Lately, the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") have recently issued the Circular on Tax Policies for Venture Capital Enterprises and Individual Angel Investors (the "Circular").
The Circular stipulates that where a venture capital enterprise of corporate nature has directly invested, in the form of equity investment, in a technology-oriented enterprise at the seed or early stage for two years (equivalently 24 months, the same below), 70 percent of the amount of its investment could be deducted from the taxable income obtained by this venture capital enterprise of corporate nature in the year when the equity has been held for two years; where the said taxable income of the current year is insufficient to offset the deductible amount, the remaining portion may be carried forward to forthcoming tax years. Meanwhile, the Circular expressly states that, where an individual angel investor has directly invested, in the form of equity investment, in a technology-oriented start-up for two years, 70 percent of the amount of his or her investment is deductible against the taxable income derived from the transfer of such start-up's equity; if the taxable income of the current period is insufficient to offset the deductible amount, the excessive portion may be carried forward to be deducted from the taxable income received by him or her from the transfer of this start-up's equity in the future. Moreover, the Circular notes that the tax policy for individual angel investors shall come into force as of July 1, 2018, while other tax policies take effect from January 1, 2018.