good conversational gambit.
The accumulation of wealth can be destructive, no doubt. But defining away liquid societal resources with broad based utility, because they happen to be too expensive for the general populous, doesn’t strike me as a way to convince people of the merits of a different distribution.
Sure. But many of the biggest and most talked-about "startups" have never made a profit, or at least never returned more money to the investors than was originally invested.
Let alone paid their fair share of taxes.
That's despite the fact that some of them are phenomenally successful.
That's despite the fact that some of them are phenomenally successful.
> Cooperatives are a much better wealth producing arrangement
Why is that?
> but they don't make a few people very rich.
I don't think I understand what this means either.
Care to explain your comment? Genuinely curious.
Why is that?
> but they don't make a few people very rich.
I don't think I understand what this means either.
Care to explain your comment? Genuinely curious.
With Coops, the company is owned collectively by the workers, as opposed to overwhelmingly by the founders and investors, which results in automatic profit-sharing and distributing success relatively equally amongst the people who created it. This is contrary to a traditional startup where the top few people get obscene amounts of money, and the lower level employees get little, if any, apart from their salary.
Co-op arrangements are only feasible for low-capital-intensity enterprises - of the sort that's sometimes ridiculed as a "lifestyle business". The moment your startup takes any external equity funding, you've basically gone beyond the "stuff that's feasible in a co-op" territory. Yes, you could self-fund organically, and maybe being a co-op opens up some more opportunities there, but it's still quite hard. No one takes external funding because they like giving up control.
Co-ops can theoretically access capital through debt, which does not require trading equity for cash. This is how republican governments like the U.S. (which are cooperative enterprises) finance capital-intensive projects, for example.
That said, debt financing is typically harder and scarier than equity for start-ups.
That said, debt financing is typically harder and scarier than equity for start-ups.
A cool idea would be to increase taxes on the very wealthy and on non-cooperatively owned businesses and use that largess to fund and tax-incentivize cooperatively owned businesses.
Increasing taxes on the very wealthy would make the problem worse, by making people a lot less willing to invest for long-term projects of all sorts. "The very wealthy" are doing that pretty much by definition - "wealth" is just money that's being kept around as an asset and invested for a return, instead of being spent for final consumption.
Mondragon is, in my understanding, in some pretty capital intensive businesses.
That said they’re a huge outlier as far as I know. But it can be done.
That said they’re a huge outlier as far as I know. But it can be done.
From https://www.mondragon-corporation.com/en/about-us/governance...
As a co-operative enterprise, in organisational terms MONDRAGON is divided into four areas: Finance, Industry, Retail and Knowledge, which operate independently within the framework of an overall strategy, all in line with the strategic policies established at the Co-operative Congress.
As far as the different areas are concerned, Finance includes banking, social welfare and insurance activities. Industry is grouped into twelve industrial divisions engaged in the production of goods and services. Retail brings together the retail and food and agriculture co-operatives and businesses. And the Knowledge area includes the network of MONDRAGON technology centres and R&D units, our university, Mondragon Unibertsitatea, as well as a number of vocational training and education centres.
Co-operative bodies
General Assembly. this is the supreme body in the co-operative and is the vehicle for expressing the social will of all members.
Governing Council. the representative and governing body of the co-operative. Members are elected at the General Assembly.
Social Council. a consultative body, which represents members as a whole internally within the co-operative. Monitoring Commission. a consultative body whose purpose is to pass judgement on correct compliance with accounting principles and any other areas which require consideration.
Management Council. this is the managerial and executive team that comprises the manager and managerial members, and is responsible for the executive management of the co-operative.
MONDRAGON bodies
Co-operative Congress: its function is to establish the strategic criteria by which MONDRAGON is to be administered via the planning and co-ordination of its business units. It is made up of 650 members who are delegated by the co-operatives, and it meets on an annual basis.
Divisions: these are associations set up within the framework of MONDRAGON between co-operatives operating in the same area, which coordinate the management of their co-operatives.
Standing Committee: governed by delegation from the Co-operative Congress. Its basic function is to promote and control the implementing of policies and decisions adopted by the Congress, by monitoring the evolution of MONDRAGON on a permanent basis.
General Council: it is responsible for drawing up and applying corporate strategies and objectives. It coordinates the policies pursued by the different Divisions and Co-operatives.
Industrial Council: it is the co-ordinating body for the Industry area’s Divisions.
As a co-operative enterprise, in organisational terms MONDRAGON is divided into four areas: Finance, Industry, Retail and Knowledge, which operate independently within the framework of an overall strategy, all in line with the strategic policies established at the Co-operative Congress.
As far as the different areas are concerned, Finance includes banking, social welfare and insurance activities. Industry is grouped into twelve industrial divisions engaged in the production of goods and services. Retail brings together the retail and food and agriculture co-operatives and businesses. And the Knowledge area includes the network of MONDRAGON technology centres and R&D units, our university, Mondragon Unibertsitatea, as well as a number of vocational training and education centres.
Co-operative bodies
General Assembly. this is the supreme body in the co-operative and is the vehicle for expressing the social will of all members.
Governing Council. the representative and governing body of the co-operative. Members are elected at the General Assembly.
Social Council. a consultative body, which represents members as a whole internally within the co-operative. Monitoring Commission. a consultative body whose purpose is to pass judgement on correct compliance with accounting principles and any other areas which require consideration.
Management Council. this is the managerial and executive team that comprises the manager and managerial members, and is responsible for the executive management of the co-operative.
MONDRAGON bodies
Co-operative Congress: its function is to establish the strategic criteria by which MONDRAGON is to be administered via the planning and co-ordination of its business units. It is made up of 650 members who are delegated by the co-operatives, and it meets on an annual basis.
Divisions: these are associations set up within the framework of MONDRAGON between co-operatives operating in the same area, which coordinate the management of their co-operatives.
Standing Committee: governed by delegation from the Co-operative Congress. Its basic function is to promote and control the implementing of policies and decisions adopted by the Congress, by monitoring the evolution of MONDRAGON on a permanent basis.
General Council: it is responsible for drawing up and applying corporate strategies and objectives. It coordinates the policies pursued by the different Divisions and Co-operatives.
Industrial Council: it is the co-ordinating body for the Industry area’s Divisions.
Others have adequately given the short form. Check out this book: https://nathanschneider.info/books/everything-for-everyone/
They can concentrate it inside of your country.
The crux of startups is taking a risk for a potential reward. The risk is in lost career advancement and the reward is partial ownership of a business that's worth something. The hard part is in balancing those to avoid exploitation of workers or discouragement from taking the risk.
The crux of startups is taking a risk for a potential reward. The risk is in lost career advancement and the reward is partial ownership of a business that's worth something. The hard part is in balancing those to avoid exploitation of workers or discouragement from taking the risk.
I am a huge fan of worker co-ops, but I think you’re confusing creating wealth and distributing wealth.
Co-ops do an excellent job of distributing wealth, and in the case of a few such as Mondragon, they’ve been able to create wealth, also.
Startups can, in the economic jargon, create wealth, if they create a product whose benefit to society is greater than its costs (including externalized costs and subsidies). But they don’t necessarily distribute much of that created wealth, it all depends on how the capitalist relationship with labor and consumption are structured in that environment.
Co-ops do an excellent job of distributing wealth, and in the case of a few such as Mondragon, they’ve been able to create wealth, also.
Startups can, in the economic jargon, create wealth, if they create a product whose benefit to society is greater than its costs (including externalized costs and subsidies). But they don’t necessarily distribute much of that created wealth, it all depends on how the capitalist relationship with labor and consumption are structured in that environment.
I don't consider funneling money to people for whom its marginal value is small as creating wealth. If it doesn't change your life to get it, its not wealth.
False. Wealth creation is not zero sum.
Speak for your self at one point the worker coop I was a member of made all of us dollar millionaires on paper - unfortunately we didn't get taken over by a bigger coop.
> Startups don't create wealth, they concentrate it.
What a strange and incorrect assertion. Please walk us through your mental though process so we can re-educate you.
What a strange and incorrect assertion. Please walk us through your mental though process so we can re-educate you.
I understand parent's point of view. Look at the top 9 richest people in the world who combined have equal wealth to the poorest 4 billion people. You will find on that list (Bezos, Bill Gates and Zuckerberg) and one could say their companies were a startup at some point.
There's no doubt startups create wealth but I'd argue it also creates inequality. When the EU wants to tax bonuses I believe they're efficiently fighting inequality.
This small article is an example of what I'm trying to explain. "Uber co-founder buys record-breaking LA mansion for $72.5m as drivers fight for wages" https://www.theguardian.com/us-news/2019/jul/02/los-angeles-...
There's no doubt startups create wealth but I'd argue it also creates inequality. When the EU wants to tax bonuses I believe they're efficiently fighting inequality.
This small article is an example of what I'm trying to explain. "Uber co-founder buys record-breaking LA mansion for $72.5m as drivers fight for wages" https://www.theguardian.com/us-news/2019/jul/02/los-angeles-...
Grand-parent made the absurd assertion that startups do not create wealth. Presumably they would prefer to live in a dark world without airplanes [Wright brothers], and the light bulbs [Edison], as these inventions and subsequent industries did not create "wealth".
Wealth redistribution programs have their place in economic policy. Growing wealth inequality in the USA is real problem to social and political stability. [Disclaimer: I am not American] Furthermore, the US government has failed to support citizens rendered chronically unemployable through automation and globalization [e.g. especially middle-aged former auto workers].
However, I will challenge the widely held belief that wealth inequality is undesirable. Effective allocation of capital [including human capital, e.g. gainful employment] is not a given. It's not a given nor immediately obvious how to allocate 1,000,000 highly experienced software engineers into economically productive endeavors. Some individuals have proven excellence at allocating capital [Gates, Bezos, Buffet, Ma], so it makes sense that those people should have access to greater amounts of capital to efficiently allocate said capital.
And for the most part, the wealth of Gates, Bezos, Buffet, and Ma is tied up into economically productive activities.
When the EU taxes bonuses, in SOME instances the EU constricts SOME proven entrepreneurs [allocators of capital] from allocating greater amounts of capital into economically productive activities. Note: I'm in no way asserting that the EU should not tax bonuses, however there is a trade-off and the EU must be careful to both understand the trade-off and careful not to overly tax the wrong people [specifically highly industrious people with a knack for entrepreneurship].
Wealth redistribution programs have their place in economic policy. Growing wealth inequality in the USA is real problem to social and political stability. [Disclaimer: I am not American] Furthermore, the US government has failed to support citizens rendered chronically unemployable through automation and globalization [e.g. especially middle-aged former auto workers].
However, I will challenge the widely held belief that wealth inequality is undesirable. Effective allocation of capital [including human capital, e.g. gainful employment] is not a given. It's not a given nor immediately obvious how to allocate 1,000,000 highly experienced software engineers into economically productive endeavors. Some individuals have proven excellence at allocating capital [Gates, Bezos, Buffet, Ma], so it makes sense that those people should have access to greater amounts of capital to efficiently allocate said capital.
And for the most part, the wealth of Gates, Bezos, Buffet, and Ma is tied up into economically productive activities.
When the EU taxes bonuses, in SOME instances the EU constricts SOME proven entrepreneurs [allocators of capital] from allocating greater amounts of capital into economically productive activities. Note: I'm in no way asserting that the EU should not tax bonuses, however there is a trade-off and the EU must be careful to both understand the trade-off and careful not to overly tax the wrong people [specifically highly industrious people with a knack for entrepreneurship].
EU doesn’t have FAANG who hoover up startups. Not nearly as many ”Our great journey”-posts get made.
The EU has traditional MNCs like Bouygues, Orange, or SFR who identify these startups as threats and neutralize them through legislation or acquisition.
The broadband competition in most of Europe seems much, much healthier than in basically all of the US.
Speed is higher, prices are significantly cheaper and in a lot of countries fiber to home is widely available.
Those traditional carriers (which I note are all French and you forgot to mention Free, which pretty much kicked their collective asses) don't seem to do much to thottle that. Do they?
Speed is higher, prices are significantly cheaper and in a lot of countries fiber to home is widely available.
Those traditional carriers (which I note are all French and you forgot to mention Free, which pretty much kicked their collective asses) don't seem to do much to thottle that. Do they?
The United States is a winner take all economy, especially when it comes to startups. It's easy to see the big success while ignoring the large cemetery of failed ones. I can bet that more startups that tried to spur innovation by providing stock options to their employees have failed then succeeded even in the US where the tax laws are comparatively better.
The main problem seems to be that startup employees are being asked to pay taxes simply to exercise their options, even though the stock they now own is extremely illiquid. This problem exists here in America too. The best solution in both countries would be for employees to be taxed only for cash income/dividends, or when there is a liquidity event such as IPO or acquisition.
I highly recommend doing away with the lower capital-gains tax entirely and treating investment income the same as labor income. However, it seems ridiculous to ask someone to pay taxes when they literally don't have the money to do so.
I highly recommend doing away with the lower capital-gains tax entirely and treating investment income the same as labor income. However, it seems ridiculous to ask someone to pay taxes when they literally don't have the money to do so.
This has always bothered me. I don't like incurring a tax penalty that has to be paid in cash, when I don't have any more cash to pay it or a way to turn the asset into cash!
Sidenote: how do you actually determine the spread for tax purposes when you can't sell the stock/it doesn't have a current price?
Sidenote: how do you actually determine the spread for tax purposes when you can't sell the stock/it doesn't have a current price?
How does it make sense to treat investment income the same as labor income? I've already been taxed on the investment amount, and I get no rebate if I lose my investments.
You've already been taxed on the investment principal. Not the returns that you're getting on the investment. By your logic, the capital-gains-tax should be eliminated entirely because its double taxation, which is a ridiculous idea.
Why is that ridiculous? Investment is a good thing -- it should be encouraged.
Is labor not a good thing that should be encouraged?
Yes, but if you think getting rid of capital gains would be ridiculous, you're probably not interested in reducing income taxes.
We're conflating different things here. The point we're discussing is that investment-income should be treated the same as labor-income. From your last comment, you presumably agree that labor is also a good thing that should be encouraged, so I don't see why investment-income should be taxed so much lower than labor-income.
Risk.
I would also add that things are just well, easier in the States, at least compared to Germany / Switzerland. The amount of paperwork alone makes it a non-starter for most.
I considered offshoring my business to the US and the bureaucracy involved would be horrific.
For comparison, you can set up a business in the UK with a couple of clicks. Beyond that it's a matter of filing a tax return once a year and payroll returns monthly - or annually if you qualify for an exception.
For comparison, you can set up a business in the UK with a couple of clicks. Beyond that it's a matter of filing a tax return once a year and payroll returns monthly - or annually if you qualify for an exception.
I created a Delaware LLC in a few minutes, online, from the deck of a boat in the Med. except for filing taxes there was nothing complicated about it.
I recently moved to France, even relatively simple things such as renting an apartment require ridiculous amounts of paperwork compared to the UK. I can't imagine starting a business here.
It may be more than what you have to provide abroad (but I would disagree on a few cases, for instance Japan where you need exceptional guarantors like your company, as well as pay a few months of rent that will never be refunded - known as "key money"), but there is a reason for that.
As a landlord in France, I can assure you that renters have extreme protections here. They can avoid paying rent for months on end without being evicted. That's why we have to ask for so many documents, to try to reduce as much as possible the risk for us.
Furthermore, the documents a landlord can ask a potential renter is limited by law, so there shouldn't be any abuse with that.
As a landlord in France, I can assure you that renters have extreme protections here. They can avoid paying rent for months on end without being evicted. That's why we have to ask for so many documents, to try to reduce as much as possible the risk for us.
Furthermore, the documents a landlord can ask a potential renter is limited by law, so there shouldn't be any abuse with that.
I just started renting flat in France and the amount of paper I had to give wasn't particularly bad (id copy, copy of three pay slips and proof of home insurance, which I did in two day over the phone and by internet)
Also, these are not legal requirements but requirements of landlords (apart from ID, perhaps), and they tend to be similar in France and the UK.
But when it comes to setting up a company France is nightmarish compared to the UK, which has one of the simplest, quickest, and cheapest systems around.
But when it comes to setting up a company France is nightmarish compared to the UK, which has one of the simplest, quickest, and cheapest systems around.
I was just commenting on the renting a flat part. I've never set a company in France
Maybe my experience was worse being young and renting in Paris, but they wanted several things on top of that (birth certificate, passport, job contract, last 3 utility bills).
Your landlord demanded those things to make sure you'd be able to pay, they're not legally required (maybe apart from checking that you're using your real name).
The UK has an easier company creation process (compared to most countries), which doesn't mean other countries are necessarily bad or that you need to do it all alone.
Yes it would be better without the bureaucracy but it doesn't mean it is unsurmountable.
Sure, today it's easier to open a company in the country of your choice, but there might be cases where you want or need to open it in a specific country.
(Also, life happens. I doubt the work of any startup started only after the paperwork was 100%)
Yes it would be better without the bureaucracy but it doesn't mean it is unsurmountable.
Sure, today it's easier to open a company in the country of your choice, but there might be cases where you want or need to open it in a specific country.
(Also, life happens. I doubt the work of any startup started only after the paperwork was 100%)
The last time I rented a place in France was 2007 and it didn’t seem that onerous even then. But what I lacked in paperwork I made up for by paying a larger caution.
Basically, landlords are reluctant to rent people who may not be able to pay. And it takes years to evict. The more likely you aren’t in that group the less paperwork they’ll need.
Basically, landlords are reluctant to rent people who may not be able to pay. And it takes years to evict. The more likely you aren’t in that group the less paperwork they’ll need.
There is this 1 € GmBH concept, where there is almost no paper work.
Which doesn't exist in the Netherlands. As a BV (the Dutch equivalent of a GmBH), you're obligated to have a CEO-equivalent person, which you're by law forced to pay a market-conform salary, or, even if you're not doing this, you are still forced to pay taxes as though you did.
You have other options, like VOF or CV, if you have funding constraints.
Here in Belgium there's the "starters-BVBA" which is the equivalent of the 1 euro GmbH. Yes, there's paperwork and some investment involved, but IMHO it's a myth that starting a company in Europe is a huge hassle.
Here in Belgium there's the "starters-BVBA" which is the equivalent of the 1 euro GmbH. Yes, there's paperwork and some investment involved, but IMHO it's a myth that starting a company in Europe is a huge hassle.
> You have other options, like VOF or CV, if you have funding constraints.
Which isn't a real option; VOFs and CVs do not have the financial and legal separation of you and the company that a BV has.
Which isn't a real option; VOFs and CVs do not have the financial and legal separation of you and the company that a BV has.
Do you really need that though? If revenue is not large enough to start a BV? You can still get insurance and separate bank accounts.
I did it before with a Dutch partner, we just started a VOF together. Our plan was to turn it into a BV once revenue reached a certain point (it never did, so we didn't... it was a side hustle).
I did it before with a Dutch partner, we just started a VOF together. Our plan was to turn it into a BV once revenue reached a certain point (it never did, so we didn't... it was a side hustle).
True in general, but as long as you don't have a lot of equity in your BV yet, you don't have to do it. The tax man won't force you to go broke paying yourself a Market-rate salary.
The 1€ GmBH isn't available in all (most?) European countries. I know that Germany introduced them a couple of years ago. It's great if you live in the country where you register the GmbH, but it can get lots of tax paper work quickly when your country of residence differs from the country where your company is registered.
The paperwork is reduced initially (though a GmbH isn't significantly more complicated - it's just a lot more expensive), but it's still treated the same with regards to taxes etc, so the same rules do apply. It's meant to lower the costs of having limited liability for simple circumstances, not so much cut the red tape.
This was probably true at one time, but the States are utterly brutal from a compliance/reporting perspective now.
The premise of the article seems to say that if you get your pay in stock options then you should pay less tax than if you get it in salary.
I don't see why there needs to be any difference.
In my experience of UK startups, the decisive difference with the US counterparts was simply the amount of money that could be raised on the back of essentially the same company - as much as 10 times in the US.
Having 10x the money in the bank is a massive advantage.
The US markets are also better at recycling assets if companies fail.
None of this requires employees to dodge tax.
I don't see why there needs to be any difference.
In my experience of UK startups, the decisive difference with the US counterparts was simply the amount of money that could be raised on the back of essentially the same company - as much as 10 times in the US.
Having 10x the money in the bank is a massive advantage.
The US markets are also better at recycling assets if companies fail.
None of this requires employees to dodge tax.
It's hard not to be cynical when seeing the term "create wealth" when startups are often about intermediation and rent seeking, if anything wealth extraction.
Yeah. I mean, if we want to get technical, governments and banks create wealth; startups just come along and hemorrhage VC money.
>European consumers and lawmakers here have long decried outsize paydays as unfair and vulgar. A few years ago the Dutch capped bonuses for bankers, money managers, and other financial professionals at 20% of their base salaries.
Well, yeah, because they gamble with other people's money. Prop traders still make a big buck here in the Netherlands. (Dutch here)
Well, yeah, because they gamble with other people's money. Prop traders still make a big buck here in the Netherlands. (Dutch here)
This seems a bit spurious.
I don't see many companies offering the same level of Stock options in Europe as in US, before tax. It seems to me more like companies generally pay less in Europe, before tax. Surely in that environment, reducing tax on Stock options would encourage companies to offer less?
I don't see many companies offering the same level of Stock options in Europe as in US, before tax. It seems to me more like companies generally pay less in Europe, before tax. Surely in that environment, reducing tax on Stock options would encourage companies to offer less?
I think US companies pay more because there's more competition to try to attract talents, and because there's more money in the tech ecosystem in general.
Lowering tax on stock option may help the tech european ecosystem in general to grow, and, hopefully, increase salaries after proof would be made that some employees create a lot of value.
Lowering tax on stock option may help the tech european ecosystem in general to grow, and, hopefully, increase salaries after proof would be made that some employees create a lot of value.
The biggest problem is that there is no "dumb money" floating around - or at least not nearly in the same amount as in the US. Where there isn't any venture capital available if you're not copying a US-proven business model (this is the modus operandi of Rocket Internet), there cannot be the creation of SV-style startups.
What Europe does have however (and especially Germany) is a healthy "Mittelstand" - small-ish companies that don't have exponential growth figures but nevertheless are world-leading in their respective niche.
For those complaining about "muh the taxes / wage costs are so yuge!!!", compare which benefits these taxes provide and what the US simply does not have (think of a proper social security and healthcare system or public transportation, for example).
What Europe does have however (and especially Germany) is a healthy "Mittelstand" - small-ish companies that don't have exponential growth figures but nevertheless are world-leading in their respective niche.
For those complaining about "muh the taxes / wage costs are so yuge!!!", compare which benefits these taxes provide and what the US simply does not have (think of a proper social security and healthcare system or public transportation, for example).
Yeah, if government regulations loosened to allow easier access to riskier investments by inexperienced investors or predatory VCs, there would be a lot more stock-based renumeration. Who cares about paying tax on the income generated by the difference between strike & fair market value if the grant also comes with a cash bonus exactly equal to the tax burden (and its income tax)?
EU banks have massive IT organisations and budgets so can afford to pay through the nose for contractor day rates. That's the ticket for frontline grunt wealth, and also the source of a lot of the risk-adverse 'bankist' mindset in a lot of experienced tech workers.
EU banks have massive IT organisations and budgets so can afford to pay through the nose for contractor day rates. That's the ticket for frontline grunt wealth, and also the source of a lot of the risk-adverse 'bankist' mindset in a lot of experienced tech workers.
> Yeah, if government regulations loosened to allow easier access to riskier investments by inexperienced investors or predatory VCs, there would be a lot more stock-based renumeration.
No, if government regulations were loosened even more there would be exactly one thing and that is even more people ripped off by unscrupulous or outright criminal bankers. There's a reason why such terms as "accredited investor" exist.
> EU banks have massive IT organisations and budgets so can afford to pay through the nose for contractor day rates.
The only reason their budgets are so massive is that they are historically locked in mainframes and code untouched since the 70s, and people who (still) do COBOL etc. can command these high rates. Fixing up the cruft would require investments so high that the day rates for contractors pale and many banks attempting to do IT overhauls have paid billions to inevitably fail.
Banking IT is one hell of a shitfest, which I wouldn't dare to touch with a ten feet pole alone from a technological POV - the fact that IT and their needs are generally laughed at over the industry only confirms my position. Fintechs are different, but have their own issues - funding, data protection, questionable ethical decisions, reactions to security issues...
No, if government regulations were loosened even more there would be exactly one thing and that is even more people ripped off by unscrupulous or outright criminal bankers. There's a reason why such terms as "accredited investor" exist.
> EU banks have massive IT organisations and budgets so can afford to pay through the nose for contractor day rates.
The only reason their budgets are so massive is that they are historically locked in mainframes and code untouched since the 70s, and people who (still) do COBOL etc. can command these high rates. Fixing up the cruft would require investments so high that the day rates for contractors pale and many banks attempting to do IT overhauls have paid billions to inevitably fail.
Banking IT is one hell of a shitfest, which I wouldn't dare to touch with a ten feet pole alone from a technological POV - the fact that IT and their needs are generally laughed at over the industry only confirms my position. Fintechs are different, but have their own issues - funding, data protection, questionable ethical decisions, reactions to security issues...
The original (author's) title of the article was "Why It’s So Hard for Entrepreneurs to Get Really Rich in Europe" [0].
[0] https://muckrack.com/ed-robinson/articles
[0] https://muckrack.com/ed-robinson/articles
Actually I've considered setting up a company again in Denmark, but really I'm screwed. They've closed down the Danish IVS (the version of a limited liability company) so basically if you want to have a startup you are basically limited to these company types https://www.companyformationdenmark.com/types-of-companies-i... none of which really match what people need to do when running a startup.
But still there is a lot of crap to read about how the government wants to support startups. I don't get it, why lie, it's obvious you don't want to.
But still there is a lot of crap to read about how the government wants to support startups. I don't get it, why lie, it's obvious you don't want to.
> Unlike Silicon Valley, where equity incentive plans have become as ubiquitous as foosball tables and midday yoga sessions
It's funny what captures peoples' attention: equity option incentive has been pretty much table stakes in the valley since the early 80s (at least...likely longer) while making work look more like a playground really only took off relatively recently (last 20 years).
And some of the taxes discussed (taxable gains on exercise) have the same implementation in the US (though the rates are different). The real difference is the qualification of ISOs.
It's funny what captures peoples' attention: equity option incentive has been pretty much table stakes in the valley since the early 80s (at least...likely longer) while making work look more like a playground really only took off relatively recently (last 20 years).
And some of the taxes discussed (taxable gains on exercise) have the same implementation in the US (though the rates are different). The real difference is the qualification of ISOs.
Its more about Germany than the EU - Guess why London is so popular for startups.
Real title of the article is in the URL.
why it's so hard for entrepreneurs to get really rich in Europe
way closer to the actual content of the article.
way closer to the actual content of the article.
It's hard because as you grow, you need to pay out lots of taxes, an aggressive amount benefits to employees, and in many parts of Europe, negotiate with unions (which includes all of the above and more).
All of this money goes out to other things instead of growing your business. The end result is very large companies (usually with an HQ in another part of the world) and governments that create all of the jobs.
This is exactly what happens in many of Scandinavian countries.
All of this money goes out to other things instead of growing your business. The end result is very large companies (usually with an HQ in another part of the world) and governments that create all of the jobs.
This is exactly what happens in many of Scandinavian countries.
In other words: You have to pay for the negative externalities you create (taxes) and pay your employees a fair wage (by negotiating with unions).
What's the problem with that?
What's the problem with that?
Extract. The words author was looking for were "extract wealth".
It seems like the author didn't understand the landscape. Isn't their description of Germany basically consistent with the US (e.g. California)?
> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares.
And their description of the US is misleading. One always has to pay tax at exercise, just like in Germany.
> In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program.
> When employees in Germany exercise options, they have to pay income tax on the difference between the fair market value and the strike price, and that rate runs from 14% to 47.5%. They also have to pay a 25% capital-gains tax on additional profits when they sell their shares.
And their description of the US is misleading. One always has to pay tax at exercise, just like in Germany.
> In contrast, American employees typically pay a 0% to 20% rate on capital gains when options are redeemed, though they may have to pay additional levies when they’re exercised, depending on the timing and the type of equity incentive program.
Doesn't exercising an option in the US count against Alternative Minimum Tax but not regular taxes? And doesn't AMT have an exemption amount so you don't pay taxes if you're below it?
edit: Also, does the fair market value in Germany "undervalue" startups the same way the 409A valuation does in the US? If not then that would increase the taxable amount by a lot and also lowers the upside since it increases the strike price.
edit: Also, does the fair market value in Germany "undervalue" startups the same way the 409A valuation does in the US? If not then that would increase the taxable amount by a lot and also lowers the upside since it increases the strike price.
> Doesn't exercising an option in the US count against Alternative Minimum Tax but not regular taxes? And doesn't AMT have an exemption amount so you don't pay taxes if you're below it?
Not in my experience. Basically it ends up that the difference between exercise and strike is taxed as income.
Not in my experience. Basically it ends up that the difference between exercise and strike is taxed as income.
The stock option feat is moot, but the fear of "experimentation and inevitable failures" is a major thing and very frustrating, especially when looking for customers as a startup.
Are there any real statistics of founders that have had to migrate to the US to attract talent with stock options?
Correction: Title should read "Why It's Hard for Startups to Excise Wealth From Europe."
As someone unfamiliar with European regulations, would cooperative enterprises encounter the same barriers?
Co-ops in EU (at least in my country) have presidents chosen by vote. What is the point of starting a company if you can be voted out of the top position at any time?
There's been plenty of cases of startup founders being voted out by their VC or perhaps their former friends, the other founders. Or the board boots them after they do something silly and public, or offensive. What is the point starting a company if they can be voted out?...
There's quite a few variants on the co-op theme.
There's quite a few variants on the co-op theme.
To create something interesting together rather than just focussing on self-enrichmemt?
You don't get to do that if you're "voted out" aka fired from the company you created to do the interesting thing, likely the interesting thing will fail to happen as well. So...
Why are you so suspicious of your collaborators?
That would make sense if say, 50 people got together and came up with a good idea and started to execute it. But what about the solo person who has a good idea and wants to execute their vision? Coops don't work then.
I’m confused by this sentiment. The person can either execute it themselves or recognize that they need other people’s contributions to succeed and share power/management with them accordingly.
I’ve never understood why having “vision” entitles one to the top position in an authoritarian hierarchy, especially, again, when said “vision” requires other people’s labor for its execution.
I’ve never understood why having “vision” entitles one to the top position in an authoritarian hierarchy, especially, again, when said “vision” requires other people’s labor for its execution.
Why is paying people for their work not enough? If I want to plant crop A where people are otherwise growing crop B, and I agree to pay person Y Z dollars to tend my fields, why would I need to give person Y some of the crop they tended?
I can see agreeing to give Y some of the crop if they agree to make some kind of sacrifice(Z-n dollars ), but why would they automatically or necessarily get some as a basis of the arrangement? Will they bail me out if the entire thing is a bust, I pay them Z dollars and my crop A is worthless?
I can see agreeing to give Y some of the crop if they agree to make some kind of sacrifice(Z-n dollars ), but why would they automatically or necessarily get some as a basis of the arrangement? Will they bail me out if the entire thing is a bust, I pay them Z dollars and my crop A is worthless?
> Why is paying people for their work not enough? If I want to plant crop A where people are otherwise growing crop B, and I agree to pay person Y Z dollars to tend my fields, why would I need to give person Y some of the crop they tended?
While I think it’s a bad idea to argue from analogies, because the crops have no value without this tending. It’s the labor invested in tending them that makes them worth anything at all. Owning land/Capital is demonstrably insufficient outside of an economy based exclusively on rentiering.
>Will they bail me out if the entire thing is a bust, I pay them Z dollars and my crop A is worthless?
If they were co-owners, they would certainly share in this burden. More abstractly, workers more often than not take the brunt of the suffering in failed enterprises. Just look at what happens to the average CEO of a failed company versus its workers.
While I think it’s a bad idea to argue from analogies, because the crops have no value without this tending. It’s the labor invested in tending them that makes them worth anything at all. Owning land/Capital is demonstrably insufficient outside of an economy based exclusively on rentiering.
>Will they bail me out if the entire thing is a bust, I pay them Z dollars and my crop A is worthless?
If they were co-owners, they would certainly share in this burden. More abstractly, workers more often than not take the brunt of the suffering in failed enterprises. Just look at what happens to the average CEO of a failed company versus its workers.
This article is about wealth creation. Your comment just testifies to that (perceived) problem.
Well, I think there might be a point in a bunch of hotels/hotel chains to start a web booking co-op to get rid of the rentseeking rates of the current crop of booking sites. I mean, technology behind a booking site can't cost that many percentage points from a night's price.
What's the point in investing in a company, if you can't get rid of the senior management at any time? Note that employees have also invested in a company they work for.
Perhaps if you are valuable and don't make mistakes, you wont get voted out in the first place :)
Paperwork is just an excuse, the issue is cultural. People in Europe are simply less entrepreneurial than in the US, maybe because the employer-employee relationship comes with more perks, like several weeks of vacation so people take less risks.
It's considered risky to start a company and generally not that well looked upon, when compared to staying as an employee all your life and getting a higher position in a company, even though your revenue would probably be lower.
There is much more social status associated to being a higher level employee than to being an owner of a small to medium sized company.
Paperwork is not a problem, a few phone calls and meetings and its done. You can start a company with the help of your accountant in Europe, the accountant will take care of everything. The accountant will schedule the appointment with the notary, do all the paperwork, etc.
Developer freelances are asked nowadays to have their own limited responsibility company, that can be used later for an online enterprise as well, that's what I did.
There is even an option of paying a very small amount and setting up a quick limited responsibility unipersonal company, that then can graduate to a regular company later on.
There are of course other factors, but I think 90 to 95% is purely cultural.
It's considered risky to start a company and generally not that well looked upon, when compared to staying as an employee all your life and getting a higher position in a company, even though your revenue would probably be lower.
There is much more social status associated to being a higher level employee than to being an owner of a small to medium sized company.
Paperwork is not a problem, a few phone calls and meetings and its done. You can start a company with the help of your accountant in Europe, the accountant will take care of everything. The accountant will schedule the appointment with the notary, do all the paperwork, etc.
Developer freelances are asked nowadays to have their own limited responsibility company, that can be used later for an online enterprise as well, that's what I did.
There is even an option of paying a very small amount and setting up a quick limited responsibility unipersonal company, that then can graduate to a regular company later on.
There are of course other factors, but I think 90 to 95% is purely cultural.
I like HN for insightful, often critical, commentary but I have to admit I'm getting pretty tired of these quick dismissals based on anecdotes and gut-feeling.
"No, X is not the issue at all, the issue is Y because Europeans are like this and this is why Europeans do things. I know this because I know."
"No, X is not the issue at all, the issue is Y because Europeans are like this and this is why Europeans do things. I know this because I know."
For this subject, it's really just a matter of opinion more than anything.
I think if someone is commenting and has subject matter expertise, they should mention that ("I'm a doctor and happen to know that ..."), it's better than having everyone else adding disclaimers to their comments.
In an online comment no expertise is usually assumed, but yes this leads to stuff like a scientist with decades of experience publishing a study saying something that people don't want to hear, and then some troll on twitter says "No it's not" and people run with it because that's what they want to hear.
I think it's the Internet in general, it's not specific of HN.
I think if someone is commenting and has subject matter expertise, they should mention that ("I'm a doctor and happen to know that ..."), it's better than having everyone else adding disclaimers to their comments.
In an online comment no expertise is usually assumed, but yes this leads to stuff like a scientist with decades of experience publishing a study saying something that people don't want to hear, and then some troll on twitter says "No it's not" and people run with it because that's what they want to hear.
I think it's the Internet in general, it's not specific of HN.
I’ve noticed this to. Even in areas where I have domain knowledge and know the article conclusions are accurate, I’ll see dozens of posts saying “That’s not it at all, the real reason is...”.
There are a lot of very confident, but very wrong people out there.
There are a lot of very confident, but very wrong people out there.
I would suggest that writing off "Europe" as a single culture is naive at best.
People are entrepreneurial, not least in tech.
I think the issue is not lack of people willing to take risk to setup a company but lack of investors willing to take risk to finance them.
IMHO, the success of the US and Silicon Valley hinges a lot on the VC culture.
I think the issue is not lack of people willing to take risk to setup a company but lack of investors willing to take risk to finance them.
IMHO, the success of the US and Silicon Valley hinges a lot on the VC culture.
I'd second this. Trying to raise money from European investors is like pulling out hair from a damp blanket. "I will give you a 'relatively small sum of money' if the other eight people you talked to will give you 'relatively large sum of money'" is common when talking to self proclaimed risk capital investors.
in the uk in 2017, there were 387,000 limited companies formed [1]
in the USA in 2015 in q3 there were 240,000 (so about 960 annually). As the USA is 80% larger, population wise, you'd expect that number to be higher. [2]
> There is much more social status associated to being a higher level employee than to being an owner of a small to medium sized company.
I'd contest that. There is much more status in being posh, rich, attractive, than having a good job.
being a manager at a no-name company is good, being an owner of a cool company is much better.
[1] https://researchbriefings.files.parliament.uk/documents/SN06... [2] https://www.sba.gov/sites/default/files/advocacy/2018-Small-...
in the USA in 2015 in q3 there were 240,000 (so about 960 annually). As the USA is 80% larger, population wise, you'd expect that number to be higher. [2]
> There is much more social status associated to being a higher level employee than to being an owner of a small to medium sized company.
I'd contest that. There is much more status in being posh, rich, attractive, than having a good job.
being a manager at a no-name company is good, being an owner of a cool company is much better.
[1] https://researchbriefings.files.parliament.uk/documents/SN06... [2] https://www.sba.gov/sites/default/files/advocacy/2018-Small-...
I don't _want_ to like this, but it definitely rings true for the place I moved to (Ireland). In my circle of friends I don't think the idea of starting a business has even come up - except for other Americans like myself, weirdly. So far as I can tell it just isn't that appealing since (for the moment) there are decent jobs and it's less hassle.
I don't know about other places in Europe but Tall Poppy Syndrome, "Notions", etc. is a big thing here - people should know their station, evidently.
I don't know about other places in Europe but Tall Poppy Syndrome, "Notions", etc. is a big thing here - people should know their station, evidently.
Absolutely its cultural. There is a huge difference in attitudes to success and wealth. In America everyone is working hard and the more money you make you more "successful" you are. In Europe people would rather be a well educated regular middle class secure job than work 80+ hours a week and buy a huge house. You probably can't even buy a huge house because planning regulations prohibit it. Europeans would rather be a broke well-educated artist than a rich hardworking entrepreneur. TBH with good holidays and secure safety net I'd probably do the same.
I'm pretty sure it's mostly cultural, and has a lot to do with the American Dream whatever it means.
I think its this general idea that anyone can make it if they work hard, I don't think there is an equivalent notion in most European countries, at least the ones I have contact with due to having family all over the place.
I think its this general idea that anyone can make it if they work hard, I don't think there is an equivalent notion in most European countries, at least the ones I have contact with due to having family all over the place.
I don't know how this works in the UK, but personal bankruptcy still has a stigma attached. I also know that if ever happened to me, I would be extremely unlikely to ever work for a bank again.
With a limited responsibility company, if it goes bankrupt its the company and not you personally.
Any debts would only go against company accounts and not your personal bank account.
I think the judge in some cases could still hold you accountable depending on lots of factors, but for most cases the debts of the company would not go over to you (AFIK).
Any debts would only go against company accounts and not your personal bank account.
I think the judge in some cases could still hold you accountable depending on lots of factors, but for most cases the debts of the company would not go over to you (AFIK).
I think you are right in that it is cultural. Then, it could be less a matter of being risk averse or not, but more that people like independence, and the preferred status is not 'founder of a company' but 'self-employed'.
There was this interesting survey: https://ec.europa.eu/eurostat/statistics-explained/index.php...
a quote:
> 1 in 2 self-employed persons highly satisfied with their current job
Looking at the other numbers, around 2/3 of them don't have employees, so a large portions of them just don't want to grow beyond and take the full burden of managing a company.
There was this interesting survey: https://ec.europa.eu/eurostat/statistics-explained/index.php...
a quote:
> 1 in 2 self-employed persons highly satisfied with their current job
Looking at the other numbers, around 2/3 of them don't have employees, so a large portions of them just don't want to grow beyond and take the full burden of managing a company.
"asked nowadays to have their own limited responsibility company"
Freelancers (in the UK at least) are required to pass their pay through a limited company, and subject it to payroll tax. It's not to help them set up a later online enterprise; it's to make it trivially easy for the tax authorities to extract their pound of flesh.
(Before this was introduced, many freelancers didn't bother to pay tax on their income. When they flitted, the bill fell either on their employer or on the government)
Freelancers (in the UK at least) are required to pass their pay through a limited company, and subject it to payroll tax. It's not to help them set up a later online enterprise; it's to make it trivially easy for the tax authorities to extract their pound of flesh.
(Before this was introduced, many freelancers didn't bother to pay tax on their income. When they flitted, the bill fell either on their employer or on the government)
> Freelancers (in the UK at least) are required to pass their pay through a limited company, and subject it to payroll tax
I don't believe they are _required_ to do this. Of course, there are certain tax incentives to running a limited company (as well as commercial pressures as a lot of clients will only deal with limited companies) but you can certainly still be a sole trader (I'm one) — you just file your standard self assessment return every year and pay accordingly.
I don't believe they are _required_ to do this. Of course, there are certain tax incentives to running a limited company (as well as commercial pressures as a lot of clients will only deal with limited companies) but you can certainly still be a sole trader (I'm one) — you just file your standard self assessment return every year and pay accordingly.
I don't think it's mandatory, but I had clients asking me this otherwise they would not hire.
The reason is, if you work without a company, after a few years they could be forced to convert the freelancer to an employee, which usually neither wants.
The reason is, if you work without a company, after a few years they could be forced to convert the freelancer to an employee, which usually neither wants.
Thanks for the correction!
I seem to remember that companies that employ freelancers (programmers, in particular) who don't pay tax through their limited company's payroll can be made legally liable for the back income tax their freelancer fails to pay. This incentivises employers to insist on a limited company (or an umbrella company). This deters employers from hiring sole-trader freelancers (too much fuss).
I seem to remember that companies that employ freelancers (programmers, in particular) who don't pay tax through their limited company's payroll can be made legally liable for the back income tax their freelancer fails to pay. This incentivises employers to insist on a limited company (or an umbrella company). This deters employers from hiring sole-trader freelancers (too much fuss).
You do have to have a limited company, but no one forces you to pass the earnings as a salary subject to payroll. You can simply take the earnings out as dividend, but then you would be taxed twice on those earnings. So there is tax incentive to pay yourself a salary and not to report any company profit at the year's end, but it is not compulsory.
Taking the whole earnings as a dividend is not advisable, because this means that you would have no salary and therefore no retirement pension at all.
Governments usually incentivize entrepreneurs to have a reasonable salary, and to not take a lot out of the company as dividends, by providing beneficial profit tax brackets if these conditions are met.
This incentivizes the entrepreneur to have a pension, which means less people living in poverty over time as they hit the retirement age.
It also means that more money will stay in the company, incentivizing investing in the company via equipment and employees for example.
Governments usually incentivize entrepreneurs to have a reasonable salary, and to not take a lot out of the company as dividends, by providing beneficial profit tax brackets if these conditions are met.
This incentivizes the entrepreneur to have a pension, which means less people living in poverty over time as they hit the retirement age.
It also means that more money will stay in the company, incentivizing investing in the company via equipment and employees for example.
And since the OP is about issuing options to employees (and not incorporating a business), how many such options have you issued?
I have issued a lot of those (in Sweden) and its a nightmare. One of the major issues is that you can’t be absolutely certain what the tax consequences will be.
I have issued a lot of those (in Sweden) and its a nightmare. One of the major issues is that you can’t be absolutely certain what the tax consequences will be.
As someone who lives in Europe, I feel the reasons are partly cultural, partly due to the business environment here.
For one thing, there is definitely a lack of ambition compared to over in the States (and likely quite a few other parts of the world). People really question you if you say you want to run a company, and don't value entrepreneurial mindsets at all.
So many would be founders will either move away, or give up on their dreams because of how friends, family and society see them for trying to strike out on their own. Meanwhile the vast majority of people simply don't care about anything other than working 9-5 and partying at the weekends. They're not career driven at all.
And the lack of ambition doesn't end there. It's true of companies too. Companies here seem to well... suck at marketing compared to their US counterparts.
They seriously do. They virtually ignore social media marketing, ignore inbound marketing, struggle with organic SEO, don't see the importance of creating content to get people to their site/products and seem to be terrified of actually going out and selling to people. So of course our startups will struggle; they're not getting their message out there as well as their Silicon Valley counterparts. They just assume that 'build it and they'll come' works.
(though to be fair, nor are our regional divisions of large companies either. Nintendo UK has always sucked at marketing compared to the American branch for much the same reason).
As for the business environment reasons? Well, it's due to two things:
1. Our investors offering very little money compared to their US counterparts
2. And investors/funds being terrified of B2C companies
For the former, well compare the money on offer for UK investments to their US counterparts. Over here, it seems like a few hundred thousand is a 'high' investment in a startup, whereas over there it's in the millions. Okay, business TV shows probably aren't a good gauge of anything here, but come on... when the likes of the Apprentice and Dragon's Den think between £50,000 and £250,000 is a decent reward... well you're not exactly going to get the next Facebook or Uber or Netflix popping up here.
And you're not gonna get the level of talent here either. Why would a software engineer work for about £30,000 in a UK startup when US ones will offer then a few hundred grand a year instead? They wouldn't.
So the rockstars go off to the valley, and the people who stay here tend to be the less ambitious, less skilled types.
Still, it's not like the most ambitious businesses would get backed here either. Our VCs are heavily focused on B2B businesses, perhaps because of the 'guaranteed' revenue stream from enterprise markets.
However, it's usually the B2C ones which become the mega breakout hits everyone knows. Google, Facebook, Uber, Airbnb, etc... they're focused at end users. That's what big companies tend to be.
But it's also a risk, and apparently one that our investors don't seem to feel is worth taking. So they ignore what could be the next Facebook or Google in favour of the next Moz or SEMRush.
So yeah, that's my take on it. We're not ambitious enough here, we're in a society that seems to frown on striking out on your own, the money that is available is far lower than in Silicon Valley and our VCs seem scared of investing in moonshot end consumer focused businesses.
For one thing, there is definitely a lack of ambition compared to over in the States (and likely quite a few other parts of the world). People really question you if you say you want to run a company, and don't value entrepreneurial mindsets at all.
So many would be founders will either move away, or give up on their dreams because of how friends, family and society see them for trying to strike out on their own. Meanwhile the vast majority of people simply don't care about anything other than working 9-5 and partying at the weekends. They're not career driven at all.
And the lack of ambition doesn't end there. It's true of companies too. Companies here seem to well... suck at marketing compared to their US counterparts.
They seriously do. They virtually ignore social media marketing, ignore inbound marketing, struggle with organic SEO, don't see the importance of creating content to get people to their site/products and seem to be terrified of actually going out and selling to people. So of course our startups will struggle; they're not getting their message out there as well as their Silicon Valley counterparts. They just assume that 'build it and they'll come' works.
(though to be fair, nor are our regional divisions of large companies either. Nintendo UK has always sucked at marketing compared to the American branch for much the same reason).
As for the business environment reasons? Well, it's due to two things:
1. Our investors offering very little money compared to their US counterparts
2. And investors/funds being terrified of B2C companies
For the former, well compare the money on offer for UK investments to their US counterparts. Over here, it seems like a few hundred thousand is a 'high' investment in a startup, whereas over there it's in the millions. Okay, business TV shows probably aren't a good gauge of anything here, but come on... when the likes of the Apprentice and Dragon's Den think between £50,000 and £250,000 is a decent reward... well you're not exactly going to get the next Facebook or Uber or Netflix popping up here.
And you're not gonna get the level of talent here either. Why would a software engineer work for about £30,000 in a UK startup when US ones will offer then a few hundred grand a year instead? They wouldn't.
So the rockstars go off to the valley, and the people who stay here tend to be the less ambitious, less skilled types.
Still, it's not like the most ambitious businesses would get backed here either. Our VCs are heavily focused on B2B businesses, perhaps because of the 'guaranteed' revenue stream from enterprise markets.
However, it's usually the B2C ones which become the mega breakout hits everyone knows. Google, Facebook, Uber, Airbnb, etc... they're focused at end users. That's what big companies tend to be.
But it's also a risk, and apparently one that our investors don't seem to feel is worth taking. So they ignore what could be the next Facebook or Google in favour of the next Moz or SEMRush.
So yeah, that's my take on it. We're not ambitious enough here, we're in a society that seems to frown on striking out on your own, the money that is available is far lower than in Silicon Valley and our VCs seem scared of investing in moonshot end consumer focused businesses.
simple answer - government
My experience:
- Really hard and costly to start a new company. - Really hard to contract people. Lots of requirements and really costly. - Lots of silly laws that don't protect customers data. Things like GDPR popups, etc.
Basically, those 2 points.
- Really hard and costly to start a new company. - Really hard to contract people. Lots of requirements and really costly. - Lots of silly laws that don't protect customers data. Things like GDPR popups, etc.
Basically, those 2 points.
Why should governments forgo tax revenue now to create companies like Amazon that pay zero taxes later? It makes no sense.
They don't pay zero taxes. They pay zero taxes (or close to) in some countries. Understandably those countries aren't happy[1].
However, I can assure you that if you start a company in the UK that turns a profit, you will pay corporation tax at a rate substantially above 0%.
[1] Worth pointing out that this isn't the only way governments earn tax money from companies. The less direct route is through salaries. Amazon makes sales and, out of the money it earns, pays staff, these staff in turn pay income tax, which increases the tax take of the country in which they live. For tech companies with higher earning staff (granted Amazon may not be a great example because they have plenty of staff in lower-paying roles, e.g., in warehousing), in the UK those staff are likely to pay higher rate tax. I'm not saying this makes it OK for Amazon to pay no corporation tax: what I'm saying is that the tax benefit to a country flows via multiple streams. At the moment it seems like somebody has dammed one of those streams, but the point still stands.
However, I can assure you that if you start a company in the UK that turns a profit, you will pay corporation tax at a rate substantially above 0%.
[1] Worth pointing out that this isn't the only way governments earn tax money from companies. The less direct route is through salaries. Amazon makes sales and, out of the money it earns, pays staff, these staff in turn pay income tax, which increases the tax take of the country in which they live. For tech companies with higher earning staff (granted Amazon may not be a great example because they have plenty of staff in lower-paying roles, e.g., in warehousing), in the UK those staff are likely to pay higher rate tax. I'm not saying this makes it OK for Amazon to pay no corporation tax: what I'm saying is that the tax benefit to a country flows via multiple streams. At the moment it seems like somebody has dammed one of those streams, but the point still stands.
Until you become big enough to trade and play countries off against each other. Multinationals have, for the most part, been placed above the nation and government. They get to pick and choose.
Amazon does not pay taxes from salaries. The employees pay taxes from salaries. Amazon, if you moved to Mars, shouldn't reduce your salary because you're not paying tax to the UK.
> Amazon does not pay taxes from salaries.
for the one millionth time, it doesn't actually matter whether you pay income tax or your employer pays it for you. [0]
if you want to be precise, amazon doesn't pay income tax, but it does have to pay payroll taxes for each employee, which is proportional to the income they are paid.
> Amazon, if you moved to Mars, shouldn't reduce your salary because you're not paying tax to the UK.
amazon changes payscales based on local COL at all if it's offices. if enough employees lived in a zero income tax environment to matter, amazon (or any other large company) would absolutely shift salaries down.
[0] https://en.wikipedia.org/wiki/Tax_incidence
for the one millionth time, it doesn't actually matter whether you pay income tax or your employer pays it for you. [0]
if you want to be precise, amazon doesn't pay income tax, but it does have to pay payroll taxes for each employee, which is proportional to the income they are paid.
> Amazon, if you moved to Mars, shouldn't reduce your salary because you're not paying tax to the UK.
amazon changes payscales based on local COL at all if it's offices. if enough employees lived in a zero income tax environment to matter, amazon (or any other large company) would absolutely shift salaries down.
[0] https://en.wikipedia.org/wiki/Tax_incidence
> Amazon does not pay taxes from salaries. The employees pay taxes from salaries.
Yes. If you read what I wrote that is actually what I said.
The larger point is that the government receives tax from Amazon's employees so that, even in the absence of corporation tax, there is a benefit to the country of Amazon operating there. Not to mention that providing jobs is in itself a good thing.
Again, to be clear, I'm not saying it's right or fair that they pay little corporation tax.
Yes. If you read what I wrote that is actually what I said.
The larger point is that the government receives tax from Amazon's employees so that, even in the absence of corporation tax, there is a benefit to the country of Amazon operating there. Not to mention that providing jobs is in itself a good thing.
Again, to be clear, I'm not saying it's right or fair that they pay little corporation tax.
The fact that they pay zero taxes is unrelated to their creation.
Because then you create companies like Amazon.
You create companies that evade tax and pay workers as little as possible? Remind me why that is desirable again?
People act as if it's an either/or: if you make companies pay tax, Amazon will never exist. But if the market is there there's no reason someone wouldn't set up a company similar to Amazon that also happens to pay tax and maybe even give employees bathroom breaks.
People act as if it's an either/or: if you make companies pay tax, Amazon will never exist. But if the market is there there's no reason someone wouldn't set up a company similar to Amazon that also happens to pay tax and maybe even give employees bathroom breaks.
Absolutely with you, just one correction: if this someone has no incentive to not avoid taxes and exploit workers, he won't do it, or will be replaced by someone who does (as he would have an advantage).
I'm not saying there should be regulations, but there should be regulations.
I'm not saying there should be regulations, but there should be regulations.
Every company pays workers as little as possible. It's up to the government to make "as little as possible" a fair wage.
I rather not have Amazon and still have my local book store.
I can't comment on Switzerland, but in the US local bookstores are thriving: "Between 2009 and 2015, the number of independent bookstores grew by 35 percent."
https://www.npr.org/2018/03/29/598053563/why-the-number-of-i...
https://www.npr.org/2018/03/29/598053563/why-the-number-of-i...
Tax revenue is not the only metric. If I am to live on a world where it is the primary metric, I would rather move to Mars.
I kind of feel the same way about "creating wealth", mostly because all the created wealth goes to a few founders and their VCs.
Who all seem to be moving to New Zealand or Mars ...
Who all seem to be moving to New Zealand or Mars ...
Maybe because the average European is very poor, and the 1% who got money, are investing abroad?
I moved from Brazil to Germany and I was impressed with how the average german is poor, meanwhile there are definitely a great deal of families in Europe that are very rich for centuries, yet, their kids are studying in the US, founding companies in low-tax countries...
Meanwhile the average european in good european countries pay upward 40% taxes. The shitty european countries are worse than 3rd world countries as the youth all move to the strong ones to just be salaryman instead.
To sum up, the problem with lack on entrepreneurship in Europe has nothing to do with culture, but rather, the lack of money in general.
Anyways, I wish there would be better opportunities, because I've always wanted to become an entrepreneur. But without any family to support me, but a family that I need to support, expensive rent prices and so on, it is something that I can only dream that my future siblings will be able to give it a try.
For instance, I'm in Europe to save money, as the exchange rate(vs. Brazilian money) benefits me. So maybe when I'm around 45, in over a decade, I can found my own business, obviously not in Europe.
Life is hard. Maybe when you are privileged, you fail to see how much people work hard even to make ends meet. Or even to see their plans. I believe people in general are very entrepreneurial and take opportunities when they show up -- it's just that there aren't any. It almost sounds as people are implying europeans or ? are a set of stupid people, given that they don't take risks or opportunities. When the reality is different.
For instance, In the US, when you run $1 trillion deficit country without inflation problems due to your currency being a reserve currency, heavily inflating capital and making almost the whole world want to be part of this money extravaganza, draining talent and development from the rest of the globe, it is very easy to say that the Greek have trouble generating wealth...
I moved from Brazil to Germany and I was impressed with how the average german is poor, meanwhile there are definitely a great deal of families in Europe that are very rich for centuries, yet, their kids are studying in the US, founding companies in low-tax countries...
Meanwhile the average european in good european countries pay upward 40% taxes. The shitty european countries are worse than 3rd world countries as the youth all move to the strong ones to just be salaryman instead.
To sum up, the problem with lack on entrepreneurship in Europe has nothing to do with culture, but rather, the lack of money in general.
Anyways, I wish there would be better opportunities, because I've always wanted to become an entrepreneur. But without any family to support me, but a family that I need to support, expensive rent prices and so on, it is something that I can only dream that my future siblings will be able to give it a try.
For instance, I'm in Europe to save money, as the exchange rate(vs. Brazilian money) benefits me. So maybe when I'm around 45, in over a decade, I can found my own business, obviously not in Europe.
Life is hard. Maybe when you are privileged, you fail to see how much people work hard even to make ends meet. Or even to see their plans. I believe people in general are very entrepreneurial and take opportunities when they show up -- it's just that there aren't any. It almost sounds as people are implying europeans or ? are a set of stupid people, given that they don't take risks or opportunities. When the reality is different.
For instance, In the US, when you run $1 trillion deficit country without inflation problems due to your currency being a reserve currency, heavily inflating capital and making almost the whole world want to be part of this money extravaganza, draining talent and development from the rest of the globe, it is very easy to say that the Greek have trouble generating wealth...
What do you mean when you want to be an entrepreneur? What makes you tick? Do you want to discover talent, help fund ideas, work on the ground level within a company? There are plenty of really useful things that have been built in Europe in and out of tech where you could facilitate in these kinds of roles. I don't see how you can't be an entrepreneur in the EU, unless an entrepreneur to you is to have loads of money and to perform vapid pr stunts for the next fad.
Spotify, Tom Tom, City mapper, runtastic, factorio, World of tanks, transfer wise, todoist, telegram are all examples of businesses which have emerged from the European economic region and the EU itself for example.
Spotify, Tom Tom, City mapper, runtastic, factorio, World of tanks, transfer wise, todoist, telegram are all examples of businesses which have emerged from the European economic region and the EU itself for example.
Exactly what I've meant: You don't understand how hard and rare it is, so somebody can afford to be an entrepreneur. It isn't about running costs of businesses, but the ability to support yourself and your responsibilities, it is about being able to run your HOME, while you work until your business take off.
Just check the background of the people who founded those companies you enlisted and you will see what I mean. It isn't the average European.
Just check the background of the people who founded those companies you enlisted and you will see what I mean. It isn't the average European.
I hate to break it to you, but anyone who starts a business is not the average European anyway.
In short: this article is a "too much tax" whinge masquerading as a piece of economic/business insight.