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Expansion of Tax Break for Angel Investments in Chinese Tech Start-Ups


China's Ministry of Finance has made the decision to extend the duration of the deduction for investments in technology start-ups, ensuring its validity until the conclusion of 2027.

Originally introduced in 2018, this incentive caters to both individual angel investors and resident venture capital firms situated within Mainland China. Under this scheme, they are granted a substantial 70 percent deduction from investment expenses incurred in eligible technology start-ups.

To be eligible for this incentive, tech start-ups must fulfill the following criteria:


  1. Hold residency, registration, and establishment within Mainland China.

  2. Maintain a staff count of fewer than 300 employees, with total assets and sales revenue not surpassing CNY 50 million.

  3. Be established either within the last five years or earlier.

  4. Avoid listing on stock exchanges within two years from the investment.

  5. Devote a minimum of 20 percent of their costs to research and development expenses in the year of investment and the subsequent year.


In order to qualify for the deduction, investors are mandated to retain their investment for at least two years. Additionally, they are prohibited from acquiring more than 50 percent of the equity in the start-up within the initial two years following the investment. Specific measures have also been put in place to restrict related parties from gaining eligibility for this incentive, particularly targeting individual angel investors.

Venture capital firms have the flexibility to carry forward any unused deduction to the subsequent tax year.


Similarly, individual angel investors have the provision to carry forward their deductions to forthcoming tax years.


Contacts

If you require assistance in relation to the above and/or would like to discuss anything further, please do not hesitate to contact info@act.london or your usual A.C.T. contact.

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