| Venture-capital
access to ease (11/11/2002)
China is to grant foreign investors easier access to its venture-capital
industry.
A regulation lowering the requirements for foreign companies that
want to invest in the venture-capital industry will be issued "soon,"
a Chinese official from the Ministry of Foreign Trade and Economic
Co-operation said at the weekend.
The Chinese-language International Finance News reported last Friday
that a new rule on foreign access to China's venture-capital sector
would very likely be issued in two weeks.
The new rule is being drafted by the Ministry of Foreign Trade
and Economic Co-operation, the Ministry of Science and Technology,
the State Administration of Taxation, the State Administration of
Foreign Exchange and the State Administration for Industry and Commerce.
It will dramatically lower the tax rate for foreign-funded venture-capital
firms, said the newspaper.
The tax rate for foreign-funded venture-capital firms will be lowered
from the present 33 per cent to 15 per cent or even less, it said.
The move is expected to increase the profits of foreign-funded
venture-capital firms and stimulate rapid growth of foreign investment
in China, said Ni Zhengdong, president of the Qingke Co, an organization
that researches venture capital.
In many other countries, foreign investment using venture capital
is normally exempt from capital-gains tax. But, in China, venture-capital
firms have to pay capital-gains tax on projects that they fund and
they have to pay corporate tax of up to 33 per cent.
Even if venture-capital firms invest in high-tech companies, they
are not entitled to enjoy the preferential corporate-tax rate of
15 per cent that high-tech companies enjoy at present.
Experts say the dual-taxation system is a major hurdle to the growth
of venture capital in China. The Chinese foreign-trade official,
who declined to be named, said the government is devising preferential
tax treatment and financial support schemes for venture-capital
firms but these measures are not to be included in the new rule.
The new rule is mainly concerned with lowering the entrance requirement
for foreign investors in the venture-capital sector, he said.
Under a temporary rule issued last year, at least one of the foreign
investors among a number of foreign investors who want to set up
a venture-capital joint venture with their Chinese partner must
have managed more than US$100 million in assets and invested at
least US$50 million in the three years preceding the application
to set up a venture-capital firm.
At least one of the foreign investors must have had net assets
of more than US$100 million in the year before the application and
must put at least US$20 million into the venture-capital firm or
3 per cent of the firm's total assets, according to the temporary
rule.
The official said the rule was awaiting final approval from the
relevant ministries and would be issued "soon." But he
did not confirm the "two weeks" timescale, saying it would
not necessarily be as quick as that.
(China Daily)
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