Premier Li urges easing VC firms’ tax burdens

Premier Li Keqiang has called for efforts to reduce tax burdens on individual partners of Chinese venture capital firms at the State Council executive meeting on Dec 12.

The Premier also urged for improvements in preferential tax policies for venture capital funds.

Following his remarks, a decision was made to introduce more income tax incentives to promote venture capital investment and increase support for innovation and entrepreneurship.

China's venture capital industry, ranked second in the world in terms of scale, plays a significant role in innovation and entrepreneurship as well as employment, and is of great importance to capital market development, Premier Li said.

As small and micro-sized enterprises still encounter difficulties in financing, many have received funding from venture capital, he added.

He called for the continuing promotion of employment driven by entrepreneurship, with more support from the government pledged at the meeting.

Meanwhile, the market was also encouraged to play its role to raise efficiency of innovation and entrepreneurship, and expand employment and commercialization of research achievements.

It was decided at the meeting that venture capital income tax will be calculated on a single investment fund from Jan 1 next year, as 70 percent of seed investments was considered deductible.

For individual partners, incomes from share transfer and dividends of taxable funds will be subject to a 20 percent individual income tax.

Venture capital firms' income tax can also be levied based on annual incomes, and incomes of individual partners will be subject to a progressive rate of five to 35 percent.

The policy will be in place for five years, in an effort to reduce tax burdens for individual partners of venture capital firms.

"The overall principle is to reduce tax burdens for enterprises to send a clear signal and stable expectation to the market," Premier Li said.