Last Friday, the German Bundestag passed the Future Financing Act (ZuFinG) in the 2nd/3rd reading. The law aims to strengthen start-ups and scale-ups through more attractive framework conditions for employee equity participation and easier access to the capital market. In a European comparison, Germany was in last place when it came to the framework conditions for employee equity participation – the ZuFinG is intended to catapult Germany into the top group worldwide. For Christian Miele, Chairman of the Board of the Startup Association, the law is a “great achievement by the traffic light coalition”.
“Today is a good day for the German startup ecosystem. The new rules for employee participation are probably the biggest startup reform in Germany,” says a satisfied Miele. Startups are at a disadvantage compared to established companies when it comes to recruiting employees. Attractive employee share ownership programmes are an internationally proven means of compensating for this disadvantage.
The reforms were urgently needed so that startups and scaleups 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 – the ZuFinG can catapult Germany to one of the top places worldwide. This is due in particular to the introduction of optional employer liability, with which so-called dry-income taxation, i.e. taxation without an inflow of liquidity, can be avoided in the event of a change of employment or after 12 years.
“This was a decisive showstopper of the old regulations,” emphasises 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 utilise the regulations. Previously, these values were set too low with the SME limit (fewer than 250 employees and annual turnover of no more than 50 million euros or annual balance sheet total of no more than 43 million euros), particularly for up-and-coming start-ups. 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 are also of particular importance. 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, which face particularly tough international competition for talent, have so far been effectively penalised for their success. 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,” said Miele. “It would only be fair and right if employees of potential subsidiaries were not left out.” Improvements must be made here. As envisaged in the protocol declaration on the ZuFinG, adjustments should be made as part of the next annual tax law. In this respect, the draft bill falls short of the aspirations of the government draft.
About the Startup Association:
The Startup Association has just under 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. It promotes innovative entrepreneurship and aims to promote the startup mentality in society. The association sees itself as a network for start-ups in Germany.