Business investors in private venture fund of fund to get up to 8% tax cut

Finance Minister Choo Kyung-ho [Provided by Yonhap]

Private businesses that invest in a fund of funds investing in South Korean ventures will be eligible to receive a tax reduction of up to 8 percent of their investment, while individual investors will receive a 10 percent tax return on their investment, according to a new measure announced by the government on Friday.

The measure is part of a package released during an emergency government meeting of economy-related ministers led by Finance Minister Choo Kyung-ho, who vowed to strengthen policy efforts to facilitate the flow of private capital into the local venture community, which is heavily dependent on the government.

Under the measure, domestic firms that invest in a private parent fund will initially receive a 5 percent tax deduction on its investment.

The government has so far provided tax credits only when domestic corporations make direct investments in venture companies or indirectly through a start-up investment association.

As a condition for the tax cut, the private parent fund is obliged to invest at least 60 percent of its investment amount in venture companies, and if the actual investment amount is greater than the threshold, tax reduction will be based on the actual investment amount.

If a business investor increases its investment above the average of the last three years, it is also eligible for an additional tax credit of 3 percent of the increase.

When a company invests in a private parent fund through a contribution to a win-win cooperation fund, 10 percent of the contribution will be deducted from tax imposition.

Individual investors who invest in private equity funds will receive 10 percent of their investment as an income deduction.

The government also decided not to impose capital gains tax when an individual or a private parent fund manager disposes of shares in venture companies purchased through parent fund investment.

By Pulse