Tax Incentive Effect On Venture Capital In China

Venture capital is a special investment tool in the knowledgeeconomy age, which combines finance, innovation, technology,management, and the market. International and domestic experienceindicates that venture capital, which promotes the optimization andupgrading of the national industrial structure, has become booster ofhigh-tech industry and an important funding support for small andmedium enterprises. Therefore, venture capital should be stronglysupported by government in order to promote high-tech industry as wellas China economy. Tax policy is not only an important lever of thenational macro-control, but also the most important regulatoryenvironment for venture capital. Tax incentives should be an effectivetool to simulate the development of venture capital industry.In China, venture capital industry has been developing for more thantwenty years, experiencing the following five stages: early enlightenment,slow moving forward, ups and downs, lows adjustment, and fast growth.By the end of2010, there were720venture capital funds in China, whichmanages venture capital with total amount of RMB240.66billion. Chinahas introduced tax incentives for venture capital industry from nationaland local levels. However, most tax incentives are still focused onhigh-tech industry, the main area of venture capital investment. Forventure capital industry, difference in tax costs may impact every step ofventure capital investments. Therefore, it should be theoretically andpractically meaningful to do in-depth research and analysis on the taxeffect on venture capital industry in China.The thesis has been divided into five parts to research and analyzethe tax incentive effect on venture capital in China. Firstly, in theintroduction, the thesis analyzed the research objectives and significance,explains the research methodology, framework, innovations and shortcomings of the thesis. Secondly, the thesis did theoretical analysis onventure capital industry and tax effect on venture capital investment.Specifically, this part briefly introduced the definition and characteristicsof venture capital investment, the whole procedure of venture capitalinvestment and tax liability in each step, and tax effect on venture capitalinvestors and user cost of capital, which established theory base for thefollowing parts of the thesis. Thirdly, the thesis made a brief introductionof venture capital industry in China, including the five stages of industrydevelopment, capital amount and investment amount, and stages and exitsof investments. This part set reality base for the following parts of thethesis. Then, in the body part of the thesis, the forth part did in-depthresearch and analysis on the tax incentive effect on venture capital inChina, based on each step of the venture capital investment, specifically,organizational form selection, registration place, investment area, andinvestment amount. This part adopted case study, comparative analysis,descriptive analysis and regression model analysis to go to the conclusionthat China tax incentives have strong effect on venture capital industry. Inthe last part, referring to tax incentives on venture capital industry inAmerica, UK, Japan and Singapore, the thesis made objective assessmenton China tax incentives, pointed out the existing flaws and drawbacks,and briefly proposed relevant suggestions in the improvement.