Federal government plans tax benefits for employee participation

Not just working for the start-up, but having a direct share in its success: This possibility is provided for in a new draft bill from the German government, which aims to double the tax allowance for employee shareholdings and exempt them from tax. There is also good news for venture capitalists: no more taxes on administrative costs.

According to a new draft bill, the German government wants to create new incentives for Germany as a start-up location. As of July 1, 2021, it wants to double the tax-free allowance for asset investments from 360 euros to 720 euros. In addition, VAT on the administrative costs of venture capital funds is to be abolished.

According to the draft bill from December 1, start-ups are of "crucial importance" for the German economy. And highly qualified specialists are crucial for success. In Silicon Valley, attracting employees with profit-sharing has long been a successful strategy. Thanks to the new tax-free allowance, shareholdings in one's own employer are now also becoming more attractive in Germany. Almost more importantly, employees previously had to pay tax on the increase in value of their company shares every year. Now, income tax is only payable on the date of sale or departure from the company. The President of the Federal Association of German Start-ups, Christian Miele, welcomed the reform in an interview with Handelsblatt as "absolutely necessary so that start-ups do not fall further behind in the global 'war for talent' and Germany can defend its competitiveness as an innovative tech location."

The German government also wants to create an incentive for investors: Until now, venture capital funds in Germany have had to pay taxes on management costs. This does not apply to investment funds; the new law will also apply this tax exemption to venture capital funds. The draft is currently going through the parliamentary voting process.