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?
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.
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...
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"
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
Normaly thers no diference to the shares I own as an employee and as an investor (leaving aside the use of share classes to maitain control eg NI and Google)
"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.
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.
There's your real problem right there: "Playdead has received around $2m in government funds"
Government "playing" Angel Investor. Every investor wants a maximum return on investment. Not so for government. They want to brag about how many companies they attracted (by changing the rules for some companies). This is where things can only go wrong.
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.
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.
Yes, Danish people are happy with them. Don't know for how long though. The population of Denmark is aging rapidly and already a very small minority of working people is paying for everyone. But because they are a minority it's like 2 wolfs and a sheep 'voting' what's for dinner...
<Quote> Denmark has an entire population of 5,350,000 people. Of them, 1,150,000 are below 18 years old. Of the remaining 4,200,000 people, 2,214,000 people receive government transfer payments (not counting 260,000 students that receive public scholarships of $550 per month).
From taxing their citizens into poverty to forcing them to endure the highest electricity rates in the world due to the cult like obsession with lowering carbon emissions (god forbid it actually warms up a bit in Denmark!), the Danish State takes top marks for keeping the prisoners down.
Ah yes, "taxing their citizens into poverty". Have you looked up what a typical after-tax income is in Denmark? It is a very well-off kind of poverty, if it's poverty!
More generally I'd suggest that 30 seconds of Googling and some quotes from a blog run by gold-bugs doesn't really constitute an educated opinion about Denmark...
I felt it was relevant because I have noticed it is how a large majority of Americans view Denmark.
Of course the question is how long this can continue now even mario dragi (head of the European Central Bank) stated the Welfare State Model is dead: ""the old welfare state is dead, because it could not survive without debts"
"Have you looked up what a typical after-tax income is in Denmark?"
Your higher income doesn't matter if everything else is many more times expensive to buy.
If the US raises the minimum wage, those people that got that minimum wage most likely will have the same buying power because the raise in costs will be pushed through by companies (rightfully so) to the consumer (their costs will have increased).
It also has to do with the perceived value of a dollar and it's less when everyone has more of them.
The other thing is that Danish citizens have no choice. You don't have a choice to opt-out of all of these government-run programs. When it's described above, it reminds me of organized crime tactics. They give you something for free, but everything comes at a price.
You can keep telling us that Denmark's situation is great, but one thing is obvious: Startups and business owners avoid it like the plague. Great government benefits don't really help you in the long-run when you end up giving 60%+ of your profits to the government. This doesn't even include the strict rules about hiring and firing people. The Danish government doesn't like businesses. It's because they would rather have all the control.
I remember there was an article about how great Sweden was for startups last year (a country very similar to Denmark). Almost everyone in the article mentioned how they wanted to get out of the country.
With rules like these, it really only gives you two choices: work for the government or a large corporation. I don't ever want to do either..no mater how much free sub-par education and medical care you throw at me.
But the main reason that swedish startups wants to leave is because of the small market. Or as Zennström says: "Sweden is a great test market. But it isn't a real market."
This doesn't make any sense. Many of the Swedish companies I saw had sites in English and catered to non-Swedish citizens. The Internet allows you to run a website anywhere and have international customers/users.
Yes, but for 1 DTU there are plenty of other Universities aiming only at big numbers of students. Also, degrees are so inflated that companies keep asking for a Master even after 2 or 3 years of experience.
I am not sure Danish are happy. Are they? And also, will they be? Jobs in Copenhagen are extremely few and hard to get (especially if you are a foreigner...). I know Danish people easily find jobs now, but what about in 10 years? or 20? or 30?
I just can't see the sustainability of this system. Taxes are way too high and the State wants way too much control over things.
As an American who's moved to Denmark, I really don't see this, at least for anyone in the middle class. I make a middle-class professional income, and my overall effective tax rate is about 40% (incl. payroll taxes). I moved from California, where the overall effective state+federal tax rates on the same income would be around 35% (also incl. payroll taxes). A 5% difference isn't really enough for me to care much; the two countries differ in so many other ways that a 5% tax difference is way down on the list of why I would choose to remain in Denmark or return to the US. I'll probably eventually return to the U.S., but mostly because it feels more culturally like "home" (I'm American and not Danish, and that's something relatively difficult to change), not because I feel oppressed by taxes here.
Don't they also have a 25% VAT ? And higher living expenses because of it, so even with a 60,961 nominal GDP/per capita (5th in the world) when you correct for PPP it's 37,585$ (17th).
Living expenses vary in a lot of complex ways, yeah, depending on your lifestyle. I find cost of living here overall cheaper than in the SF Bay Area for my own lifestyle though, mostly due to transportation and healthcare. I was able to sell my car, ditch my gasoline/insurance expenses, and no longer have to pay co-pays or employee contributions for my health insurance. People with other lifestyles may find it more expensive, especially if you want to buy a car (which has its own separate, very high taxes).
I'm not sure VAT is a big component of the difference. I think housing costs and high wages are the biggest factor. Grocery prices are slightly higher (perhaps due to VAT), but we're talking differences there that add up to maybe 1% of my income annually. Eating out is much more expensive, mainly because everyone employed in the restaurant is making at least a lower-middle-class salary (~$40k or so... nobody's working for $7/hr). Rental housing in Copenhagen is more expensive than most of the Bay Area, but cheaper than SF proper or NYC. Housing to purchase is actually quite cheap; you can get a 2bd in reasonably central Copenhagen for $200k, which is completely impossible in SF or NYC.
I suppose the PPP comparison is made against the U.S. as a whole, in which case cost of living is definitely higher than, say, the midwest or Texas. But I don't think it's particularly high compared to coastal US prices. If you want to buy housing, if anything CoL is considerably lower.
> Yes, but for 1 DTU there are plenty of other Universities aiming only at big numbers of students.
Plenty? There aren't more than a handful of Danish universities in total. The only one that isn't at a high international level is Roskilde, and its student population is the smallest in the country by a wide margin. The two largest by number of students, Aarhus University (where I went) and Copenhagen University, are well into the world's top 50 on international rankings, and climbing. DTU is lower in overall rank but near the top in engineering. Aalborg is still under-ranked internationally, as you can tell by the fact that it's jumped a hundred spots on average each year in the QS rankings for the last several years, but everyone in Denmark knows it's a great school for engineering, rivaling and possibly surpassing DTU in education if not yet in research. SDU is in a solid third place after AU and KU as a well-rounded university; its departments are smaller in size, but many are packed with strong faculty.
> 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).
That's actually an incorrect way to think about it. Actually, Dropbox is paying for the free accounts, in an attempt to convert people to paying accounts.
Dropbox is simply offering a product which is priced around where supply and demand meet. I'm sure if Dropbox believed that they could make more money by increasing or lowering the price, they would. By paying for Dropbox, you're not paying for the free tier, you're paying the price that you think Dropbox is worth. It just so happens that Dropbox can make a good profit at that price point, even with the cost of the free accounts.
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?)
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.
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.
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.
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.
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.
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?