Voi CEO Warns Founders About Wealth Taxes
Voi Technology CEO Fredrik Hjelm warned that wealth taxes on unrealized gains are a major threat to startup ecosystems. He cited Norway's loss of 600B NOK in assets after implementing such a tax, which he says forces successful founders to flee their home countries.
Norway's wealth tax, in place since 1892, is levied on an individual's total net worth, including unrealized gains on assets like stocks. The current maximum rate is 1.1% for wealth exceeding 20 million NOK (approximately $2.2 million USD), a rate that was increased by the center-left government. This tax applies to a broad base, with around 720,000 people, or about 20% of the adult population with income, subject to it. The recent increase in the wealth tax rate has been cited as a key reason for an exodus of affluent Norwegians. In 2022, over 30 billionaires and multimillionaires left the country, which is more than the total number who departed in the previous 13 years combined. Switzerland has been a primary destination for many of these individuals due to its more favorable tax environment. One of the most high-profile departures was that of industrial tycoon Kjell Inge Røkke, who relocated to Lugano, Switzerland. His move alone is estimated to cost Norway approximately 175 million NOK (around $16 million USD) in lost tax revenue annually. Røkke was previously Norway's highest-taxed individual. Critics of the wealth tax argue it particularly harms the startup ecosystem by forcing founders to sell their shares in their companies to pay taxes on paper gains, even before their companies are profitable or have a public market valuation. This can lead to a dilution of ownership and control for entrepreneurs. This pressure to liquidate assets to cover tax liabilities is seen as a significant deterrent to building and scaling a business within the country. The debate around wealth taxes extends beyond Norway, with only a few other European countries, such as Spain and Switzerland, levying a broad-based net wealth tax. Other nations like France have moved away from a general wealth tax to one focused specifically on real estate. Many European countries, including Germany and the United Kingdom, do not have a wealth tax at all. Proponents of the tax in Norway argue that it is a tool for redistribution and helps to fund the country's extensive welfare state. Some economists also suggest that the exodus of the wealthy may be attributable to a general tightening of fiscal policy, including higher taxes on dividends and capital gains, and not solely the wealth tax. Despite the departures, wealth tax revenues have reportedly been increasing due to the broad tax base. The core issue for many founders is the taxation of unrealized gains when their primary asset is illiquid company stock. This can create a cash-flow problem, forcing them to sell parts of their business prematurely, potentially to the detriment of the company's long-term growth. This has led to calls for alternative tax models that do not disincentivize entrepreneurship and risk-taking. To counter the flight of capital, Norway has also tightened its "exit tax" rules. These changes are aimed at making it more difficult for wealthy individuals to move their assets out of the country without settling their tax obligations on unrealized gains. This has led some entrepreneurs to consider launching their businesses in neighboring countries like Sweden, which abolished its wealth tax in 2007.
