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 via the Bundesrat to increase pressure on the Federal Government. Support for startups is also being discussed in Berlin, although according to Finance Minister Wolfgang Schäuble, only on a smaller scale.
In comparison to the US and Israel, Germany lags far behind when it comes to supporting innovative companies, according to Söder: “The financing situation for German startups needs to be (…) improved.” More capital needs to be invested to drive young companies forward. “The biggest problem for startups is financing. This is where we are starting, by improving the tax framework for young companies and investors.”
Tax Authorities to Take Risk Off Investors
The draft bill includes a provision allowing investors to immediately write off for tax purposes the venture capital they provide to a company. When they sell their stake later, however, tax is owed. This makes it, so to speak, an interest-free loan from the tax authorities. If the investor incurs a loss on their investment, the write-off becomes final. As a result, the tax authorities absorb part of the investor’s risk.
Photo: B. Roemmelt
In addition, there are to be exceptions for startups regarding minimum profit taxation in the future. Currently, a profit of over one million euros still has to be taxed, regardless of how much loss an entrepreneur made in the previous year. Söder noted that particularly young, research-intensive companies currently transitioning from the loss phase to the profit phase are burdened by the current rule.
According to reports, his draft bill contains measures that would cost the federal government, states, and municipalities a total of 95 million euros per year. The reduction in tax revenue would be slightly lower in the first four years.
