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Will ‘crazy’ tax leave Berlin unable to compete?

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Updated: What makes a city competitive for startups? VCs, angels and cheap desk space, to be sure, but also nuts-and-bolts stuff like transport and taxation.

As Om noted in December, Berlin’s airports are quite small, but the city had a plan. The two currently operational airports — Tegel and Schoenefeld — were supposed to be replaced in June by a new mega-airport, Berlin Brandenburg.

But then disaster struck. In a sore blow to anyone still harbouring stereotypes about German efficiency, officials admitted at the start of May that the airports fire safety systems were not yet ready. And yesterday it emerged that the opening date has been pushed back by an embarrassing nine months to next March.

This is humiliating for the German capital, a city that wants to reposition itself as one of the world’s premier technology hubs, and — as a result — has upset a number of local companies.

“The airport screw up is really sad and not worthy of a capital city in Europe. It looks really unprofessional,” Benedikt Lehnert, the chief marketing officer of productivity startup 6wunderkinder told me.

However, the company does not think it will have any direct impact on the startup scene – a view shared by others I spoke to. What they’re far more worried about is a new compulsory pension contribution for freelancers aged under 30, that’s set to kick in from mid-2013.

‘Crazy’ taxation

The government is forcing young freelancers to pay into their pension pot, something that has been causing quite a stir recently — infact, a petition against it has racked up almost 60,000 signatures. But what’s the problem here? Pensions are good, right?

People might be a bit more enthusiastic about the move if it weren’t for the fact that the contributions (€250-€300 a month for the pension and €100 for disability insurance) are not going to be linked to income. And the fact that the minimum earnings threshold for the scheme is just €400 a month. You do the math.

As Gidsy CEO Edial Dekker told me, it’s “crazy that freelancers have to pay for the broken pension system,” particularly given the high levels of health insurance and social security that they already have to pay.

“Instead of helping freelancers, they’re being charged with something that is very likely not going to be beneficial for them personally later,” Dekker said. “I think one of the most exciting things about our generation is that a lot of people are doing small jobs and that no one thinks about working for the same employer for the upcoming 30 years. It’s good, and should be supported.”

6wunderkinder’s Lehnert also took the stance that being a freelancer is not just a job but “a starting point into self-fulfilment”.

“But starting as a freelancer isn’t always easy and being forced to pay a lot of money might stop a lot of people to start their own business,” the company warned.

That said, not everyone agrees on this point. Prominent local angel and Phonedeck co-founder Christophe Maire called the issue “a false problem.”

“Great companies are not — as a rule — built by freelancers but by full-time core employees dedicated to a product,” Maire argued.

“This freelancer thing is so 90s.”

Update: This post has been updated to clarify which team member at 6wunderkinder we spoke to.

7 Responses to “Will ‘crazy’ tax leave Berlin unable to compete?”

  1. JohnGalt

    While taxation is primarily a form of state-sponsored terrorism, since if is an act of politically-motivated violence to coerce people.

    It is also a way for government to curb freedom they could not lawfully prohibit.

    It is obviously the intention of the German government not to allow these types of workers and business models to exist. So prohibitive taxation allows them to “crimialize’ such activities by making it to expensive to profit from doing it.

    Of course, it will just create a black market for these individuals and services

  2. DanoX

    Germany is the strongest economy in Europe by far (because they still make things) out of all the other countries, if you are German and they say pay, pay up or move to the UK, Ireland, Spain, Portugal, or Italy and see what you get. Design, Engineering, R&D, and actual products win out in the long haul, not financial service industries who do noting but push paper.

  3. Stefan Brunner

    Germany does not like entrepreneurs. Germany likes people to work for large government-agency-like companies. And this does not just manifests itself through business inhibiting laws and regulations but also through the attitude of incumbents towards start-ups. The only reason why the “start-up culture” got some attention recently is greed. Some people observed that you can make money with cheap plastic imitations and follow the lemmings. Drooling, they run over the cliff just like with the housing bust and the dot-com stock bubble burst. In each case, risk averse Germans are late to the game and jump in for reasons of greed, when there is no economic basis anymore and the savvy investor gets out.

  4. Wake up and smell the coffee germany has always been about control, now even the Germans have to except control from the inside and pay up, no more free living. I think the 2nd persons comment actual agrees with the 1st comment that was made. Berlin may be a city of free living fun loving people but you are not an island, it is within the control of German government with its draconian taxes and it’s limitations on freedom. Remember You are always free until what you desire life is restricted by a man made law or a government.
    Maybe the 400 euros a month you will pay will pay our pensions in the uk?

    No offence intended

    Happy living hiwever if you want a taste of reality, we akways send you a ticket for the uk or even Greece, in the mean time have a beer on us fellow German tax payers based in the uk

  5. Fred Stevens-Smith

    To clarify – since I’m unable to edit the comment – I love Berlin. It’s probably the best city in the world to live as a young person. I just think it’s handicapped by the German bureaucracy.

  6. Fred Stevens-Smith

    Berlin is overrated. Have you *tried* starting a company there? It takes under 10 minutes in the UK or US. In Germany it take ~3 months, with obligatory lawyers and a price-tag to match. The overall environment of extreme bureaucracy and if-you-want-you-shall-pay is not conducive to startups. Let’s face it, Berlin is currently so buzzy purely because of the silly cheapness of the place. Once that changes (and it will – rents are going up by +10% year on year) the buzz will evaporate, as everyone remembers that Berlin is still in Germany.