Policy Subjects

Corporate venture capital enterprises, limited partnership venture capital enterprises, and individual angel investors.

Policy Contents

1. For corporate venture capital enterprises that directly invest in seed-stage or early-stage high-tech enterprises (referred to as start-up high-tech enterprises) for a period of 2 years (24 months) or more through equity investment, they can deduct 70% of the investment amount from their taxable income in the year when the equity is held for a full 2 years. If the deduction is not fully utilized in the current year, it can be carried forward and deducted in subsequent tax years.

2. For limited partnership venture capital enterprises that directly invest in start-up high-tech enterprises for a period of 2 years or more, the partners of such enterprises will be treated as follows:

(1) For corporate partners, they can deduct 70% of the income distributed to them from the venture capital enterprise based on the investment amount in start-up high-tech enterprises. If the deduction is not fully utilized in the current year, it can be carried forward and deducted in subsequent tax years. If a corporate partner invests in multiple eligible limited partnership venture capital enterprises, the deductible investment amount and income distributed can be calculated together. If the deduction is not fully utilized, it can be carried forward and deducted in subsequent tax years. If there is a surplus after deduction in the current year, corporate income tax should be calculated according to the provisions of the Enterprise Income Tax Law.

(2) For individual partners, they can deduct 70% of the operating income distributed to them from the venture capital enterprise based on the investment amount in start-up high-tech enterprises. If the deduction is not fully utilized in the current year, it can be carried forward and deducted in subsequent tax years.

3. For individual angel investors who directly invest in start-up high-tech enterprises for a period of 2 years or more through equity investment, they can deduct 70% of the taxable income obtained from the transfer of equity in the start-up high-tech enterprise. If the deduction is not fully utilized in the current period, it can be carried forward and deducted when taxable income is obtained from the transfer of equity in the start-up high-tech enterprise. If an angel investor invests in multiple start-up high-tech enterprises and has not fully deducted 70% of the investment amount in an enterprise that has undergone liquidation, the deduction can be carried forward and utilized within 36 months from the date of liquidation for taxable income obtained from the transfer of equity in other start-up high-tech enterprises.

Application Conditions

1. The start-up high-tech enterprise must meet the following conditions simultaneously:

(1) It must be a resident enterprise registered and subject to audit-based tax collection within the territory of China (excluding Hong Kong, Macau, and Taiwan).

(2) At the time of receiving investment, the number of employees should not exceed 200, with at least 30% of them having a bachelor's degree or above. The total assets and annual sales revenue should not exceed CNY 30 million (adjusted to CNY 50 million for the period from January 1, 2019, to December 31, 2023).

(3) The establishment of the start-up high-tech enterprise should not exceed 5 years (60 months) at the time of investment.

(4) The start-up high-tech enterprise should not be listed on domestic or foreign stock exchanges at the time of investment and within 2 years after investment.

(5) The research and development expenses in the year of investment and the next tax year should account for no less than 20% of the total cost expenditure.

2. The venture capital enterprise enjoying this tax policy should meet the following conditions simultaneously:

(1) It should be a resident enterprise or a limited partnership venture capital enterprise registered and subject to audit-based tax collection within the territory of China (excluding Hong Kong, Macau, and Taiwan). It should not be the initiator of the invested start-up high-tech enterprise.

(2) It should comply with the provisions of the "Interim Measures for the Administration of Venture Capital Enterprises" (Order No. 39 of the National Development and Reform Commission and other 10 departments) or the special provisions on venture capital funds in the "Interim Measures for the Supervision and Administration of Private Investment Funds" (CSRC Order No. 105). The enterprise should complete the filing and operate in accordance with the above provisions.

(3) Within 2 years after the investment, the venture capital enterprise and its related parties' combined equity holdings in the invested start-up high-tech enterprise should be less than 50%.

(4) The limited partnership venture capital enterprise includes both enterprises meeting the above conditions and enterprises meeting the conditions specified in the "Announcement of the State Administration of Taxation on Issues concerning Corporate Income Tax of Corporate Partners of Limited Partnership Venture Capital Enterprises" (SAT Announcement No. 81 of 2015).

3. The individual angel investor enjoying this tax policy should meet the following conditions simultaneously:

(1) They should not be the initiator, employee, or relative (including spouse, parents, children, grandparents, grandchildren, siblings, etc.) of the invested start-up high-tech enterprise, and they should not have labor dispatch relationships with the invested start-up high-tech enterprise.

(2) Within 2 years after the investment, the individual investor and their relatives' combined equity holdings in the invested start-up high-tech enterprise should be less than 50%.

4. The tax benefits under this policy are only applicable to equity investments made by direct cash payments to the invested start-up high-tech enterprise, excluding the acquisition of existing equity from other shareholders.

Application Procedures

Corporate Income Tax:

1. When corporate venture capital enterprises and corporate partners of limited partnership venture capital enterprises apply for the tax benefits during annual declaration, relevant procedures should be handled in accordance with the "Announcement of the State Administration of Taxation on the Release of the Revised 'Administrative Measures for Preferential Enterprise Income Tax Policies' " (SAT Announcement No. 23 of 2018).
2. For limited partnership venture capital enterprises, if the corporate partners meet the conditions for enjoying the benefits, the venture capital enterprise should provide the "Detailed Statement of Corporate Partner Income Distribution of Limited Partnership Venture Capital Enterprises" to the corporate partners in the year when the investment in start-up high-tech enterprises is held for a full 2 years and at the end of the year of income distribution.

Individual Income Tax:

(1) For individual partners of limited partnership venture capital enterprises:

Within 3 months after the end of the year when the investment in start-up high-tech enterprises is held for a full 2 years, the limited partnership venture capital enterprise should complete the filing procedures with the competent tax authorities for individual partners by submitting the "Filing Form for Individual Income Tax Deduction on Venture Capital Investment by Limited Partnership Venture Capital Enterprises." Relevant documents should be retained for inspection (similar to corporate venture capital enterprises). Separate filings should be made for each year when multiple investments are made.

(2) Within 3 months after the end of each year when the investment in start-up high-tech enterprises is held for a full 2 years, the limited partnership venture capital enterprise should submit the "Statement on Individual Income Tax Deduction of Venture Capital Investment by Limited Partnership Venture Capital Enterprises" to the competent tax authorities.

(3) Individual partners should include the deductible investment amount in the "Other Deductible Expenses" column of the "Individual Income Tax Return for Income from Production and Business Operations (Form B)" and indicate "Investment Deduction" accordingly.

For individual angel investors:

(1) Within 15 days from the next month following the month when the investment in start-up high-tech enterprises is held for a full 24 months, the angel investor and the start-up high-tech enterprise should jointly complete the filing procedures with the competent tax authorities. The filing should include the "Filing Form for Individual Income Tax Deduction on Angel Investment by Individuals." The relevant documents proving that the invested enterprise meets the conditions of a start-up high-tech enterprise should be retained by the enterprise for inspection. The supporting documents should include the investment contract (agreement), articles of association, and relevant proof of actual contribution when cash investment is made to the start-up high-tech enterprise. Multiple investments in the same start-up high-tech enterprise should be filed separately.

(2) For the transfer of equity by angel investors, when applying for tax payment settlement for restricted shares, the angel investor should provide the "Form for Settlement of Transfer Tax on Restricted Shares by Angel Investors" to the competent tax authorities in the place where the securities institution is located, indicating the deduction of the remaining undeducted investment amount. The application should be accompanied by the "Filing Form for Individual Income Tax Deduction on Angel Investment by Individuals" submitted to the tax authorities after enjoying the investment deduction policy.

(3) In case of changes in personal shareholders or their equity holdings in the invested enterprise, the "Basic Information Form for Individual Income Tax (Form A)" containing information about the shareholder change should be submitted to the competent tax authorities within 15 days from the next month following the month when the change occurs. For angel investors, the remarks column should indicate "Individual Angel Investor."

(4) When angel investors transfer equity, the deductible investment amount for the current year should be included in the "Other" column of the "Withholding Personal Income Tax Report" or the "Self-Declaration Form for Individual Income Tax (Form A)" under the "Pre-tax Deductions" section, indicating "Investment Deduction."

(5) When the invested start-up high-tech enterprise undergoes liquidation, the angel investor should promptly present the "Filing Form for Individual Income Tax Deduction on Angel Investment by Individuals" to the competent tax authorities for registration.

Policy Basis

1. Article 31 of the Enterprise Income Tax Law of the People's Republic of China.
2. Article 97 of the Implementing Regulations of the Enterprise Income Tax Law of the People's Republic of China.
3. "Notice of the Ministry of Finance and the State Administration of Taxation on Tax Policies Concerning Venture Capital Enterprises and Angel Investors" (Caishui [2018] No. 55).
4. "Announcement of the State Administration of Taxation on Issues concerning Tax Policies for Venture Capital Enterprises and Angel Investors" (SAT Announcement No. 43 of 2018).
5. "Notice of the Ministry of Finance and the State Administration of Taxation on the Implementation of Preferential Tax Relief Policies for Small and Micro Enterprises" (Caishui [2019] No. 13).
6. "Announcement of the Ministry of Finance and the State Administration of Taxation on Continuing the Implementation of Policy Conditions for Venture Capital Enterprises and Angel Investors Investing in Start-up High-Tech Enterprises" (Ministry of Finance and State Administration of Taxation Announcement No. 6 of 2022).