Are crowdfunding funds taxable?
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Crowdfunding and crowd investing
Crowdfunding or crowd investing interesting for start-ups and SMEs
With the growing spread of the Internet, crowdfunding developed a new way of financing projects, products and ideas. By means of "swarm financing" ("crowd" stands for a lot or crowd), money could suddenly be collected for various financing gaps.
In the beginning, crowdfunding was often intended as support for projects that did not simply come to supporters or sponsors (cultural projects, music bands, charitable organizations, etc. often financed their plans), but this increasingly turned into an interesting financing option for smaller companies:
Start-ups (e.g. on the Internet) or SMEs (small and medium-sized enterprises) often have a particularly difficult time getting a loan. Using the internet, crowdinvesting has also provided small businesses with an interesting financing option for higher equity. In addition to participating in the company's capital (by means of profit participation rights), subordinated loans are also possible as a form of financing for crowd investing. Recently, so-called participatory subordinated loans chosen as form of participation / financing option.
In the past (as it is still possible today) so-called business angels (capital providers) to visit or to rummage around banks, these days it is often enough to have a good idea and substantiate it via a business plan ("business plan") in order to attract investors.
How does crowdfunding work?
In the umbrella term "crowdfunding" there are many possible ways of using capital. A project is presented via a portal, which is financed by many different people (the "crowd"). In most cases, smaller amounts are collected here - the masses may then cash in ...
The extent to which this cash payment then generates profit for the investors is determined by the respective character of the funding: Sometimes the payment simply serves as support (e.g. for bands, cultural projects, socio-political organizations, NGOs, etc.) and the donors receive little or no consideration (e.g. tickets, free downloads etc.).
If crowdfunding is used for the system or investment, small investors can participate in various start-ups or SMEs - often with an investment of a few hundred euros. In such cases, however, one speaks primarily of "crowd investing" or "equity based crowdfunding or crowd investing" (when participating in the company).
An already existing (but often a newly founded) company is looking for capital, presents the business idea and a business plan and then looks for investors via the Internet portal.
If the project is of interest to the potential investor, the sought-after capital will be found very soon and the investor will then usually be involved in the company in the form of a silent participation (profit participation right or profit participation certificate for equity-based crowdinvesting). But an investment via loan (subordinated loan) is also possible via crowd investing - then the lender has rights to current interest or benefits according to the agreement and (ideally) receives his capital investment back after the contract period. Since 2015, almost only subordinated loans have been offered in Austria - often coupled with a profit-sharing scheme (but no direct participation in the company!).
If profits are distributed sooner or later with the participation variant or the company is sold, the participants then have rights to distributions or a proportional claim to the proceeds - this can of course also be the case after an agreed term (after company valuation).
How high this respective share is for the investors is contractually stipulated. In the case of companies that have existed for a long time (which may even be making profits), this will be proportionally lower than in the case of completely new companies that first have to build on the "green field" ...
As a rule, of course, the previous owners or previous investors secure a majority stake - after all, if you achieve your goals you want to benefit yourself and you have already had a lot of work in the start-up phase. When you start out, however, make sure you pay attention to the share that is available to the crowd investors - you can use this to calculate their approximate share of the profit (based on the amount of your participation in relation to the capital required for crowdfunding). The corresponding rates are contractually stipulated before participation and can be looked up.
By the way, the company evaluations in the run-up to crowdfunding can often be very adventurous ...
Up until now we have only talked about winning: Of course, a total loss is also possible. The likelihood of young companies in this regard is not so low - money invested in crowd investing is absolute risk capital with a high speculative component. Equity-based crowdinvesting in start-ups in particular is very risky - for long-established SMEs, subordinated bonds are of course also a risk investment, but much safer than direct participation.
Although you can usually only invest small sums - here too, risk diversification (in several projects and companies) is highly recommended.
In any case, crowdinvesting in any form is not for conservative investors. On the one hand, you should be able to imagine the possible chances of an idea a little, on the other hand, you should read carefully into the respective underlying contracts.
Types of crowdfunding
As already explained above, when it comes to crowdfunding, there are often very different financings with different risks. We try to briefly describe the most common types of crowdfunding as follows:
Lending-based crowdfunding: Often referred to as "crowdlending". Here, the lender (investor) usually receives a fixed interest rate (can also be supplemented by success bonuses) over a fixed term. Subordinate loans are normally used here, but there is also crowdlending for loans, for example - here a portal collects capital for lending. Participation in the company does not take place (a profit sharing when goals are achieved could be included) - but there is always a risk of default. Since 2015, Austria has almost only been offered financing via (profit-sharing) subordinated loans, but mostly there is often an interesting exit participation (from an agreed company valuation at the end of the investment).
This is a type of lending-based crowdfunding Impact loan: This applies to companies that offer social and / or ecological added value on the one hand, but are also financially success-oriented and allow investors to profit from it economically.
Equity-based crowdfunding: Often referred to as "crowd investing". Here you participate directly in the company (usually in the form of a profit participation right) and ideally receive distributions (profit sharing) or, if the participation is redeemed, a share in the possibly increased company value. With many start-ups you have to expect total failures! Hardly offered since mid / end of 2015.
Reward-based crowdfunding: As the name suggests: There is a reward for the investor. You do not have a stake in the company and do not receive any interest, but receive something in return for a certain investment (often staggered), such as a new product (the prototype, the production of which you are helping to finance). Often popular with artists: a CD, an invitation to a concert, a "meet-and-greet" etc.
Donation-based crowdfunding: The original form of the crowd idea - the community pooling for a (non-profit) project, the payment equals a donation (e.g. for an environmental, human rights or social project).
Crowdfunding and crowd investing in Austria
Crowdfunding and crowd investing are still relatively new in Austria:
Respekt.net has existed since 2010 (see link tips) - a platform for socio-political engagement. Several hundred thousand euros were donated to various semi-political and charitable projects in the first few years, and many projects have already been implemented with them.
In Germany (also active in Austria), Startnext has been in business since 2010 and has successfully financed countless crowdfunding projects. In March 2015 there was also reinforcement from Switzerland: wemakeit (means: "we make it") is the largest Swiss crowdfunding platform and is now also "fundet" in Austria. Since autumn 2015, Fundraizer, an Austrian crowdfunding portal dedicated to reward-based crowdfunding, has also been up and running.
The first Austrian crowdinvesting portal has existed since the beginning of 2013: 1000x1000.at is owned by Neurovation GmbH, which was also the first (fully financed) project of the financing platform.
In March 2013 the crowdinvesting platform CONDA started the first project, in October of the same year Green Rocket got off to a great start and Regionalfunding.at went online. Crowdinvesting platform number 5 followed in March 2014 with crowd capital, but it has not been active since the beginning of 2017.
DasErtragReich has been operating exclusively crowdinvesting by means of "subordinated loans" since June 2014 (i.e. number 6). Number 7 in terms of "classic online crowd investing" was then dagobertinvest in February 2016, around the same time RENDITY also started crowdinvesting in real estate (in a test run from autumn 2015). Evercrowd followed almost at the same time, and IMMOFUNDING, the next real estate financier, followed in the summer of 2016.
The real estate crowdfunding project "HOME ROCKET" - as the name suggests, an offshoot of GREEN ROCKET - also operates by means of subordinated loans. More on the topic here: Crowdinvesting in real estate
In September 2016 "GREEN ROCKET" and "HOME ROCKET" got a sibling: "LION ROCKET" (for somewhat established SMEs) was launched. Firstcap.eu also got started in September - the boom in crowdinvesting in Austria is almost frightening ...
"Crowd4Climate" then launched a completely new topic in autumn: Supporting climate protection projects in developing countries and even getting interest for them: Crowd4Climate
In 2017, crowd capital went offline, and REVAL, the next provider of real estate crowdinvesting, started in March.
There were also new providers in 2018, 2019 and 2020 - but also a market shakeout: some portals stopped operating or nothing happened, the 3 largest providers remained on record course year after year.
Limits and thresholds in crowd investing
As of September 1, 2015, the limit for crowd investing / crowdfunding was increased to 5 million euros (only then would a full capital market prospectus be required). The "compulsory prospectus light" (a simplified prospectus) applies from 1.5 (2.0 from mid-2018) to 5 million euros, up to 1.5 million euros (from mid-2018: 2 million) an information sheet is sufficient. WKO template.
According to the Alternative Financing Act ("Crowdfunding Act"), a maximum of 5,000 euros per year may be invested per project and per investor. If the investor has a monthly income of over 2,500 euros net, he can also invest twice the monthly net amount (at 4,000 euros net that would be 8,000 euros limit) per year. Investments of a maximum of 10% of the net assets are also permitted - in both cases the investor confirms these exceptions to the platform without the obligation to provide evidence.
Professional investors and legal persons who are not consumers according to the Consumer Protection Act are excluded from the limits.
In 2018, the alternative financing law was again slightly adjusted: Now not only small and medium-sized companies (SMEs) are allowed to use the crowd, larger companies are also allowed to get money through crowd financing. From 100,000 euros to 250,000 euros of financing volume there are no regulations in terms of information sheets, from 2 to 5 million euros a simplified capital market prospectus is required.
It will be very curious to see how crowdfunding and crowd investing will continue in Austria - Geldmarie has already invested a few euros here on a test basis and will always keep you up to date in the news section or in the crowd investing section.
In any case, crowdfunding would be successful - the willingness to invest in venture capital is sometimes pitifully low in Austria ...
Current crowdinvesting projects from Austria can always be found at: Crowdinvesting Austria
Tax profits from equity crowdfunding
Since the interest or investment income, bonus payments, increases in value, sales profits, etc. are usually not taxed directly by the financed company in crowdinvesting, this must be done by the crowd investor.
Under taxation of income from crowdinvesting and P2P loans, we have tried to explain the not so simple regulations on taxation.
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