VC Valuations Matter

• I've heard multiple times that VC valuations are taken into consideration by the German tax office(s) when it comes to the exit tax calculation. This is generally very bad for founders, because VC valuations tend to be inflated and very illiquid, i.e. you can't just spontaneously "cash out" and sell your company at your recent VC valuation.
• Remember: The normal valuation method assumed an earnings multiple of 13.75, and that valuation is taxed at roughly 30%, so your exit tax ends up being roughly 4x earnings; for early-stage startups, this can be alright if you're not profitable yet. A VC valuation however completely changes that maths as you now might be looking at an exit tax in the millions of Euros.

Tax office in Bavaria

• The tax office in Bavaria apparently has centralized all processing of exit tax matters.
• This means that, instead of your local tax office (e.g. Munich) also handling your exit tax situation, all of this is handled centrally by one office in Bavaria.
• The immediate consequences of this seem to be that 1) processing times tend to be quite long, and 2) their "interpretation" of the exit tax law seems to be very "unpragmatic", which led to at least one tax advisor generally advising their clients to move away from Bavaria first before leaving Germany entirely; in other words, this would mean moving inside of Germany once first (= to a state which is not Bavaria), and then leaving Germany from there a few months later.

Tax office in Berlin

• The main problem of the tax office in Berlin seems to be that it supposedly takes very long to respond when it comes to exit tax matters.
• A tax advisor told me that other tax offices tend to respond within weeks or 1-2 months, whereas Berlin might easily take 6 months or later.
• The anecdote generally wasn't that Berlin was unpragmatic (in contrast to Bavaria), but that it simply took very long which made planning difficult.

Case studies

• A founder in Berlin left Germany and paid a low amount of exit taxes due to their startup having a low valuation at the time. A few years later, their startup raised VC funding at a high valuation. The tax office came back and argued that the "old", low valuation at the time was invalid due to the higher VC valuation which happened later. He's been dealing with the tax office for multiple years now as they're going back and forth on whether he should pay a large amount of German exit tax.
• Another founder in Berlin who had a very large company sale (exit) in the past (no exit tax so far) has decided to incorporate a Liechtenstein trust for future businesses he will found so that he will no longer be bound to Germany due to the exit tax. Also, there are apparently benefits when it comes to the inheritance of his children.