Markus Söder has spoken out in favor of tax incentives for startups. "Germany is in danger of falling behind in venture capital," warned the Bavarian Finance Minister in an interview with Handelsblatt. The CSU politician is planning a legislative initiative through the Bundesrat (upper house of parliament). This is intended to increase pressure on the federal government. Supporting startups is also being discussed in Berlin, although, according to Finance Minister Wolfgang Schäuble, only on a smaller scale.
Compared to the US and Israel, Germany lags far behind in terms of supporting innovative companies, says Söder: "The financing situation of German startups must (...) be improved." More capital must be invested to promote young companies. "The biggest problem for startups is financing. This is where we can start by improving the tax framework for young companies and investors."
Tax authorities should reduce risk for investors
Among other things, the draft law provides for investors to be able to immediately deduct the venture capital they provide to a company for tax purposes. However, a tax is levied upon the subsequent sale of their investment. This is essentially an interest-free loan from the tax authorities. In the event of a loss to the investor due to their investment, the deduction is final. Thus, the tax authorities absorb part of the risk from the investor.
In addition, there will be exceptions to the minimum profit tax for startups in the future. Currently, profits of over one million euros are still subject to tax, regardless of the amount of loss an entrepreneur incurred in the previous year. Young, research-intensive companies that are currently in the transition from a loss-making to a profit-making phase are particularly burdened by the current regulations, according to Söder.
His draft legislation would entail measures that would cost the federal, state, and local governments a total of €95 million annually. The revenue shortfall would be somewhat lower in the first four years.
