The income of corporate enterprises is mainly capital income, so the tax that regulates the income of private equity investment institutions is mainly income tax. Private equity investment enterprises provide management and consulting services, in addition to paying income tax, business tax, urban construction tax, education surcharge and certain stamp duty.
1. Tax on private investment funds
For enterprise funds, the income obtained by the fund from the invested enterprise has different tax rates because of its different nature. Equity investments such as dividends and bonuses obtained by private equity investment institutions from invested enterprises are not required to pay enterprise income tax according to Article 26 of China's Enterprise Income Tax Law. The proceeds from the transfer of equity when the private equity fund withdraws shall be incorporated into the taxable income of the fund and paid with enterprise income tax.
2. Private equity fund investor level tax
According to Articles 2 and 3 of the Individual Income Tax Law, individual investors of corporate funds in China pay individual income tax at the rate of 20%. For institutional investors of corporate funds, the income tax rate is treated differently: if the income tax rate of institutional investors is lower than or equal to the fund tax rate, there is no need to pay taxes; If the institutional investor tax rate is higher than the fund tax rate, it is necessary to pay back the income tax.
3. Tax incentives
In terms of tax incentives, according to Article 3 1 of the Enterprise Income Tax Law and Article 97 of the Regulations for the Implementation of the Enterprise Income Tax Law, if a venture capital enterprise invests in unlisted small and medium-sized high-tech enterprises by means of equity investment, its taxable income can be deducted in the year when it holds equity for two years. If the deduction is insufficient in the current year, it can be carried forward in future tax years.