> My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax, on gains I have not even realised, purely for the privilege of leaving.
Without this "exit tax", every founder of a successful business would have a huge incentive to leave and to realize the gains elsewhere. It's not a tax for the privilige of leaving, but for the privilege of building a company. I can see only three alternatives to this:
- Abolish the capital gains tax entirely.
- Make defering it impossible. Force people to pay immidiately. No "exit tax", but people have to pay for unrealized gains.
- Tax people when they realize their gains in a foreign country.
It should be possible to move within Europe, then when the liquidity event happens tax me from the countries where I've lived, proportionally to the time I've lived there.
If you want to move out of Europe, you get the exit tax as before.
A fourth alternative is to leave, and a fifth is to not start a company at all.
Now you understand why the USA deploys 3-4x the amount of VC capital compared to the EU. And prior to the current administration, entrepreneurs mostly wanted to get to the US.
Are you aware that the US charges an exit tax if you choose to renounce your citizenship? And if you do not renounce it, they will tax you no matter where you live in the world?
Yep, and it’s still worth it for a multitude of reasons. Business formation is easy in the US, and taxes are generally lower than other places. Current administration not withstanding, most people don’t want to leave once they get to the US.
As far as I understand, the US taxes its citizens whereever they live (the third alternative I mentioned).
There's various exclusions and credits to avoid double taxation.