Policy will help drive entrepreneurship, innovation as economy faces pressure

China will introduce more tax incentives to drive entrepreneurship and innovation, a State Council executive meeting chaired by Premier Li Keqiang decided on Wednesday.

"Our economic growth is faced with yet another bout of downward pressure. The number of college graduates keeps hitting new highs so we still face considerable pressure on employment," Li said.

"Business startups not only add jobs, but also help boost innovation. There is still tremendous potential in this respect," he added.

The government has already introduced tax relief for venture capital firms under which their taxable income is deducted by an equivalent of 70 percent of their investment in seed or early-stage high-tech startups.

The meeting decided to further incentivize VC investment, stimulate more production by market forces, enhance the efficacy of entrepreneurial activities and innovation, and propel the commercialization of research and development deliverables and industrial upgrading.

Starting from January 1, 2019, for registered VC firms that choose to have their taxes calculated as single-investment funds, individual partners will pay personal income taxes on their earnings from the transfer of shares and stock dividends at 20 percent. In registered VC firms that choose to have their taxes calculated based on annual incomes, individual partners will pay personal income taxes on their earnings in the firms at progressive tax rates from 5 percent to 35 percent. This policy will be effective for five years.

"VC funds have grown quite considerably in scale and now play a big role in catalyzing investment. Personal income tax incentives for VC firms are important for developing and nurturing the capital market. Such incentives need to be further improved and better implemented to ensure that the tax burdens of individual partners of VC firms will be reduced rather than increased," Li said.

Recent years have seen intensified efforts in delivering tax incentives to VC firms. This year, the corporate income tax brackets were further expanded, and the threshold of annual taxable income for the highest marginal tax rate of 35 percent was raised from 100,000 yuan ($14,520) to 500,000 yuan.

"It is critical to send positive signals to the market when implementing these tax policies to help VC funds grow. This will foster an enabling environment for businesses to develop. Every bit of effort counts," Li said.