Start-ups often attract talented employees with a stake in the company.
(Photo: Moment/Getty Images)
Berlin Federal Finance Minister Lindner wants to make it easier for start-ups to involve employees in the company. If the employee participation reform (ESOP) is implemented as planned, Germany would become significantly more attractive for talent compared to other countries, shows a new study by the US venture capitalist Index Ventures, which is available exclusively to Handelsblatt.
Accordingly, the Federal Republic would no longer be at the bottom of the ranking of 24 countries, as it has been for many years, but would instead move up to fifth place. This would put Germany only one place behind the USA and overtake the Netherlands and Italy. The top spot is shared by Estonia, Lithuania and Latvia.
The three Baltic countries already receive the maximum number of points of 30, Germany would get 23 points after the reform. For the study, Index Ventures examined how shareholders are treated legally and tax-wise.
The federal government wants to improve the details and, among other things, solve the so-called “dry income” problem in order to prevent employees from having to pay tax on company shares before they can monetize them. In addition, the tax allowance is to be increased significantly.
Specifically, after the reform, a significantly higher tax allowance of 5,000 euros per capita will apply to companies that have their employees share in the company, instead of the previous 1,440 euros. According to the draft, the reform will reduce the burden on start-ups by a good 1.3 billion euros per year.
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The draft law was passed by the Federal Cabinet in August, but the details are still being worked on. The changes are expected to come into force next year.
“Start-ups can’t pay much at the beginning, but can offer employees a share in the business,” said Index Ventures co-founder Neil Rimer to Handelsblatt. This binds people to the common project. And this must be made as easy as possible for companies, said Rimer, who in the past has invested, among others, in the computer game developers Roblox and Supercell, the fintech Revolut and Lieferando competitor Deliveroo.
US investor Rimer is promoting reform – including at Lindner
The law could become a “catalyst for start-up growth in Germany and Europe,” says Index Ventures partner Katharina Wilhelm. Many start-ups are currently suffering from the interest rate turnaround, sluggish consumption and investor reluctance. According to the start-up barometer from the consulting firm EY, the investment volume in the first half of the year was halved to almost three billion euros compared to the same period last year.
Study sponsor Index Ventures has long been campaigning for better ESOP conditions in Europe and has networked with 500 company bosses, including the founders of Getyourguide, Raisin and Hellofresh. Co-founder Rimer met personally with Federal Finance Minister Lindner in Berlin last week to discuss details of the new requirements.
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In Germany, the head of the Munich-based HR software start-up Personio, Hanno Renner, is considered one of the best-known supporters of the reform. “ESOPs enable financial participation in success equally for all employees – not just for investors and founders,” he says. It is a great lever for companies to attract talent. At Personio, all employees together currently own a total share of 15 percent in the company, just like at Getyourguide. In the USA, this proportion is usually significantly higher.
However, the chairman of the Federal Association of German Startups, Christian Miele, sees a need for further action so that the reform ultimately comes into effect in practice. Shares in start-ups have so far mostly been awarded via so-called restricted transfer notes, which can only be sold in a restricted and regulated manner. However, there are no tax requirements for the treatment of such shares in the draft law. This must now be added quickly in order to eliminate uncertainties, demanded Miele.
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