Last Friday, the German Bundestag passed a resolution in the 2nd/3rd reading. The Future Financing Act (ZuFinG) was passed at the second reading. The law is intended to strengthen start-ups and scale-ups through more attractive framework conditions for employee capital participation and easier access to the capital market. In a European comparison, Germany was in last place for the framework conditions for employee share ownership – the ZuFinG is intended to catapult Germany into the top group worldwide. For Christian Miele, Chairman of the Startup Association, the law is a “great success for the traffic light coalition”.
“Today is a good day for the German startup ecosystem. The new rules for employee participation are probably the biggest start-up reform in Germany,” says a satisfied Miele. Startups are at a disadvantage compared to established companies when it comes to recruiting employees. Attractive employee participation programs are an internationally proven means of compensating for this disadvantage.
The reforms were urgently needed so that start-ups and scale-ups can keep up with the international competition for the best talent. Employees are critical to the success of start-ups. The law can therefore become an important accelerator for the growth of start-ups and scale-ups in Germany.
According to the Rewarding Talent Ranking of the international venture capital company Index Ventures, Germany ranks last in Europe in terms of the framework conditions for employee participation – ZuFinG can catapult Germany into one of the top places worldwide. This is due in particular to the introduction of optional employer liability, which makes it possible to avoid so-called dry-income taxation, i.e. taxation without an inflow of liquidity, when changing jobs or after 12 years.
“That was a decisive showstopper for the old regulations,” emphasizes Miele. In addition to avoiding dry-income taxation, the expansion of the scope of application is of great importance. In future, companies with up to 1,000 employees, a turnover of no more than 100 million euros or an annual balance sheet total of no more than 86 million euros will be able to take advantage of the regulations. Previously, these values were set too low with the SME threshold (fewer than 250 employees and annual turnover of no more than EUR 50 million or annual balance sheet total of no more than EUR 43 million), particularly for up-and-coming start-ups. Of particular importance is also the increase in the transitional regulation after exceeding the thresholds from 2 to up to 7 years and the extension of the company age to 20 years. This means that technology start-ups with long development cycles in particular will be able to benefit from the new regulations in future.
“Scale-ups that face particularly tough international competition for talent have been effectively penalized for their success to date. The ZuFinG is now changing that. We are thus creating better growth prospects for start-ups in Germany. This is particularly important in view of Europe’s digital sovereignty,” says Miele.
According to Miele, one “fly in the ointment” is that the so-called “group clause” was removed in the parliamentary process: “This disregards the existing complexity of company law in Germany,” says Miele. “It would only be fair and right if employees of potential subsidiaries were not left out.” Improvements need to be made here. As provided for in the protocol declaration on the ZuFinG, adjustments should be made as part of the next Annual Tax Act. In this respect, the draft law falls short of the aspirations of the government draft.
About the Startup Association:
The startup association has almost 1,200 members and was founded in Berlin in September 2012. The association sees itself as the representative and voice of startups in Germany: it represents the interests, viewpoints and concerns of startup companies vis-à-vis legislation, administration and the public. He promotes innovative entrepreneurship and wants to bring the start-up mentality into society. The association sees itself as a network of startups in Germany.
Further links:
Future Financing Act: resolution recommendation from the Finance Committee
