Why It’s Hard for Startups to Create Wealth in Europe
bloomberg.com
bloomberg.com
In short: this article is a "too much tax" whinge masquerading as a piece of economic/business insight.
I read most of this: https://www.skatteverket.se/privat/skatter/vardepapper/omakt...
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.
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).
Source: Have exercised stock options in a Norwegian startup. I was lucky enough to have enough cash at hand to pay the tax.
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!
It doesn't present numerical data on how rare it is though, I'd like to see data on this.
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?
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.
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.
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.
They don't like the safety nets.
Being shackled to the mediocre majority is never fun, some feel the shackles more than others.
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.
https://en.m.wikipedia.org/wiki/List_of_largest_technology_c...
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.
How much does that matter though? You could just release your app/site/whatever in English and instantly have access to the US market.
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.
US companies get that baked in. Everyone else has to grow to become that.
- 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.
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.
“Nobody in Berlin earns over €65k” should be a dead meme by now. Salaries are continuing to rise
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.
At least that's my experience so far.
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.
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.
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").
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.
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
Keep believing that you'll find "huge numbers of highly talented people" here, you won't - unless perhaps you mean in the arts...
did anyone show up, and if they did in what aspects were they lacking? Genuinely curious.
)-,;
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.
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.
https://en.m.wikipedia.org/wiki/List_of_largest_Internet_com...
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.
The article is real poorly written, I can't work out what it's saying the US or EU equivalents are.
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.
almost exactly like in the US. hence the GP’s complaint.
> 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.
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...
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".
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
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.
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 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.
Not trying to come off as nit-picky here, but source on that?
Is that not also true in the US?
https://hbr.org/2018/07/research-the-average-age-of-a-succes...
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.
Edit: that is: you have to pay the salary and, apart, 30% of that amount to the soc sec.
Cost isn't the reason.
I don't envy US healthcare arrangement. The healthcare insurance is the only one of those compulsory taxes I don't mind here.
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
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.
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.
Above that threshold means you pay an extra ~13% in employer NI contributions on top of the gross salary of your employees.
There ate different reasons, like risk taking, culture and the availability of venture capital.
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.
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.
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.
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.
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.
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.
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.
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.
That said they’re a huge outlier as far as I know. But it can be done.
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.
That said, debt financing is typically harder and scarier than equity for start-ups.
(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.
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.
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, 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.
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.
That's despite the fact that some of them are phenomenally successful.
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.
What a strange and incorrect assertion. Please walk us through your mental though process so we can re-educate you.
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-...
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].
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?
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.
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?
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.
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.
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).
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.
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.
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.
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%)
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 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.
Well, yeah, because they gamble with other people's money. Prop traders still make a big buck here in the Netherlands. (Dutch here)
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?
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.
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).
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.
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...
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.
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.
way closer to the actual content of the article.
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.
What's the problem with that?
> 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.
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.
Not in my experience. Basically it ends up that the difference between exercise and strike is taxed as income.
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 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?
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.
There's quite a few variants on the co-op theme.
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 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.
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).
"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."
There are a lot of very confident, but very wrong people out there.
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.
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.
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.
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-...
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)
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.
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.
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.
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 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 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.
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.
- 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.
https://www.npr.org/2018/03/29/598053563/why-the-number-of-i...
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.
I'm not saying there should be regulations, but there should be regulations.
Who all seem to be moving to New Zealand or Mars ...
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.
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.
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.
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...
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.
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.