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State Council Offers Additional Tax Incentives to Venture Capital Firms

As of 1 January 2019, partners in venture capital companies will pay income tax at 20% on dividends and share transfers should their firms opt to calculate taxes as single investment funds. Alternatively, partners in companies calculating tax based on annual income can choose to pay income tax at rates from 5%-35% on their earnings.

The new rules were announced following a State Council Executive Meeting on 12 December, which ruled in favour of granting additional tax incentives to boost venture capital development and enhance entrepreneurship and innovation. The changes come in addition to the nationwide tax relief for venture capital firms introduced earlier this year, which saw deductions of up to 70% on taxable income announced for seed investments and early-stage high-tech start-ups.

In terms of more specific developments:

  • As of 1 January 2019, in the case of legally-registered venture capital firms that opt to have taxes calculated as single investment funds, individual partners shall pay personal income tax at 20% on earnings from share transfer and dividends
  • For venture capital firms calculating tax based on annual incomes, individual partners shall pay personal income tax on their earnings at progressive tax rates ranging from 5%-35%

The implementation period of the above policies is provisionally set at five years.

For further details (in Chinese), please access the following link:

State Council Executive Meeting Decides on Tax Incentives to Promote Development of Venture Capital Investment

Content provided by Picture: HKTDC Research
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