The two State Council executive meetings in December focused on entrepreneurship and innovation, in which many concrete measures were introduced to expand financing channels and reduce income taxes for small and medium-sized science and technology enterprises.

Statistics show that preferential tax policies to support mass entrepreneurship and innovation have cut taxes by 678.9 billion yuan (about $100 billion) in the first 10 months of this year.

Science and technology innovation board helps enterprises attract capital

The State Council executive meeting on Dec 5 decided to promote another series of pro-innovation measures to further drive innovation and creativity, among which broadening fund-raising channels for small and medium tech companies, including asset-light firms and firms yet to make a profit, was an important part.

Meng Wei, spokesperson for the National Development and Reform Commission, said eight measures in the two series of reform policies to be extended by the State Council are related to expanding fund-raising channels, such as allowing financing through intellectual property mortgages and setting up science and technology innovation boards in regional equity markets.

Science and technology innovation boards in Shanghai and Anhui equity markets are good examples. They can help tech enterprises attract capital from angel investment, venture capital, and private equity. They also provide services about listing, trusteeship, investment, financing, training and counseling. In only half a year, 137 enterprises have been listed on the science and technology board of Shanghai Equity Exchange, and a total of 746 enterprises have been listed on the science and technology board of Anhui Equity Exchange.

Individual partners of venture capital’s tax burden eased

Starting from Jan 1, 2019, for properly filed VC firms that calculate their income taxes as single investment funds, individual partners will pay personal income taxes on their earnings from share transfer of shares and stock dividends at 20 percent. These firms can also choose to have their income taxes levied based on annual incomes, and incomes of individual partners will be subject to a progressive rate of five to 35 percent. This policy will be effective for five years.

Zhang Liqun, a researcher at the Development Research Center of the State Council, said that these preferential policies would further lighten the tax burdens of VC firms and encourage them to put more capital into entrepreneurship and innovation.

Environment improvement boosts confidence in entrepreneurship and innovation

Preferential policies have brought great achievements. According to the National Bureau of Statistics, in 2017, the China Innovation Index was 196.3, the highest since 2005. And the sub-index for the innovation environment index was 203.6, 19.1 points higher than in the previous year. The proportion of enterprises enjoying tax breaks for research and development is increasing rapidly, with a growth rate of 36.6 percent.

Liu Jinyun, financial manager of Shanghai Pehchaolin Daily Chemical, a well-known skin care company, said the company received an additional deduction of about 6 million yuan (about $900,000) since the government raised the pre-tax additional deduction rate of R&D expenditures from 50 percent to 75 percent for eligible small and medium enterprises.

Zhang said the positive effects of the new series of preferential measures are expected to emerge gradually, and more enterprises will benefit from them.