Danish Startup Community Unified Against The Entrepreneur Tax

http://www.arcticstartup.com/2012/04/05/entrepreneur-tax-denmark

by vilpponen • 14 years ago

73 34 14 years ago

moonchrome3• 14 years ago

OK I don't know much about this topic but shouldn't this be mitigated by EU laws ie. incorporate in some other EU country, open a local subsidiary, then sell equity/report profits (assuming there is a no double tax law) in parent company ? AFAIK some countries have very simple procedures to start a company, IIRC UK is was really popular around here because in my country you don't get access to things like Android/iOS store, can't withdraw from PayPal, etc. so it's simpler to operate as a UK business and the taxes are lower.

digitalengineer6• 14 years ago

Reading this stuff (as a person from Holland, one of Danish neighbors in Western Europe) I feel like I'm living in Atlas Shrugged. I am very sure the Appsterdam Community in Amsterdam http://www.appsterdam.com/ would never have started if we had such business-unfriendly laws. (What's next? The Anti-Dog-Eat-Dog Law?)

nirvana• 14 years ago

When Appsterdam came about, I went and researched the tax implications of starting a business in the Netherlands. The Dutch-American Friendship treaty essentially gives americans immediate residency if they start a business (worth something like 12,000 euros or more) in the netherlands.

It looked to me like the effective tax rate was going to be around %70. (for my particular situation, but I was counting the taxes levied against the corporation and the taxes I'd end up paying on the income. So if the corp earned $100,000 from app sales, and paid around %30, and then I paid %40 on the remainder that would be more than %70 tax but you see what I mean.)

So, I gave the whole appsterdam thing a pass. I reported the %70, and Mike Lee had a conniption, called me a liar, and some other appsterdam person posted a link to the tax tables which.... confirmed that I was being generous. (IF you were a really successful app company your tax rate would be higher.)

Amsterdam is really nice in a lot of ways... as is denmark. but there are a lot of really nice places around the world. Most of which are not super expensive to live, and many of them don't tax you for income earned outside their borders.

dan85• 14 years ago

Can't one go around some taxes by paying to themselves dividends instead of salaries?

Loic2• 14 years ago

Danemark is a very pro-entrepreneur country. If you want to setup a business, it is very easy, you can tax deduct nearly everything and you will have all the benefits of a very well run country. I have been working for both funded and bootstrapped startups in Denmark and Denmark is definitely one of the most business friendly country in Europe.

You must put the law in the context of the country, here it simply says: "you can setup a company here, you will enjoy everything from Denmark you love, but do not expect to make it big, sale and not pay back your due". They want people starting businesses and then staying there. Just that.

Take a look at what you get in the "all inclusive" package when living in Denmark: free education (in fact you are paid to go to the university), very good health care system, low violence, relaxed life, well run infrastructure you can trust, etc...

netcan3• 14 years ago

Those are good point. But they're almost besides the point. This tax system might be fair. The complaints aren't really about that. They are about the consequences.

- The tax in question targets an additional 25% on any shareholder with less than 10% ownership of a company. This brings the marginal tax rate up to 67% for an entrepreneur exiting a company

- Early stage investors who were willing to invest in less than 10% of a company have taken their money elsewhere

- DVCA report found that 62 % of angel investors have declined to invest, and more than a third of Danish IT companies reported they have already been affected by the Entrepreneur Tax.

- this tax also makes it impossible for growth companies to accept additional funding -- even if it is offered. The structure of the Entrepreneur Tax makes individuals personally liable to pay capital gains tax from the increased valuation

- "It wasn't as much a matter of moving our activities out of Denmark as it was it was a matter of not placing them there in the first place." says Michael Schmidt, Co-founder of Exit Strategy Entertainment

- "'we would really like to stay as independent as possible. Part of being independent is that we would preferably not pull in any large investors but are rather looking at the angels who in general are targeting a sub-10% share"

Fair or not, you don't want these effects.

mjwalshe2• 14 years ago

well making such a huge difference between owning 10% or 11% is not fair in any sense of the word - sounds rather french in favouring national champions where the executives went to ena with the technocrats running the civil service.

It also fucks over any employee participation in a company - hop on eurostar and set up in london would be my sugestion

digitalengineer6• 14 years ago

"do not expect to make it big, sale and not pay back your due"

Someone who creates a company where here was previously none creates jobs and pays taxes every step of the way. I feel it is morally wrong to 'extra-tax' them just because they make it big.

You know people just opt to skip Denmark all together right? (like they're already doing now).

There really is no 'free' education. It is paid by the productive people working in Denmark. Government can only spend money they take from their people using taxes.

_delirium5• 14 years ago

If people skip Denmark entirely, that's one thing, but many of the companies trying to dodge taxes on lucrative exits were built on very generous government funds, and only dislike the Danish social model later, after having taken advantage of it for years when it suited them. For example, Playdead has received around $2m in government funds during the past few years, not to mention all the free health care for its employees. Now, its owners now are looking for ways to leave the country to lower taxes on a possible sale, which to many Danes seems like an attempt to cheat the system, against at least the spirit of the arrangement under which they accepted the funds.

viandante2• 14 years ago

When I was in Denmark I found really irritating the pay Danish students get for University (600 euros net). You can put it any way you want, but that creates all sort of bad incentives and crappy education (which I did see. VIA, anybody?).

Most of those "free" things are not really free also. You will pay them with extremely "unfair" taxes (180% of tax on the value of a new car, anybody?) and a State that believes is fine to dictate the proper way of doing things.

No thanks.

Loic2• 14 years ago

DTU is providing extremely good education.

You consider taxes as unfair, but if they are still in play, after getting left and right governments, it is maybe because in fact, Danish people are happy with them.

_delirium5• 14 years ago

> Most of those "free" things are not really free also.

That's true in everything, if you want to be pedantic; every "free" service, like Dropbox's claim to have a "free" tier, is misleading because actually someone is paying for it (in that case, through a hidden "tax" on Dropbox's paying subscribers, some of whose funds go to pay for resources used by the free tier).

netcan3• 14 years ago

This reminds me of Zynga bosses talking about how they need to avoid the 'Google Chef' effect where a chef ended up with millions in shares.

People see an investor or founder making millions and think that it wouldn't be so bad to tax them a little more. It's better than taxing lower-middle income families a little more, isn't it/

Thinking of risk as a thing that needs to be compensated is something that needs to be learned.

stevoski• 14 years ago

When I sold my Australian consulting company, I received two 25% tax discounts on the proceeds, both designed to encourage small business.

Those tax discounts were a surprise to me and didn't encourage me to start the business, nor to sell. A most pleasant surprise, though, as I didn't receive millions for the sale.

aspelund2• 14 years ago

That sound great. When I sold my part of a startup in Sweden, I got half of it taxed at 30%, and the rest taxed as salary, which is very highly taxed here. Not as nice surprise. Later on I started a new company and put in some of the fully taxed money into that company. When paying employees salaries then the same money was taxed as salary again. No deductions anywhere to be seen.

If I would have gotten more money from my exist (I didn't get millions either) the procedure would have been to keep the money within a holding company. Then the taxation wouldn't have been multiple income taxes. But for a small player that really isn't an option, resulting in a truly horrible and counterproductive system.

tahitahi1111111• 14 years ago

The problem is not about what happens when you make it big. The immediate problem is much before that, that young startups die because they dont get investment.

That's where the problem lies, that the danish state makes laws made for huge corporations and forget they all started as small seedlings and without small startups nothing will turn into big employers/tax paying companies.

Another example, today we just received a letter that we will be charged income tax for the company, on income we havent earned yet, but they think we will earn this year. Its insane, haven't they heard of cashflow?

digitalengineer6• 14 years ago

Sometimes I feel every state makes laws made for huge corporations. It is not accidental. They don't "forget they all started as small..." If I was a big, fat lazy corporation that's exactly how I wanted things done. Lots of laws. Guaranteed to kill any and all competition! Big, fat happy just opens a can of lawyers.

Danish Startup Community Unified Against The Entrepreneur Tax

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