Haha, thanks for linking to my website! Happy to answer any questions.
Skimmed this thread and I'm quite surprised how few people are aware of the permanent establishment problem.
Quick primer on the permanent establishment problem: You would technically have to pay taxes for your company in the place you're living (not Estonia). For example, if you're living in Germany, your Estonian OÜ would technically have to file for German taxes, too, because it's being run from Germany and it now has a permanent establishment in Germany.
So, roughly speaking, the Estonian OÜ is only useful if:
- You are in a country which doesn't have a permanent establishment problem and maybe even offers tax benefits for foreign companies (e.g. the non-dom rules of Malta, Cyprus, etc.)
- You are in a country which doesn't have a permanent establishment problem because they don't crack down on foreign company ownership (e.g. most developing countries)
In all other countries, the Estonian OÜ is likely going to cause you many tax headaches in the long run. In practice, this means:
a) Your local tax authorities don't notice or don't understand, and you're still fine, even though you'd need to file for taxes;
b) Your local tax authorities crack down on you and you need to go looking for a very expensive international tax advisor versed in Estonian and your local tax law.
- What you're talking about is working as a freelancer (Freiberufler), which is a subset of a sole proprietor (Einzelunternehmen); these are different business types than a GmbH, and the article is about setting up a GmbH.
- Only setting up a GmbH if you want to "invest money" is overly simplistic. People might choose a GmbH due to limited liability, a more solid shareholder structure, etc. Slightly more generalized, you do have a point that of course a sole proprietorship might be a much better and simpler choice for one-person "companies" who mainly offer software freelancing services.
- Not setting up a separate bank account for your business, GmbH or otherwise, is strongly advised against. Not only by literally 100% of tax advisors, but also by the tax office themselves.
Yup. Most of the time, you simply don't need a GmbH.
I wonder why German people often think they need to found one - maybe because people in the US have a low threshold of founding an LLC, but that's because it's easy and cheap; or maybe due to the German Angst of "I will immediately get sued, so I need limited liability".
Sure, there are lots of middlemen who are more than happy to take your money to navigate this broken process, and tax advisors are probably #1 on the list :)
That being said, even throwing money at a tax advisor won't reduce the 16 steps to 1. More like 5-10.
You'll still have to to go the notary yourself, you'll still be opening the bank account yourself, you'll still be subject to Handelsregister spam and fake invoices, etc., etc.
Ha, that's my website - thanks for posting it (and for linking to it - allaboutberlin is awesome!).
Indeed, the valuation for the purpose of exit tax is 13.75 * (avg. of yearly profits for the past 3 years); and that valuation is taxed at approximately 30%.
So, as an example, if you own 100% of a company which makes 200k€ yearly profits, your back-of-the-envelope exit tax is 200k€ * 13.75 * 0.3 = 825k€.
A few quick notes:
- If your startup is not profitable but has raised VC money (we're on the YC website after all), the tax office likes to take the VC valuation (!) instead of the valuation resulting from the 13.75 multiple. So, if the valuation in your last round was €10M, then that's your valuation for the purpose of exit tax (back of the envelope: You own 50%, €10M valuation: 0.5 * €10M * 0.3 = €1.5M exit tax; huge problem for early-stage founders who usually don't have liquidity).
- You can deduct a CEO salary from that (yearly) number if you haven't been paying yourself a salary yet - realistically, up to 150k€ / year. So if your profit is up to 150k€ / year, you can reduce it to near zero for the purpose of exit tax valuation.
- You can also supply your own company valuation, but it has to be done by a "Wirtschaftsprüfer" - this costs around 10k€ per company; if you have shares >1% in multiple companies, this means costs of n * 10k€. This is often prohibitive.
- There's a whole tax advisor industry around this exit tax topic, and it feels very shady. I've written up all my notes from (paid) tax advisor calls and shared them on my website for free (linked by in parent comment).
- There are various setups to "avoid" it (all outlined on the website). None of those setups is easy, and none of them is free. Still, if you're e.g. faced with a potential exit tax of 825k€ like in the example above, any setup which might cost less than that might be theoretically worthwhile.
- If you leave Germany and return within 11 years, you get the exit tax back - so if that's your plan, you could "just" take out a loan and it mainly becomes a liquidity problem.
- Historically, there has been a strong tendency for Germany to tighten its exit tax laws over time.
- Different people have (vastly) different opinions on how "good" or "fair" this tax is.
- Discussing the exit tax has become quite a common topic among German founders nowadays.
Awesome. I'd be really curious which lawyer you were referring to - if you like, feel free to reach out privately (e.g. Telegram channel link on the website) :)
Juhn , I got swamped with their (annoying) (short) videos and also what I read about them was always more about selling than giving advice. It sounds like the lawyer you talked to had knowledge. I also find the 1.9k minimum fine compared to what the outcome can be
Berlin is a great place to observe policies with good intentions, yet negative second-order effects.
Distributing free potatoes will likely cause waste somewhere else, as e.g. people will buy less potatoes in supermarkets. The waste just becomes less visible as supermarkets dispose of food every day.
Another current exhibit is the prohibition of using salt for removing snow and ice from the pavements because it's "bad for plants and the ground water". While that is true to some degree, the Berlin policy conveniently ignores all second-order effects: Sidewalks are more slippery, more people get hurt. I see people slipping on snow-compacted ice almost every day. How many trees have to be saved to make it worthwhile for more people breaking their bones?
You can apply for an exemption though, e.g. if you plan to use salt on a driveway to a hospital. Processing fees for such an exemption are up to 1.4k€ [1].
The rent cap is another one. But let's go there another day..
> Another current exhibit is the prohibition of using salt for removing snow and ice from the pavements because it's "bad for plants and the ground water". While that is true to some degree, the Berlin policy conveniently ignores all second-order effects: Sidewalks are more slippery, more people get hurt.
Rigorously considering second-order (and greater) effects is a massive undertaking, though. Like: how do you even know how many more people will slip and get hurt without salting sidewalks and how much the damage the salt does to "plants and ground water," without many careful and expensive research projects? And then there's the challenge of weighing such completely disparate things: how many injuries are healthier plants worth?
The problem is not salting or not - the problem is that the house owners are liable for cleaning the sidewalk and they all outsourced it to the same companies. And the companies unsurprisingly all fail to deliver on their obligations because they take on way more customers they could possibly handle. The result is as expected - nothing gets done. A shovel and broom, maybe some grit would have been enough.
But there’s no shred of enforcement and instead of calling for enforcement, politicians now call for relaxing the rules on salting.
Or maybe don't make everyone responsible for the public roadway/sidewalk in front of their house and instead have the people that are responsible for all other things public roadway/sidewalk be responsible?
Works elsewhere, why not in Germany, where taxes should actually be even better able to cover it? [yes I know people in Germany, even specifically in Berlin and no this is not a Berlin specific thing]
Like where I live, the city also says not to use salt whenever you can and use alternatives and they themselves do not salt the roads in our town either, except for the major in and out ones. This is Canada btw. so we do get a load of snow and ice. They use grit and in spring the city sends through a grit cleaning crew (for reuse next winter). Except for the parts that make it onto lawns from snow plows pushing it onto your property. There it's your job i.e. some people put down mats in fall or they use brushes to get it out of the lawn and back onto the street where it can be picked up. Just yesterday, it was above freezing and the city snow plows went and used the warmer weather to scrape lots of ice off the road!
>Or maybe don't make everyone responsible for the public roadway/sidewalk in front of their house and instead have the people that are responsible for all other things public roadway/sidewalk be responsible?
Here in New York the problem is opposite. Every home and business owner is responsible for quickly clearing any walkways/sidewalks/driveways they own and are in front of their homes or businesses. New York is very litigious. As a consequence, unless someone is unable, way off the beaten path or doesn't care about getting sued for huge money, most everyone, especially businesses, made sure that their sidewalks and pathways are completely clear of snow and ice to avoid a ruinous lawsuit. On the flip side, properties owned by the county, city, town or other public entities are far more likely to be unmaintained and covered in snow and ice. In general I'm against living in an overly litigious society, but when it comes to snow and ice clearance it certainly has an impact here. This is all in spite of extremely high tax rates (property, income, sales and otherwise).
I believe enforcement would solve the problem for Berlin as well. Just hand out substantial fines to change the calculus for the home owner. At the moment, the risk/reward is favoring doing nothing, so that's what a lot of people do.
what is bieng nibbled at but not spoken is the fundamental conection between responsabilities and rights of citizens, and the long nasty never ending attempts to seperate and comidify them.
Funny that you would propose such a practical and simple solution. This has been proposed by the Green Party in Berlin and I’m surprised you didn’t hear the wailing choir of house owners across the Atlantic. “Too impractical”, “too costly”, “who would pay for that?”.
Thing is, the current system works well for all people except the ones that want to walk on the icy pavement. Politicians aren’t responsible. House owners shed the responsibility to a contractor. Many contractors regard this essentially as largely free money and just weigh the cost of a potential lawsuit against the accumulated income. It’s extremely good at diluting the responsibility so that no affected individual can effectively do anything about it. Why change a system that works so well for all of the people except the ones affected by the outcome?
Funny indeed. Now that you mention it, I can "hear" the complaining voices in my mind, yes :) So very German of them too!
Funny you mention cost. This year our town actually did not contract out the snow clearing of the roadways to a contractor like they've done for decades past, because it became too expensive (or rather the percentage increase I believe was the trigger). So instead the city is now doing the snow clearing themselves! I would call this very good stewardship of our property tax payments, which is what pays for that. Just now instead of going to greedy contractors (let's face it, most of that money isn't going to the people actually doing the snow clearing) and instead it will go towards paying the salaries of actual city employees (not sure how many temporary) and I guess equipment cost.
Most people here also get a local contractor or in our case it's usually one of the farms around the area, that offer snow clearing of your driveway. Both the actual driveway, which around here can be quite large, and for clearing the large amounts of snow and ice left across your driveway by the city plows clearing the roads. Essentially tractors with snow blower attachments on the back PTO. Like this: https://www.deere.ca/assets/images/region-4/products/attachm...
My recollection--from Ohio, Colorado, Maryland, and Washington, DC--is that in the US the property owner is generally responsible for the sidewalk.
We are wary of salt, having damaged a stretch of sidewalk in a rowhouse development by heavily salting it one winter. Others, and the city of Washington, will put down salt at the least probability of snow.
The same liability issue exists in Belgium, with very similar results. Some people will clear the pavement in front of their homes, others won't. Some don't have the time, some don't have the ability. Some try but make it worse, by brushing aside the snow without salting a thin leftover layer can easily turn into black ice.
Our tax rate is insane. This is a responsibility/liability that should rest with the governments, but they'd never get it done.
My hot take is that the govt ought to facillitate the process, e.g. by providing salt/grit/shovels/salt spreaders, so that people at least have a realistic chance of getting it done.
The ban on salt isn’t silly, for a long time pebbles were good enough to prevent black ice, and perhaps even more effective than ice.
Donating potatoes that were about to go to waste might cause waste elsewhere, but what you propose is that we never give food away unless we can be absolutely sure it won’t cause waste in another sub-system. That’s a tall order. These potatoes were going to be waste anyway.
Surely if you can consider the second order effects of giving away these extra potatoes for free, then you can also consider the second order effects of not giving them away? And maybe even thinking more about it, consider that they may be going to different markets/people/causes?
Given this example is about 1T batches of potatoes, it could be used by a business that depends on cheap potatoes like a food kitchen, or a business that can absorb the input surge and convert it into a product that can be stored longer term like frozen foods.
> While that is true to some degree, the Berlin policy conveniently ignores all second-order effects: Sidewalks are more slippery, more people get hurt
I seriously doubt they did not know that. The whole point of salt is to prevent people from falling. Of course they knew more people will fall.
Is the concept of someone who usually doesn't eat potatoes getting a bag and spending the next week making some potato dishes really that inconceivable? I don't doubt that this will lead to some waste - I've thrown out more half empty potato bags than I would like to admit - but that's a very negative outlook.
Also how do you choose between negative second order effects? Salting roads creates negative effects for groundwater and plants which are really hard to mitigate. On the other hand the second order effect of people slipping could at least be dealt with on an individual level by putting spikes on your shoes.
> how do you choose between negative second order effects?
First off you have to identify them. Until you frame the costs and benefits of salting, it isn't clear that the real question is how can we improve pedestrian and vehicular traction without poisoning our plants and water supply. (I'd argue it's frequent ploughing, gravelling and dynamic signs for signalling when chains/snowies/AWD are required.)
Salting your ground water is also a second-order effect. The way you put that statement into quotes shows that you value human well being over everything else. Personally I don't. Life on earth is a co-op and we don't win by being the last ones standing, as we are desperately trying right now.
As someone who just went outside to buy groceries in Berlin and watched them salt the road on my way to Kaufland, I am confused. Is it just for sidewalks?
Hmm, I mean it was a lot of white stuff coming out. Again, on the street, so maybe it's different rules compared to sidewalks. Possibly sand, but I'm pretty sure it's salt.
Good point on the second order concern, but I'd get potatoes and keep non-perishable food for later. Assuming the exact same weight or available caloric intake will be wasted is too simplistic.
I mean it sounds sort of if you know what the second order effect of damage to plants and ground water will be if people salt their driveways? I would think you sort of need to run the test in production to see which way is more beneficial.
The neighbors snow response contractor had an electric brush on a broom handle, that looked pretty nifty and took like 15 minutes for the whole front to be spotless clean. Then they added a bit of grit, done. The contractor for our block didn’t even show up. Not sure allowing salt would have changed anything.
It's not about the snow, snow is easy. It's about black ice of which we seem to have more in the last few years. Gravel doesn't cut it here - I broke my wrist last year and this year I salted the paved path to the front gate, I don't want to repeat 8 hours waiting in the ER, 2 surgeries and 3 months more or less out of commission.
This happened 2025 Jan 15-17 and this year Jan 12-14 in the area I live in. Rain and fog meets icy ground and then rain turns to snow. When I was in the ER last year the 8 hours wait time were due to 26 other broken bones patients and the ER was busy until 1:30 in the morning. It used to be rare, but that changed over the last couple of years.
The gall to complain about "not having a grasp on reality" while writing hypersimplistic reactionary comments. The evidence for Dead Internet Theory grows by the day.
With properly graded streets and sidewalks, liquid water runs off. When the bulk of snow is cleared, the small bits that remain melt, flow off, and/or evaporate during melting days. I can't comment on the specific climate of Berlin, but it certainly doesn't seem poised to be an arctic encampment.
>How many trees have to be saved to make it worthwhile for more people breaking their bones?
The **** is a death cult. They are very very happy to see you become an invalid if it avoids the death of a sapling. I know that this sounds hyperbolic to the point of being derisive, but it's the observable truth.
- I assume you're referring to founding a UG with 1€ in Germany. If you truly found it with 1€, it'll technically be bankrupt shortly after founding it because the founding costs are around 1k€ (notary etc.), and you haven't made any revenue yet. It's generally recommended to found with at least 2-3k€.
- 10 days is not a reasonable timeframe for founding a German UG. Optimistic timeline: Instant notary appointment, 14 days for corporate registry, instant bank account, 14 days for tax ID. Total of 28 days.
In most developed countries, you should incorporate at your place of residence. That's because incorporating in a foreign country will introduce tax issues regarding the so-called "permanent establishment".
As an example, if you'd be living in Germany and choose to incorporate in Estonia, then it's likely that your Estonian company has a permanent establishment in Germany, because you (as an owner and managing director) are performing work there. This leads to your company having to file for Estonian and (!) German taxes, which quickly becomes a headache.. and potentially expensive, as you'd need to rely on international tax advisors if you run into problems.
But even besides that, the main problem is that you still are hit with German bureaucracy, even if you incorporate in Estonia - you have to file for German taxes, potentially register your Estonian company (= its permanent establishment in Germany) in the German corporate tax registry, etc.
I've looked into this fairly in-depth and also discussed it with people in the Estonian e-Residency team. They largely confirmed my analysis, which I wrote up here [1].
The conclusion, unfortunately, seems to be that incorporating in another country (e.g. Estonia) only is viable if a) you're not living in a developed country which follows up on tax payers and where their businesses are located, b) you're actually living in Estonia or c) you have a sufficient budget for actually setting up a (physical) establishment there so that you don't run into the dual-permanent-establishment problem.
Interesting to see this on HN. I was part of the research group which published this back in 2015 [1], I think we were the second group worldwide to publish this.
So, first off, this is not new. The linked publication here mainly seems to be explaining a potential mechanism of how it might happen.
Some quick notes to aid in a constructive discussion - bear with me, it's been a while and I've left research and since worked as a software developer, chuckle:
- Different gadolinium agents have vastly different "buildup" characteristics - some are better, some are worse. Biochemically, the ones where the gadolinium was trapped in harder "complexes", those were more stable (less accumulation). I suck at biochemistry, so all of those words may be wrong.
- If you'd want to over-engineer this, you could indeed select your MRI hospital / practice based on which gadolinium agent they use.
- Unless you're getting a ton of MRIs (think multiple sclerosis monitoring etc.), you probably won't be affected.
- Most MRIs are without contrast agent anyway, so you probably won't be affected.
- The last I heard was that the clinical implications were still being investigated - like, yeah, you do see a buildup of gadolinium in patients who 1) get certain gadolinium agents and 2) have a ton of MRIs, but what does that mean they'll suffer any clinical consequences from this? Not sure. I heard that there was a paper (.. somewhere) which at least showed a correlation with worse MS outcomes of people who had a high buildup, but then again, cause-effect here is not clear as people with worse MS tend to have more MRIs, too (correlation != causation).
Agreed. As mentioned in another comment, I think it'd be fair to levy the exit tax when you actually sell your company in the future. Like, if I ever sell my business, I'd be happy to pay my fair share of German taxes on said business, even if I'd no longer be a tax resident of Germany.
The current implementation which essentially simulates a "virtual" sale of your business once you leave the country is pretty terrible, as most normal humans don't have that sort of cash on hand because, well, they actually didn't sell their business at that point in time.
Skimmed this thread and I'm quite surprised how few people are aware of the permanent establishment problem.
Quick primer on the permanent establishment problem: You would technically have to pay taxes for your company in the place you're living (not Estonia). For example, if you're living in Germany, your Estonian OÜ would technically have to file for German taxes, too, because it's being run from Germany and it now has a permanent establishment in Germany.
So, roughly speaking, the Estonian OÜ is only useful if:
- You are in a country which doesn't have a permanent establishment problem and maybe even offers tax benefits for foreign companies (e.g. the non-dom rules of Malta, Cyprus, etc.)
- You are in a country which doesn't have a permanent establishment problem because they don't crack down on foreign company ownership (e.g. most developing countries)
In all other countries, the Estonian OÜ is likely going to cause you many tax headaches in the long run. In practice, this means:
a) Your local tax authorities don't notice or don't understand, and you're still fine, even though you'd need to file for taxes;
b) Your local tax authorities crack down on you and you need to go looking for a very expensive international tax advisor versed in Estonian and your local tax law.
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